Ibt Oct13.docx

Actual Total Loss 1. 2. 3. 4.

Total Destruction; Loss by sinking; Damage rendering the thing valueless; Total deprivation of owner of the possession of the thing insured.

Constructive Total Loss 1. Actual loss of more than ¾ of the value of the object; 2. Damage reducing value b more than ¾ vessel and of cargo; and 3. Expenses of shipment exceed ¾ of the value of cargo Abandonment What is abandonment? Act of the insured by which after a constructive total loss, he declares the relinquishment to the insurer of his interest in the thing insured; In other words, the insured ship owner is actually telling the insurer that he is leaving to the insurer to recover whatever remains of the thing insured and he only wants to be paid for the whole of the vessel Requisites for valid abandonment? In what situation where abandonment, although considered absolute and irrevocable, would have no effect whatsoever? What is the effect when there is no actual total loss and the insured fails to abandon? The insured is entitled to recover the

Documentary Transactions What are the two main International Sales Risks? How do you mitigate such risks? 1. Change from sale of goods transactions to a sale of documents What are the methods of payment commonly used inIBT? Cash in advance Documentary credit (e.g. letter of credit) Open account and consignment sale Documentary collection Cash in advance The buyer pays in advance

When is cash in advance ideal? 1. 2. 3. 4.

Importer is new customer or is not well-established Importer’s creditworthiness is doubtful, unsatisfactorily, or unverifiable Political and commercial risks of the importer’s home country is high Seller operates an internet-based business where the acceptance of credit card payments is common

Escrow Account It refers to a paymentmechanismwhere cash is deposited with or wired to a trust third party orescrow agent and cash in only released upon satisfaction of certain conditions and joint instruction by the parties This method also minimizes the importers delivery risk

Documentary Open Account Ways to minimize the risk of nonpayment under open account terms? 1. 2. 3. 4.

Export working capital financing Government-guaranteed export working capital programs Export credit insurance Export factoring

Consignment on sale Variation of the open account payment method;

Documentary collections transaction The safest and most commonly used methods in international trade What are the common contract forms used in international sales? Sales contract Contract of carriage Insurance contract Where applicable loan contaracts and letters of credit

Common pricing methods or strategies in international sales

1. 2. 3. 4. 5.

Cost-plus pricing – simply calculating your costs Marginal cost pricing – setting the price of a product slightly above the variable Competitive pricing Price skimming Price bundling

In items 3-6 what are the legal implications? 

Anti-competition laws

Additional costs often associated with export       

Market research Business travel International postage, cable and telephone rates Translation costs Commission, training charges, and other costs involving foreign representatives Consultant and freight forwarding costs Product modification and special packaging

Documentary collections transactions 

In order to alleviate the seller’s risk of not being paid or the buyer’s risk of not receiving the goods after making payment, most export contracts require a documentary transaction. The sale of goods contract is converted into a sale of documents contract

What is a draft or bill of exchange? A written un A bill of exchange which is not an inland bill What is a foreign bill of exchange? What is an inland bill of exchange? Trade acceptance? Bill used in contracts of sale where the seller as drawer orders the byer (as drawee) to pay a sum certain to the same seller (payee) What is a banker’s acceptance? A time draft across the face of which the drawee has written the word accepted What is a check? A bill of exchange What are the types of documentary collections transactions?

Cash against documents/ documents against payment Cash against acceptance Document against acceptance collection or time draft What are the main responsibilities of the exporter and importer in the documentary credit transactions? Document of title to goods Includes any bill of lading, dock warrant, quedan, or warehouse receipt or order for Three functions of document of title 1. A contract 2. Evidence of receipt of goods 3. Represents the goods Bill of Lading Written acknowledgement of the receipt Warehouse receipt Docmetn of title Quedan Warehouse receipt that covers sugar Dock warrant A warrant given by the dock owner to the owner of the goods imported Documents in documentary transaction Commercial invoice Consular invoice Certificate of Origin Certificate of inspection Customs declaration

Packing slip  List that itemizes the exported material in each package and indicates the type of package, such as a box, crate, drum, or carton. Pro Forma Invoice  Invoice prepared by the exporter before shipping the goods, informing the buyer of the goods to be sent, their value, and other key specifications. Trade Term

An element in the contract of sale which allocate a number of responsibilities as between the seller and buyer. It usually contains risk-shifting What are international commercial terms? Also known as incoterms What are the internationally recognized incoterms 2010 Any mode or modes of transport For sea and inland waterway transport Letter of credit Engagement by a bank or other persons Purpose Substitutes the credit of the bank General types Commercial letter of credit Standby letter of credit Characteristics of letters of cresit Negotiablility Revocability Transfer and assignment Revocable letter of credit May be revoked or modified for any reason Irrevocable letter of credit Elements of a letter of credit Beneficiary (seller) Entitled to payment Issuing bank Advising bank (foreign corresponding bank) Confirming bank When is a Letter of Credit perfected? Moment the corresponding bank pays to theperson in whose

Typical transaction flow In 11 and 12 if buyer can’t pay don’t have fund can result to obtaining trust receipts Strict compliance rule Independence rule/ facial compliance rule Note: Fraud exception rule Uniform customs and practices for documentary credits Basic rules when filling out a L/C application? Good Practices Payment systems Society for worldwide interbank financial telecommunication (SWIFT) Roles of SWIFT: Standby letters of credit (SBLC) Functions: Types of sblc Performance sblc Financial sblc Alternative methods of guaranteeing performance 1. 2. 3. 4. 5.

Performance bond Cash bond Credit surety Parent company guarantee Retention amount not tecjhnically a third-partyguarantee, but simply involves retaining a portion of

Sources of trade finance 1. 2. 3. 4.

General oan Issuance of bonsds Bill of lading and letter of credit Supplier finance a. Security/collateral i. Transferable credit ii. Back-to-back letter of credit supplier and seller iii. iv. v.

vi. variables to consider when dieciding to export of import vii. cost of financing