International Trade 4th Edition Robert C Feenstra ,Alan M Taylor - Solutions

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2 Limit of cover is 90% for buyer risk and 95% for sovereign risk.
1 Cover is usually for a maximum of 6 months’ credit period.
4 Detail the products which you advise them to demand from Gdanski in order to reduce or eliminate those risks and to achieve completion of the contract.
3 Identify the risks which Combinex Inc. face once the contract has been awarded.
2 Detail the bank products which you would advise them to demand from Combinex in order to reduce or eliminate those risks and to effect payments in accordance with the contract.
1 Identify the risks which Gdanski Construct SA face if they are awarded the contract.
6 Obviously, immediately AOM are obliged to use the standby credit, they would stop further shipments pending an explanation of UPS’s default.
5 The reason for the credit covering 2 months’ shipments is to allow for the possibility of UPS not paying, say by 15 May for the April shipment while AOM may have made a further shipment between 1 May and 15 May.AOM are thus protected against UPS failing to pay for both April and May shipments.
4 If, by the 15th of any month, UPS have failed to settle the AOM for the shipment made in the previous month, AOM simply submit a claim for the invoice amount under the standby credit.
3 AOM will ship 50 000 metric tons in January and invoice UCPS direct with a request for payment by 15 February; they will repeat this procedure each month for 12 months.
2 In return for AOM’s agreement, UPS arranges for its bank to issue a standby credit in their favour for US$9 500 000, being the value of 2 months’ supply.
1 UPS enters into a contract with AOM by which AOM agrees to supply 50 000 metric tons of coal each month for 12 months on open account.
4 To reduce the cost of providing a continuous stream of documentary credits covering trade between a buyer and an overseas supplier.
3 In cases where companies are purchasing oil in the market and the cargoes which are offered have already been bought and sold several times. Thus, the original bills of lading have been issued to a third party and require a number of endorsements before they can give title to the final buyer. A
2 To cover reinsurance companies against failure by their insurers to reimburse them for claims settled within the terms of an agreement between the companies.
1 In support of construction contracts where default or improper performance by the contractor would be financially detrimental to the buyer. Thus the contractor would be penalized by any claim under the standby and its existence becomes a strong incentive for him to correctly carry out his
4 The bank providing the indemnity may demand that payment by the negotiating bank is made direct to itself in order to reduce the beneficiary’s borrowings or to release facilities for other transactions.
3 The payment may considerably reduce his bank borrowings andconsequently the interest incurred.
2 He urgently needs payment in order to pay his supplier; the beneficiary is not always the actual supplier.
1 He considers his buyer, the applicant for the credit, will waive the discrepancies.
future: for undertakings given but not yet realised. By agreement with the beneficiary, the negotiating bank makes payment only when it has been reimbursed by the issuing bank, rather than risk advancing its own cash.
past: for advances already made; for example, the beneficiary may be a customer of the negotiating bank and could have asked for an advance against his documents which he deposited with them as security awaiting the issue of the bills of lading by the shipping company
present: for immediate payment under a sight credit
4 It can use the transaction to establish a relationship with the beneficiary, who has received his payment considerably earlier than if the bill had been drawn on the issuing bank.
3 The confirming bank will additionally earn acceptance commission and discount charges.
2 The accepted bill can be discounted immediately by the confirming or any other bank, with obvious advantages to the beneficiary.
1 Acceptance by the confirming bank is immediate whereas acceptance by the issuing bank may take 7–14 days.
3 In addition, the confirming bank will continue to record a risk against the issuing bank for the amount of the credit, thereby using up a valuable facility.
2 If the credit is confirmed, the confirming bank has to consider that it could still be liable under a sight credit.
1 The issuing bank does not know whether it is liable under a sight or usance credit.
2 Our confirmation is withdrawn.
1 This credit is now available against drafts drawn at 180 days sight.
5 The beneficiary may subsequently persuade his foreign buyers to route future credits through the silent confirmer with obvious benefits to that bank.
4 The silent confirmer may be able to avail itself of telegraphic reimbursement on a reimbursing agent. Thus it could be in funds before the issuing bank can raise any objection to the confirmation.
3 The beneficiary may be indebted to the silent confirmer, who sees an opportunity to get his hands on the credit proceeds to reduce the debt.
2 The income to the silent confirmer can be considerable.
1 The beneficiary may be a customer or a good potential customer.
the reimbursing agent appointed by the issuing bank may refuse a claim from a silent confirmer, as it may only be authorized to reimburse the advising/nominated bank.
if the issuing bank discovers that the credit has been confirmed without its agreement, it may regard it as an unauthorized amendment
which may be quite unacceptable to the silent confirmer who, having no contractual relationship with the issuing bank, cannot object to it
The silent confirmer thus faces the possibility that:the credit could be amended without its knowledge or approval the beneficiary could signify his agreement to an amendment
bank. Even if the silent confirmer has an agreement with the advising/nominated bank for all amendments to be routed through themselves instead of advising them direct to the beneficiary, an oversight can occur.
As the issuing bank is unaware of the silent confirmer, it will continue to direct amendments and correspondence to the advising/nominated 57
If the silent confirmer is not the advising/nominated bank, it will have to rely on the beneficiary to provide an up-to-date record of the credit and any amendments which have already been made.
limited for sovereign reasons, using part of those lines for silent confirmation could seriously embarrass both the issuing and confirming bank.
Where confirmation lines accorded to some countries are strictly
In some countries, it is forbidden for their credits to be confirmed by third party banks – the risk is obvious!
Adding confirmation to a credit against the wishes of the issuing bank could seriously damage relations with that bank.
2 Although expressly forbidden to confirm a credit, the nominated bank may decide to ignore that instruction and accede to the beneficiary’s request for confirmation.
1 The beneficiary may request the nominated bank to add its confirmation but although the issuing bank has either authorized confirmation or has made no mention of it, the nominated bank declines to assume the risk on the issuing bank. In that situation it is not uncommon for the beneficiary to
4 Any payment/acceptance/undertaking by the confirming bank is made without recourse to the beneficiary.
3 If the credit is expressed in a foreign currency the ability to discount as shown in (2) reduces the period of exchange risk to the beneficiary and may also enable him to escape a rise in interest rates.
2 If it is a usance credit the confirming bank can accept a draft upon presentation of documents and immediately discount it. The advantage of that process over the practice of sending drafts to the issuing bank for acceptance is obvious.
1 If it is a sight credit he can be certain that he will be paid upon presentation of documents, in his own country and in his own currency.
6 Negotiate drafts drawn by the beneficiary.
5 Accept and pay at maturity drafts drawn on it by the beneficiary of a credit in replacement of drafts drawn on another bank but not accepted by it.
4 Pay at maturity drafts drawn on another drawee bank but not paid by that bank at maturity.
3 Accept drafts under a usance credit and pay them at maturity.
2 Pay at maturity for a deferred payment credit.
1 Pay at sight for a sight credit.
amended without the agreement of the bank to which it is addressed.
issue a reimbursement undertaking addressed to the nominated or confirming bank. This undertaking is irrevocable and cannot be
accept a term draft drawn on it by the claiming bank
4 The claiming bank is authorized to make a telegraphic claim for reimbursement on a specific bank appointed by the issuing bank and named in the credit.
3 The issuing bank will make reimbursement upon receipt of a telegraphic claim from the claiming bank.
2 The issuing bank will make reimbursement upon receipt from the claiming bank of the relative documents, in order.
1 By the debit of an account held by the issuing bank with the claiming bank.
14 The period of time after the date of shipment during which the documents must be presented.
13 Term of despatch (as per Incoterms).
12 A description of the goods.
11 Documents required.
10 Port of destination.
9 Place of taking in charge or port of shipment.
8 Whether part shipments and trans-shipment are permitted.
7 Latest date of shipment.
6 Term: at sight, usance or deferred payment.
5 A fixed expiry date.
4 An amount in currency.
3 Name and address of beneficiary.
2 The name of the bank with whom it is available.
1 Whether it is revocable or irrevocable; failure to state either will mean that it is irrevocable (Article 6c).
to be assured that the beneficiary can only be paid against correct documents and within the validity of the credit.
to have it advised through a competent bank
to have the credit opened exactly as instructed by him
to have a local bank handling amendments, indemnities and queries.
to be paid in the currency of his sales contract
to be paid in his own country (preferably in his own town)
to be paid or have a bill accepted or to be given an undertaking of future payment on presentation of documents
3 Deferred payment. This type of credit has become increasingly used when the exporter’s fiscal authorities insist that a stamp duty be paid on bills of exchange. This can be costly so the deferred payment credit has no bill of exchange but instead, upon presentation of documents which the
2 Usance. Available by the acceptance of a bill of exchange drawn by the beneficiary and payable at a fixed or determinable future date.Acceptance is made by the negotiating or issuing bank when documents are presented in order and the accepted bill is handed back to the beneficiary. As a term
1 Sight. The sight credit enables the beneficiary to be paid immediately upon presentation of documents which comply with its terms. However, it may be available either with a bank in the beneficiary’s country or with the issuing bank. Obviously, the beneficiary prefers payment locally;firstly
3 To notify his export credit insurers (if any).
2 To withhold further shipments to the buyer concerned until the reasons for default are made clear.
1 Decide what to do with his goods which may have arrived or are about to arrive at a foreign port. He may already have included guidance for this eventuality in his instruction to the remitting bank.
3 Release bank facilities for financing further transactions.
2 Despatch further goods in the knowledge that his buyer appears to be a reliable payer.
1 Sell the foreign currency.
Why does the United States export agricultural products and airplanes?LO.1
What country has the most capital (i.e., factories) as compared with its GDP?LO.1
How does trade affect the earnings of labor and capital?LO.1

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International Trade 4th Edition Robert C Feenstra ,Alan M Taylor - Solutions

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