International Logistics and Payments

For this chapter you will require to start by studying Chapter 14 of the textbook (Edition 11, Contemporary Logistics) International Logistics, and then doing extensive internet-based research. The textbook International Marketing by Cateora and Graham also has a section on this topic.

Please give detailed answers to the following questions. Some questions require you to largely think out the answers, while others require you to research the answers and then give a cohesive integrated answer based on an integration of what you have read.

This sort of exercise (on this topic) is in fact done by any entrant in the field of international trade (particularly if the entrant does not have an academic background in the field). There is no doubt that the internet is an ideal resource, but there should be a legitimacy to the source of information.

Q1:

Context: An American exporter of plastic products is preparing his first shipment valued at $5000 for an importer in London. The order will take about 45 days to get ready and packed for shipment. The American exporter asks for an advance payment through a cashiers cheque (or its equivalent) to prepare and execute the order. The payment is acceptable in any major currency: Dollars, Euro etc.

Questions:

(1.a) While the above gives a sense of the types of situations often encountered in international trade discuss why this type of Payment in Advance cannot be used on a regular basis (as a norm) in international business.

(1.b) Explain why an advance payment may be more easy to work with for business within the USA.

Q2:

Letters of Credit and Bills of Exchange are frequently used in International Trade.

Questions:

(2.a) What is a Letter of Credit (L/C)?

(2.a.) What is a Bill of Exchange, and how does it differ from a letter of credit?

Q3:

What is forfaiting (also spelt as forfeiting), compare it to factoring and list/specify the key differences in the two.

Q4:

What is a time LC (also called a usance LC)?

Q5:

What is the meaning of each of the following terms associated with a letter of credit.

(5.a) Confirmed letter of credit

(5.b) Irrevocable letter of credit

Q6:

In a export transaction where payments are being made through a letter of credit, specify and explain what are the normal documents that are associated with the transaction, so that the export can be shipped, go through customs and payments can be made.

Please specify each document, explain what the document is, and then clarify what it is used for.

Q7:

(7.a) Explain what is a Letter of Credit with a Red Clause, and its utility

(7.b) Explain what is a Back to Back Letter of Credit, and what is the utility of such a letter of credit