Introduction
This report will review the main trade finance methods and how they affect function legally and practically. The main document used in world trade is the letter of credit and this will reviewed in dept together with the doctrine of strict compliance and autonomy.
Finance Methods
To make trade possible there is a need for capital, which can be used to pay for the goods bought. The capital can come from several sources depending on the scope of the trade. If it is trade of low cost items in small values, it is possible to get credit in a local bank. The complexity becomes larger if the goods are more capital intensive. There might be loans involved, currency needs to be traded (FOREX trade), market swings in the commodity (futures and derivates) and transport risk (insurance) and similar. The finance market can service these issues in several ways. They can also help seller and buyer with the payment involved in a trade.
Bills of Exchange
There are several trade specific financial methods, which are used to service trade. The common form is to issue a bill of exchange where the buyer gives the seller the right to draw his account on a specific date and amount. These bills are most often conditional to some form of duty to be made before the payment goes trough. Further is possible for the buyer to issue document against payment (D/P). This gives the buyer possibilities to retain payment until he receives the documents according to the sales contract. The seller retains the goods until he receives payment. The similar document against acceptance (D/A) also gives the buyer the possibility to retain credit from the bank on the behalf of the seller. The sellers bank is then in charge of collecting the payment. Th...
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...d is interested in the commission involved in setting up a letter of credit but they do have a big responsibility to make sure that the LC match the sales documents. If they are neglecting in their auditing of the LC they might be held liable to the buyer and therefore the bank must follow the UCP 600
Conclusion
There are several ways of financing trade, but the most significant in trade between two parties with no history is the letter of credit. The reason being it secures the seller from not being paid and the buyer from not being delivered the goods. However the letter of credit has strict guidelines to how it should comply with the sales contract. Banks uses the UCP600 to assed the LC and a large proportion of the LC rejected. This is an issue and it might make the LC less attractive but then again there are few alternatives, which has the same security.
...-based, charge-based, and contractual payment systems. (p. 7). CRC Press. Retrieved from http://books.google.com/books?id=sCzhN9HruM0C&dq=fee schedule based payment&source=gbs_navlinks_s
Trade is the most common form of transferring ownership of a product. The concepts are very simple, I give you something (a good or service) and you give me something (a good or service) in return, everyone is happy. However, trade is not limited to two individuals. There are trades that happen outside national borders and we refer to that as international trading. Before a country does international trading, they do research to understand the opportunity costs and marginal costs of their production versus another countries production. Doing this we can increase profit, decrease costs and improve overall trade efficiency. Currently, there are negotiations going on between 11 countries about making a trade agreement called the Trans-Pacific
Academic Consortium on International Trade (2000) Letter to Presidents of Universities and Colleges. Available at: http://www.spp.umich.edu/rsie/acit/ [Accessed 1 April 2014]
In the light of the aforesaid elucidations certain aspects of tradedress can be comprehended in the contemporary era specially in the Indian jurisidiction,
Countertrade is the sale that encompasses more than an exchange of goods and services or ideas for money. In international market, counter trade transactions "are those transactions which have as a basic characteristic a linkage, legal or otherwise between exports and imports of goods and/or services in addition to , or in place of financial settlements" Historically, countertrade was mainly conducted in the form of barter, which is a direct exchange of goods of approximately equal value between parties, with no money involved. (At the time when there was no common medium of exchange) However, over time, money emerged and became the common and convenient medium of exchange.
As we can see, international trade may contain dangers of trade dependency and other negative sides, but it is necessary element for every healthy economy in the world.
Trade provides a primary method of connecting technology to the world. Initially trade was exchanged as items of barter. Cattle, shells, crops, salt, and other items served as a means of providing a fair exchange of goods between parties. The invention of currency has much to do with the needs of trade. It is impractical to ferry a heard a cattle to a place of sale in order to buy the good. However money is more portable than livestock and many other items of barter and helped ease the trade process (Ehrlich, 2000). The importance of trade to culture led to a streamlined process with the invention of currency. While items of barter have value that is tangible, such as food produced by crops, modern currency is only valued by the culture since a government body guarantees it. As a result of the governmental backing, currency can be used a meaningful method of exchanging value. Money that does not contain precious metals is simply a symbolic way of representing value. A culture recognizes the currency as representing value and can be used as an effective accounting system for trade. Additionally, the influence from the cultural value of trade translates into placing less significance on the intrinsic value of the currency itself and instead considers what convenience the technology can provide to improve trade.
Its purpose is to provide a modern, uniform and fair regime for contracts for the international sale of goods. Thus, the CISG contributes significantly to introducing certainty in commercial exchanges and decreasing transaction costs.
For many years, there have been several attempts in the harmonisation of international trade. Unfortunately, sales of international goods are very complex and this leads to great difficult in unifying trade law. People have tried to create universal laws to mend shipping issues, seller to buyer relationships and fraud, however, there is still no global international trade law. So far, with every attempt, it becomes clearer that nations have conflicting ideologies or viewpoints and hinders the progression of global harmonisation of international trade. The idea of perfectly harmonising international trade is not possible because countries act to benefit their self-interests and have varying interpretations of law.
We often hear that companies that sell their product allow their customer to enjoy the goods before full settlement is being made. This best explains the definition of trade credit where the customer gets their products and the payment is postponed to a later date. According to Murray (2008), it is a term where the buyers buy now and pay later. In order to accomplish various business objectives, many forms of trade credit are used to achieve collaboration of business to make the usage of capital more efficient. Nowadays, people tend to rely more on trade credit rather than getting loans to finance their business. Peavler (2014) mentioned that small businesses might only have trade credit as their financing method and researches has shown that more than 40 percent of their financing comes from trade credit.
International trade is very important in the world’s economy, but are all the outcomes of this process positive? International trade can affect many economic rituals in a way that can be good, or it could cause disaster. I am going to discuss the outcomes of international trade and what positive and negatives come with this procedure.
Financial intermediaries are common across the entire financial world. A financial intermediary is an institution that borrows money from people who have saved and in turn makes loans to others, acting as a middleman between investors and firms raising money. Common institutions that conduct the intermediary actions are commercial banks, credit unions, insurance companies, mutual funds, and finance companies. These institutions are an integral part to the overall health and functionality of the world financial market.
...sive, unaffordable yet basic commodities, spurring economic growth and supporting the legal economy. This is a critical provision as it fosters the aspects of trade in the world. It is also important to agree that this transaction in almost every tradable commodity and services both genuine and counterfeit supports the dealings shown in black market trade. According to Bahmani-Oskooee & Goswami (2005), the supporters of black market cite many reasons for its embracement. The fact that the trade involves transaction in almost every tradable commodity and services both genuine and counterfeit makes it very difficult to curb. This is demonstrated explicitly by the supporters of black market who cite numerous reasons for its existence. The economic support, employment creation, money circulation, and many others have anchored this trade within various world economies.
The foreign exchange market is one of important mechanism in the international business because foreign exchange is an intermediary for all nations in term of the growth of the economy. There are many functions of foreign exchange market in the global economy. In the international business, it uses the foreign exchange markets in four ways. First, the pay...
Financial theories are the building blocks of today's corporate world. "The basic building blocks of finance theory lay the foundation for many modern tools used in areas such asset pricing and investment. Many of these theoretical concepts such as general equilibrium analysis, information economics and theory of contracts are firmly rooted in classical Microeconomics" (Oaktree, 2005)