W2 B_international Trade Theory

Trade Credit

Trade credit #1: export credit ‹ Supplier’s

Exporter (supplier)

Importer (buyer)

Exporter's Bank

Importer's bank

credit: exporter lends to importer receives bill of exchange

‹ Exporter

– = claim on importer = written payment order – negotiable (can be traded): e.g., exporter can sell (discount) bill to bank ‹ At

due date: importer redeems credit to holder of bill

ECN507 International Trade and Investment, lecture 12

1

ECN507 International Trade and Investment, lecture 12

Trade credit #3: documentary credit

Trade credit #2: buyer’s credit ‹ Buyer’s

‹ Buyer’s

credit: importer lends to exporter ‹ Often for goods which take long time to produce (aircraft, ships); exporter starts production after concluding contract of sale & credit ‹ Other types of buyer’s credit:

credit:

– importer’s bank lends (on importer’s behalf) to exporter ‹ Exporter

creates claim on himself:

– bill of exchange, drawn by exporter on bank in importer’s country – bank in importer’s country accepts bill (bank acceptance) against assignment of documents (bills of lading, invoice, insurance, …) – confirmed credit: bank in exporter’s country pays exporter

– documentary credit, confirmed credit

ECN507 International Trade and Investment, lecture 12

2

3

ECN507 International Trade and Investment, lecture 12

4

1