MIND MAP Chapter 4 - Settlement OF International Trade (FIN323) PDF

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Summary

SETTLEMENT OFINTERNATIONAL TRADEMade through the banking system totransfer the fundsNOSTRO ACCOUNT VSVOSTRO ACCOUNT‘Our’ account withanother oversea bankin foreign currency.‘Your’ account maintainswith Malaysian bank inMalaysia Ringgit.METHODSOFPAYMENTOPEN ACCOUNTCONSIGNMENTCOLLECTIONSDOCUMENTARYLET...

Description

• One way to secure a deal. • Less formal techniques • Provided finance is not given, no exposure to banks. • The most risky means of payment. • Have to pay fees if need standby letter of credit. • Negative impact on exporter’s cash flow. • Exporter retain the title to the goods. • Can build better trust. • Fee income generated.

Only designated banks can participate.

ALADI SCHEMES OPEN ACCOUNT

Settlement takes place: exporter’s CB pays to exporter, importer’s CB claim from importer.

• Posses all the key features mentioned. • Settlement affected traders and their own CB in first instance. • CB later settle their indebtedness.

Exporter send the underlying document directly to the importer once the goods have been shipped.

Trading transactions expressed in USD. CB allocate credit limit to each other.

CONSIGNMENT

Financial and commercial documents must be marked accordingly.

KEY FEATURES

Shipments of goods are arranged under agreement that payment be made after the goods are sold. COLLECTIONS

1. 2.

IRANIAN SCHEMES • CB acts as a guarantor.

TYPES OF BPA

SETTLEMENT OF INTERNATIONAL TRADE Made through the banking system to transfer the funds

METHODS OF PAYMENT

Clean collections Documentary collections DOCUMENTARY LETTERS OF CREDIT

• Goods might be returned. • Have to maintain trust. • Do not get income from loan. • No payment, bill of ladings, goods. • Able delay the acceptance/payment. • Interest and fee charges • Time lag in obtaining payment. • Interest charges • Little fee income

An undertaking by the issuing bank to pay the beneficiary. ADVANCE PAYMENT

PALM OIL CREDIT AND PAYMENTS ARRANGEMENT (POCPA) SCHEMES •

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Similar to ALADI schemes but restricted to export of palm oil and its derivatives. Settlement period can be up to 2 years, whereas ALADI schemes is 4 months.

‘Our’ account with another oversea bank in foreign currency.

NOSTRO ACCOUNT VS VOSTRO ACCOUNT

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Secure form of payment. Less expensive Fee income generated

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Payment improve cash flow. Enable buyer to get goods he want Fee income generated.

As a gesture of goods and to confirm the genuineness of buyer’s interest. COUNTER TRADE

• Have to pay bank fees. • Negative impact on cash flows • Business may be liquidated Barter trade Compensation trade

‘Your’ account maintains with Malaysian bank in Malaysia Ringgit.

BILATERAL PAYMENT ARRANGEM ENT (BPA) COUNTER PURCHASE

Sellers purchase goods that valued at percentage in terms of value of goods he supply

To promote trade between Malaysia and other developing countries. Create market for goods. Can get good that they want Generates fee income

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Goods in exchange may not in good quality Fraud may happen...