Currency Rate | Fx trading

Speaking on this topic first of all I would like to tell about risks in international trade concerning exporters & importers ' both sides face risks in an export transaction, because there is always the possibility that the other side may not fulfill the contract.

So risks for the exporters:

1. the risk of buyer default
2. the customers might not pay in full for the goods:

-                the importers might go bankrupt

-                a war might start

-                importers' government might decide to ban trade with the exporting country

-                importers' government might decide to ban imports of certain commodities

1. the importers might run into difficulties getting the foreign exchange to pay for the goods
2. the importers are not reliable & simply refuse to pay the agreed amount of money

Risks for the importers:

1. the goods will be delayed & they will only receive them a long time after paying for them, because of:

-                port congestion

-                port strikes

1. delays in fulfillment of orders by exporters & difficult Customs clearance in the importing country can cause loss of business
2. the wrong goods might be send

As we see there are a lot of different risks. & many of that risk are reduced by the work of the banks.  They provide several services which give security to exporters & importers:

1. the risk of buyer default or non-delivery by exporters is removed by the method of payment against shipping documents.
2. exporters' banks provide information about the financial reliability of their customers
3. banks help arrange buyer credit or finance for the sellers (without this a lot of trade would not take place at all)
4. the risks of financial lost because of a change in exchange rate can be avoided with the help of a bank, by buying the foreign exchange on the forward exchange market

& now I would like to move to the main part of our topic ' terms of payment. We must admit that the terms of payment are an integral part of contract in international trade. There are different methods of payment in foreign trade:

1. in cash
2. on credit.

I'd like to speak about methods of payment on credit. There four different methods:

1. By drafts (by Bills of Exchange ' B/E), which is the most popular terms of payment on credit. A Bill of Exchange is a signed documents, such as a cheque, that orders a person or an organization, such as a bank, to pay a fixed sum of money on demand or on certain date to the person specified. It is a document that can be exchanged for goods, money, i.e. it is a negotiable instrument like cheques or banknotes and can be a subject of the deal.

There are various types of bills of exchange:

-         accommodation B/E: a bill that is signed by someone who promises to pay it to help another person to raise money. A person signing the accommodation bill is called the accommodation party, i.e. a person with a good financial reputation who signs a bill to make it easier to exchange; sometimes accommodation bills are called 'kites', 'windbills' or 'windmills'.

-         discounted B/E: bill bought at a reduced price before it is due for payment;

-         documentary B/E: a bill attached to shipping documents such as bills of lading, invoices, etc.;

-         documents-against-acceptance B/E [D/A, D/A bill]: a bill sent by an exporter with other shipping documents to an agent who will not release the documents until the bill of exchange has been signed (accepted) by the person receiving the goods; this is used when the bill of exchange is a period bill and must be paid by a specified date;

-         document-against-payments B/E [cash-against-documents]: a bill sent by an exporter with other shipping documents to an agent who will not release the documents until the bill has been signed (accepted) by the person receiving the goods; this is used when the bill of exchange is a sight bill and must be paid immediately;

-         endorsed B/E: a bill signed on the back, that makes it payable to someone else.

-         foreign B/E

-         inland B/E

-         period/ term B/E: must be paid on a specific date

-         short B/E: must be paid within 10 days

-         sight B/E: immediate payment

-         time B/E: must be paid within several days after being signed

-         trade B/E: a bill that is used to pay for goods.

In terms of time of payment there are different conditions on which the bills of exchange can be drawn up:

-         on demand: a bill of exchange must be paid immediately as it is presented for payment;

-         at sight: an inscription made by a drawer on a bill of exchange to show that it must be paid as soon as it is presented for payment;

-         after sight: an inscription made by a drawer on a bill of exchange to show that the bill would be paid within a specified time after the payer (the drawee) is presented with it;

-         after date: an inscription made by a drawer on a bill of exchange to show that payment will be made at a specified time after the date given on the bill; such bills are called after-date bills.

In the process of creating bill of exchange there are 2 parts. The drawer is a person who writes a cheque/ a bank order/ a bill of exchange, etc. and therefore instructs a drawee to make a payment within a stipulated period of time.

The drawee is a person on whom a cheque/ a bank order/ a bill of exchange have been drawn up, the payer. The drawee must accept the cheque/ bill/ bank order and pay it within the stipulated period of time.

Special attention needs to be drawn to the endorsement of bills of exchange. Endorsement is a signature on the back of a bill of exchange or cheque by the payee (beneficiary), making it payable to another person. There are various types of endorsements used in business transactions:

-         Accommodation endorsement: the name and signature written on the back of an accepted bill of exchange as a guarantee that payment will be made on the date given;

-         Blank endorsement: a signature on a bill of exchange or cheque, by the payee, making it payable to any other person, i.e. to a bearer;

-         Restrictive endorsement: a signature on a bill of exchange or cheque, by the payee, making it payable only to a named person or account; it is no longer a negotiable instrument;

-         Special endorsement: a signature on a bill of exchange or cheque, by the payee, making it payable to another person, i.e. to order.

2. Another method of payment on credit is in advance (the Importer credits the Exporter, for example, the contract may stipulate a 10 or 15% advance payment, which is advantageous to the Sellers). This method is used when the Buyers are unknown to the Sellers or in the case of a single isolated transaction or as part of combination of methods in a large-scale (transaction) contract.

3. The third method of payment on credit is on an open account. Open account terms are usually granted by the Sellers to the regular Buyers or customers in whom the Sellers have complete confidence, but sometimes they are granted when the Sellers want to attract new Buyers then they risk their money for that end. Actual payment is made monthly, quarterly or annually as agreed upon. This method is disadvantageous to the Exporter, but may be good to gain new markets.

4. And the last method of payment on credit is a Promissory Note, which is a document in which a person or an organization, such as a bank, promises (on behalf of the Buyers) to pay a fixed sum of money on demand or by a certain date, to the person specified (the Sellers).

Shipping documents:

1. Invoice ' is a document contains complete details of the order, the terms of shipment and payment, the value of the order & details of insurance.
2. Origin Bill of Lading ' is a document of title goods which have been loaded on the ship.
3. Shipping specification ' is the form which gives details of goods which being shipped
4. Packing List ' shows that the goods have been tested.
5. Certificate of Quality ' shows that commodities have passed the task of grading.
6. Certificate of Origin ' shows where the goods come from.
7. Airway Bill ' is receipts & evidence of contracts of carriage.
8. Insurance Policy Certificate.

There are three basic methods of payment in foreign trade but traders usually use the one which is customary in their business.

1. Payment against documents. The shipping documents are exchanged with the bank representing the importers. There are two procedures: Documentary Bills and Documentary Letters of Credit. The latter is the commonest method of payment.
2. Payment into an open account. This is used where there is complete trust between seller and buyer. Also there must be no political or currency problems. The exporters simply airmail the shipping documents to the importers who settle their account monthly or quarterly.
3. Cash in advance. This is used only for small orders sent by parcel post.

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