Gzel Paketleme is located in Turkey . The company is considering to purchase some machinery worth of

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“Güzel Paketleme” is located in Turkey . The company is considering to purchase some machinery worth of 1 Million USD . The machinery will be used to produce some special packaging materials that will be exported to some prospect customers in Dubai. The company will be exporting 1 Million USD worth of goods to these buyers . Credit terms will be 1 year . The payment method will be O/A since these buyers only accept to buy goods if the payment method is this. The seller of the machinery , “Rich Machinery” is located in Germany. “Güzel Paketleme” estimated through his cash flow analysis that he could pay the cost of machinery only after 1 year . The supplier in Germany would accept to sell this machinery if he is fully secured through a bank guarantee . Besides, he wants to use the option of having funds from his bank by converting this receivables into cash. They agreed that the transaction would be arranged in the following way ; a time draft would be drawn by the seller to the buyer who would accept the draft and then an aval would be provided by his bank who is a well known international bank ,“Ing Bank”. ( credit rating as being A+ by S&P , one of the rating agencies in the world ) The bank of “ Rich Electronics” is “Deutsche Bank” ,a full service international bank.

a) Pls. find out what could be the most appropriate trade finance instrument for the parties ( between “Rich Machinery” and “Güzel Paketleme” ) to conduct this trade effectively ? Pls , draw and explain in steps how would that work ?

b) Pls refer to your answer in a part , what is the risk “ Rich Machinery” does not want to take in this trade ? To whom is this risk transferred ? What is the role of the bank that gives aval ? ( Pls. consider the trade finance method you choose in part a)

c) What is the risk “Güzel Paketleme” would be taking in this trade, considering his exports to these new prospect companies ? How could he protect himself for this risk ? Pls. explain only by using only one trade finance instrument that would help him to secure his trade.