International Business INB355 Study Guide - Final Guide: Dry Port, Bankers' Acceptance, Credit Risk

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INB355 Exam Review
Traditional terms of payment:
QUESTION 1
Analyze an export sale contract from the terms of payment/terms of sales point of view and
recognize at which point responsibility for the performance of a particular function
(cost/risk/title) passes from the seller to the buyer.
Traditional terms of payment: open account; documentary collection; letters of credit and cash
in advance (see pages number 2-9 to 2-21) Transfer of “title”
Terms of Sale (terms of delivery; terms of shipment: INCOTERMS (see pages number 3-18 to 3-
46) Transfer of “cost and risk”
Sample: CFR Port of Buenos Aires / Collection @ sight
Risk: Cargo on board vessel named port of loading.
Cost: Cargo reached Port of Buenos Aires
Title: As soon as buyer pays invoice value at presenting bank.
Method of payment: Credit card, ecommerce
Time of payment to seller: on receipt of order
Merchandise available to buyer: upon arrival
Risk to seller: None
Risk to buyer: Reliance on seller to ship as ordered
Method of payment: Cash in advance
Time of payment to seller: prior to shipment
Merchandise available to buyer: upon arrival
Risk to seller: None
Risk to buyer: Reliance on seller to ship as ordered
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Method of payment: Sight Letter of Credit
Time of payment to seller: After the documents that comply with the credit are presented to the
bank
Merchandise available to buyer: Upon settlement of the letter of credit obligation by the buyer to
the issuing bank
Risk to seller: Minimal, if all the terms and conditions of the letter of credit are met
Risk to buyer: Buyer will receive the documents stipulated in credit
Method of payment: Time Letter of Credit
Time of payment to seller: If the documents comply with the credit, the time draft is accepted. It
can then be held to maturity of acceptance, or discounted after it is discounted
Merchandise available to buyer: Upon the drawee banks’ acceptance of the time draft drawn
under the letter of credit
Risk to seller: Minimal, if all the terms and conditions of the letter of credit are met
Risk to buyer: Buyer will receive the documents stipulated in credit
Method of payment: Sight Draft for collection, or Cash Against documents, or D/P
Time of payment to seller: Upon presentation of draft to buyer, and buyer’s payment
Merchandise available to buyer: After payment of the sight draft
Risk to seller: Possible non-payment of draft. Goods are in transit
Risk to buyer: Required to pay prior to receipt of goods
Method of payment: Time draft for collection, or D/A
Time of payment to seller: Upon maturity of time draft accepted by the buyer (other
arrangements can be made, case by case)
Merchandise available to buyer: Upon buyers’ acceptance of the time draft
Risk to seller: Possible non-payment of draft. Goods are in transit
Risk to buyer: Minimal. Not required to pay until after receipt and control of the goods
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Method of payment: Open account
Time of payment to seller: When the buyers pays the invoice
Merchandise available to buyer: Upon delivery
Risk to seller: Full reliance on the buyer to pay the invoice when due
Risk to buyer: Minimal. None
Method of payment: Consignment
Time of payment to seller: After the goods are sold by consignee
Merchandise available to buyer: Immediately after payment to consignee
Risk to seller: Reliance on consignee to pay when goods sold
Risk to buyer: Minimal. None
Method of payment: Credit card, ecommerce
Risks of loss of (value of) goods prior to payment: None. Seller has been paid before goods leave
premises
Method of payment: Cash in Advance
Risks of loss of (value of) goods prior to payment: None. Seller has been paid before goods leave
premises
Method of payment: Sight Letter of Credit
Risks of loss of (value of) goods prior to payment: None, if issuing bank is quality bank in first
world country or L/C is confirmed. Seller may have control of the goods until paid
Method of payment: Time Letter of Credit
Risks of loss of (value of) goods prior to payment: None, if issuing bank is quality bank in first
world country or L/C is confirmed. Seller may have ownership or control of the goods until draft
is accepted.
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