Terms of quoting prices in International Trade and methods of payment

CONTENT

1. Terms of quoting prices in international trade
2. Methods of payment in foreign trade

TERMS OF QUOTING PRICES IN INTERNATIONAL TRADE

1. Cost, Insurance and Freight (CIF): The price quoted includes cost of the goods, insurance and freight up to the port of destination while the purchaser is responsible for all subsequent charges.
2. Free Alongside Ship (FAS): The price quoted covers all expenses till the goods arrive at the side of the ship.
3. Free on Board (FOB): The price quoted covers all expenses (costs) up to loading of goods on ship at the port of departure.
4. Free on Rail (FOR): The price quoted covers all costs up to loading of goods on the railway at the terminus of departure.
5. Cost and Freight (C&F): The price quoted includes the cost of the goods and freight charges from country of export to the importing country but not insurance.
6. Franco (Rendu or Free): The price quoted includes all types of expenses until delivery to importer’s warehouse.
7. Loco (Spot or Ex-Warehouse or Ex-Works): This is the price quoted when quotation is immediate and goods are sold just where they are – that is the warehouse of the exporter and the buyer must bear all the cost of removing the goods.

EVALUATION QUESTIONS

1. Explain five terms of quoting price in foreign trade.
2. Write short notes on the following terms of price quotation.

A. Franco    B. Loco         C. Free on Board

METHODS OF PAYMENT IN FOREIGN TRADE

The importer could pay the exporter through one of the following methods of payment, all of which use the banks as intermediaries.

1. Mail Transfer: This is an order to pay sent by a letter or air mail by a bank to its branch or agent in a foreign country to pay a specified sum of money to a named beneficiary.
2. Telegraphic Transfer (Cable Transfer) or Telex Transfer: Here the payment order is sent by a bank via telegraph, cable or telex to another bank in another country to pay a specified sum of money to a named beneficiary.
3. Foreign Bill of Exchange: This is a bill drawn by the exporter and sent to the importer who is expected to accept it and send it back to the exporter. The exporter can then discount the bill with a financial institution.
4. Traveller’s Cheques: This is an order or instruction upon a bank to pay a stated sum of money in foreign currency. Travelers (and businessmen) to other countries can use the travelers cheque to settle their bills.
5. Banker’s Draft (Bank Draft): Here, the importer asks his banks to draw a foreign draft in favour of the exporter he wishes to buy goods from.
6. Letter of Credit: A letter of credit is a letter addressed by a banker to its correspondent or agent bank requesting it to advance a sum of money to the holder and to debit the sum so paid to the account of the banker issuing the letter of credit.

A letter of credit could either be:

1. Confirmed and Irrevocable letter of credit
2. Unconfirmed and Revocable letter of credit.

Most payments in foreign trade are made by means of confirmed and irrevocable letter of credit.

EVALUATION QUESTIONS

1.         List and explain four means of payment in foreign trade.

2.         Explain three ways by which commercial banks facilitate foreign trade.

READING ASSIGNMENT

Essential Commerce for SSS by O.A. Longe Page 53 – 64

GENERAL EVALUATION QUESTIONS

1. Give five reasons why manufacturers pre – package their products
2. State any four disadvantages of pre – packaging
3. State six distinguishing features of a mail order business
4. Give four advantages of mail order business
5. State six contents of a bill of lading

WEEKEND ASSIGNMENT

1. A bank’s undertaking to pay an exporter on behalf of an importer is a A. documentary credit B. letter of credit C. letter of hypothecation D. bill of lading
2. Which of the following documents gives banks the right to sell goods and recoup all administrative expenses. If the importer fails to pay for the goods ordered A. letter of hypothecation B. confirmed letter of credit C. revocable letter of credit D. cover note
3. Which of the following is most acceptable to an exporter for payment A. personal certified cheques B. standing order C. confirmed letter of credit D. bill of exchange
4. A document which can be used for both internal and external trade is A. bill of exchange B. IOU C. Promissory Note D. GIRO
5. Which of the following is regarded as a document of title in foreign trade A. Consular Invoice B. Bill of Lading C. Bill of sight D. Certificate of Origin

THEORY

1. List four means of payment in foreign trade.
2. Write short notes on the use of Telegraphic transfer as a means of payment in foreign trade.