CHAPTER 1: INTRODUCTION TO INTERNATIONAL TRADE FINANCE

I. External factors faced in International Trade Market:PESTEL Model: Political Economic (macro factors) Social Technology Environmental Legal(Final exam: ask the meaning of PESTEL)

Risks involved in International Trade Finance:1. Language and Culture:2. Legal issue: Legal issue is very complicated. You need to understand what you should do and what you should not do.Eg: When you use Letter of Credit as a Term of payment in the sale contract:+ The importer requires issuing bank (a commercial bank) to issue all the terms and conditions providing that the issuing bank will make payment for the Exporter when the Exporter presents the documents compliance with the terms and conditions in the Letter of Credit. The relationship between the Importer and the Issuing Bank: national legal. The relationship between the Issuing Bank and Exporter: based on L/C (only for the Custom, such as UCP which is not legal, just only for the Custom) + The bank only makes payment based on the documents presented compliance with the terms and conditions in the L/C, as well as the international custom.+ If international custom doesnt mention some activities or the requirements about the flow relating the Issuing Bank, what should we do??Eg: 2 months ago, VN imported cacao from Singapore. In the sale contract, both of parties agreed L/C as a term of payment. Total value of the contract was 5000000 USD. As using L/C, the exporter in Singapore had responsibility to present the documents to the Issuing Bank to collect money. However, documents presenting to the Issuing Bank had discrepancy. Issuing Bank had the right to refuse payment. However, international custom UCP 600 allows Issuing Bank to choose the way that in case the Importer accepted the payment, even the documents had discrepancy, Issuing Bank could make payment. However, Importer in VN decided not to make payment after having considered for 2 months. After that, the Exporter claimed the Issuing Bank: Why you did not make payment? The Issuing Bank said: Because the Importer did not accept payment However, in international custom, Issuing Bank was just only allowed to refuse or accept payment within 5 banking days. However, when Issuing Bank found discrepancies and informed to the Importer, the Importer did not reply anything. They refuse 2 months later just for the reason that the price goes down sharply and they dont want to lose. E months that is too late to refuse payment. That means, in this case, the Exporter would raise dispute with Issuing Bank for trade fraud. The Importer in VN just only if they import and stop payment at the time the documents arrived at Issuing Bank, that is guilty. In business everyone wants to be rich, wants a lot of profit, does not want to lose, does not want to pay more cost, so the Importer accepts raising dispute because of the initial down payment. And, the Importer actually lost because in the contract, both of parties agreed to use Singapore legal, not Vietnamese legal to apply in case of dispute for all the parties and choose the arbitration in Singapore. The Importer in VN had to pay 185000 USD and was banned from importing.3. Exchange and currency risk: The fluctuation in currency and the movement in exchange rate can create an effective profit and loss in the transaction. (details of forward contract and derivatives contract in currency to minimize currency risk in trade finance)4. Finance risk: The exporter wants to receive money before shipment/ as soon as possible and the importer wants to make payment later/ expand the time making payment5. Credit risk: Referred to buyer: Pay debt over the due date. When considering to trade in country with the poor credit risk, it is necessary to choose insurance, high price,6. Transport risk: Refer to Damaged goods: Goods can be damaged during shipment to final destination. Goods can be delivered by sea, air, railway, normally by sea. II. Research Market: Can collect information from:+ In US: US Administration Department of Commerce, Trade of Commerce (provide a range of services, country report, law,), Trade Mission (Coordinate oversea, ), Banks (about the country, list of Parties,), Internet, The function of bank is acting as an intermediary in the financial market.III. Method of entering an Oversea Market Direct to end user: you actively direct contract to the user. Appointment of an agent or contributor Joint Venture: International FranchisingIV. Role of intermediary in Trade Finance: read in Text book.

Transfer of ownership:+ Collect all the contracts and documents of an enterprise in international trade transaction..+ Analysis terms and conditions Performance Invoice: may be used instead of the main contract. Sometimes it is needed before importing cargo because the enterprise needs to submit to the customers. So the contract/sale contract can arrive at the same date for the first step.