Chapter 11

Methods of payment:
Non payment : for non payment we can face liquidity problem. Also it can combine limited
credit benifit for imports.
Advance payments: for advance payment there will not necessarily guarantee the delivery of the
agreed products. Advance payment by foreigner customers will similarly be bound by the buyers
limited resources.
Ideal payment: it is one of the protects for both sellers and buyers.
Exporters often try to develop overseas market using low cost payment system to buyers such as
open accounts, invoice sell and documentary draft.
Consignments sales: Here, exporter has high risk because in this methoad exporter sends the
products to an importer by deferred payment basis. That means importer does not pay untill it is
sold to 3 rd party.
Here are some problem associated with this method :
1) Delays in payment : here importer has no risk. because her payment depend on sales. So
payment can be delay for good sold. In this system, sometimes it can be creat liquidity problem
for exporter.
2) risk of nonpayment : if importer can not sale, then product will be retun to the exporter. And
in this way it will be time consuming and very expensive for exporter.
3) cost of returning merchandise: if importer has limited success in sales product, then it needs
to be returned to the exporter. And it is expensive arrange to return unsold products.
4) limited sales effort by importer: importer can feel relaxed by thinking that he has no
investment. So he may not be highly motivated to sell merchandise on consignment. They can
give more attention to products in which they have invested.

Open account: An open account is a contractual relationship. And this relationship between
an exporter and importer. In this case importer will pay in the specific time period. In one side
exporter sships the merchandise to importer and another side exporter also send necessary
documebts to the importer. Generally payment rang is 30 days to 120 days after date of shiping
range, although it is depend vary country to country.
Documentary collection (Documentary draft) : it is a customary methods of making
payment in the international trade. Here are 4 party . 1) Exporter 2) Importer 3) Exporter bank 4)
Importer bank. And banks may be independent bank or same branches bank. Exporter country
called remating bank and importer country called collecting bank.
Figure 11.2 documentary collection:
There are 4 parties. . 1) Exporter 2) Importer 3) Exporter bank 4) Importer bank
1) in the first stage, agreement will made with buyer and seller. It is about product price,
amount, delivary date, delivery item etc.
2) in this stage , seller presents documents to remitting bank that buyer want to purchase product
from her. So they want to export.
3) when remitting bank found documents from exporting country , then they will forward this
documents to collecting bank.
4) then collecting bank presents documents to buyer that weather they want purchase product
from them. If buyer tell yes, then 5 number stage will come.
5) after receiving documents , immedieatly buyer will pay to collecting bank.
6) Then collecting bank will ensure that they have received money from buyer and they will send
money to remitting bank.
7) Finally remitting bank will make payment to seller.
Shortly 4 ta point likhte hobe…………………. 243 page

When exporter and importer will go an agreement then exporter will arrange for shipment and
made necessary documents.
Then exporter will send documents to the remitting bank.
Then remitting bank will send to the collecting bank in the importer country.
After, the collecting bank will contract the importer to accept payment. Then when the buyer
pays the collecting bank will remit the funds in the according of instructions.

Documents against payment: Exporter will prepare for documents Against payment draft
and for importer and buyer.it will be done with the help of foreign bank that means importers
bank or collecting bank. Documents will be collected from exporters bank or remitting bank.
Sight draft is presented with other document specified by the buyer or buyers country. Then
collecting bank will provide these documents to the buyer upon payment.
Documents against acceptance: In this case importer will get a time for payment with
specific period. When they accepting accept letter that means he or she become an owner that
particulars products. Here, time draft is used to establish the time of payment, that is the payment
due within a certain time after the buyer accepts the draft. And a date draft is a specific the date
of payment. When a time draft is used the customer can may be delay payment for delaying
acceptance of the draft. In this case an exporter can prevent such delays by using a date draft.
Until the payment is made collecting bank will hold the draft to present.
Direct collection: Direct collection will reduce time and cost. So exporter can bypass the
remitting bank send document directly to the foreign collecting bank for acceptance or for
payment. In this way bank charge will reduce and speeds the collection process. So in this case
collecting bank acts as the exporters agent for follow up.
Liability and responsibility of the banks:
There are two type of collection. 1) clean collection 2) documentary collection.
In case of clear collection, a draft is presented to the foreign buyer for purpose is to get paid or
accepted without a partner By shipping documents. Documentary collection, is
involves the shipping presentation And financial documents by the collecting bank To the buyer.
If the buyer refuses to pay and provides the approved draft At maturity, exporters often instruct
the collecting bank to protest 1. That is to reproduce the disrespectful draft, (2) to store the
goods, or (3) Return the goods to the exporter.

Documentary letter of credit:

Letter of credit is a document in which a bank or any financial institution is taking the liability of
the payment. This payment for purchase price the seller or we can say payment will be equal
purchase price of the exported item or imported items. It is issued on behalf of buyer towards the
seller. The payment will be made towards the seller actually.
The bank may transact directly or through the banks intervention in the sellers country. All type
of credit letters, buyers arranges with a bank to pay for the exporter in exchange for certain
documents.
Against security bank will arrange credit in order to pay towards exporter on behalf of importer.
Thoese documents the importer will make the arrangement for payment towards the bank.

Defination of lc:
LC is a kind of legally enforceable commitment or contract Between bank and another party that
is importer and buyer the contract that bank is pump to money upon certain condition. Certain
condition include about presentation specific documents and it is stipulated vary to the sellar.
Payment should be made by seller or behalf of buyer.

1) Here Bangladesh is a exporter and us is a importer. So at first they need to communication to

each other. They will decide what product will sell or buy, price, date etc. This agreement
provides for the payment to be financed by means of a confirmed, irrevocable documentary
credit for goods deliverd CIF.
2) in this stage, as us a importer country so they will apply to its issuing bank, which issues the
letter of credit with bd bank. In this case Bangladesh bank will be beneficiary as bd will receive
money.
3) now importers bank will communicate to exporting bank. That means issuing bank sends the
letter of credit to an advising bank.
4) in this stage Bangladesh ( advising bank) will notifies a letter of credit has been issued on its
behalf and then it will be available on presentation of documents.

5) now Bangladesh seller will arrange for shipment and prepare the necessary documents.
Documents means commercial invoice, bill of lading, draft, insurance police, and certificate of
origin.
6) after shipment of merchandise, in this stage Bangladesh ( exporter) will submit relevant
documents to the advising bank for payment. If documents comply, then advising bank will pay
the seller.
7) in this stage, advising bank will send documents to the issuing bank.
8) the issuing bank will inspecting the documents if everything is fine, then they will make the
payment towards the advising bank.
9) in this stage, the issuing bank gives documents to the buyer and presents the term draft for
acceptance. And with a sight draft the issuing bank will be paid by the buyer on presentation of
documents.
10) now importer will communicate for goods. So buyer communicate to carrier.
11) Finally, us ( buyer) pays the issuing bank on or before the draft maturity date.

The letter of credit consists of four separate and two sided contract :
1) sales contract will be made Between buyer and seller.
2) a credit and reimbursement contract Between the buyer and issuing bank.
3) a letter of credit contract between the issuing bank and benificiary ( exporter), in which the
bank will pay to the seller on presentation of specific documents.
4) and the confirmed advice also significantva contract Between the advising bank and the seller.

If advising bank involve then number 4 will come

Role of banks under letters of credit:

At first the bank activities on the request of buyer ( importer). If exporters require to involve
there countrys bank then definatly another advising bank will be involve other than that known it
for advising bank only issuing bank will be enough to back the LC. The second bank usually
advises or confirm the letter of credit. A bank that advises on the lc gives notification of the term
and conditions of the credit issue by another Bank to the seller.it means there are no liability for
paying the letter of credit.

Cash in advance : in this case, seller will not to agree to send the product at any other payment
method, he or she demanding for cash in advance. If the product are highly required or assumes
that no risk of bad debt because advance payment is precondition to shipment. In this case buyer
has a lot of risk. Seller will demand cash in advance because buyer may be new, not Trust, or
may be importing countrys situation is not good for any reason.so in those case defiantly seller
will demand cash in advance payment method. Sometimes seller don’t want to send sample.

Transferable letter of credit:

Sometimes exporters use transferable letter of credit to pay a supplier. Exporter can be another
party of supplier or manufacturers can be another party. When the exporter acts as an agent
intermediary basically, so here basically payment will be made to importer.
* when we can use transferable credit as transferable, it should be expressly designated written
by issuing bank ( exporter)
* it can transferred only once.
* the exporter can hide the name and address of the first beneficiary ( supplier) so the name and
address of the first beneficiary may be substitute for that of the buyer.
* the transferee receives rights under this type of l/c. Such a transfer require the consent of the
buyer and of the issuing bank.
* supplier might demand that the exporter actually transfer the letter of credit its entirety, and it
is without substitution of invoices.in this case exporter will receave a commision independent of
the l/c transaction.
Back to back letter of credit: It is a letter of credit issued on the strength of another letter
Credit. This type of credit is issued when the supplier or subcontractor demands payment from
the exporter before receiving the collection from the customs. Back-to-back L / C is different
from the original L / C and bank The ex-issuer is obliged to pay the suppliers regardless The
result of the latter. If there is any default in the original L / C, then the bank
Remaining with valueless collateral.
Revolving letter of credit:

Red clause credit:

Deferred payment credit:

Standby letter of credit:

Guarantee against payment on open account:

Loan guarantees:
 Chapter 9

Documentation in export import trade:

There are some documents are used in export import trade. There finish And submission
documents is important for successful shipment, Transportation, and cargo disposal. And this
documents used depend on the requirements of both export and import Countries. This
documentation necesseries in importing countries can be obtained from abroad Consumers,
foreign government embassies , and also as various Export reference books, such as Export
Shipping Manual.
Air Waybill:
Air Waybill is the transport agreement between the shipper and the air carrier. It is issued by the
air carrier and acts as a receipt for the shipper. When The shipper delivers the cargo to a freight
aggregator or forwarder for transport, the air waybill is obtained from the forwarder. Airway bills
are non-negotiable and cannot be issued as collection materials.
Bill of Exchange:
It is an unconditional written order by one party that order to second party to pay a certain money
to the 3rd party.
Bill of lading:
A bill of lading is a contract between the shipper and career. Career means the steamship
company. It certifies ownership and receipt of the product Carrier for shipment. It is issued to the
shipper by the carrier. Along The bill of lading is issued when the shipment is made directly to
the foreign customer. There are some type of bill of lading is not negotiable. An order bill of
lading Negotiable, that means, it can be bought, sold or traded.
1) clean/ claused bill of lading: in this case , The shipper loaded in advance , for example
shipping date, amount, weight, total number of packet etc in the bill of lading. The carrier will
inspect the goods loaded on the ship to ensure that they comply with the goods listed in the bill
of lading. If all goes well, the carrier will issue a clear bill of lading certifying that The goods
have been properly loaded on the ship. However, if there any A discrepancy between the loaded
product and the product listed on the bill The carrier will issue the shipper a closed bill of lading.
Such is the Bill of Lading Generally unacceptable to third parties.
2) Inland bill of lading: it is a bill of lading that is issued by a railway carrier. The trucking firm
certifies the transportation of goods from the place where the exporter is the exit point is located
for shipments abroad. This document is issued by the exporters to send the goods to a freight
forwarder who will transport Goods by rail to an airport, seaport, or truck for shipment.
3) through bill of lading: it is used for intermodal transport, that is when different modes of
transport are used. It Will issue the first career Through a bill of lading and generally responsible
for delivery Freight to final destination.
Consular invoice: Some countries require a consular invoice for customs, statistics, and a
consular invoice and for Other purposes. And It must be obtained from the Consulate of the
country the product that is being shipped and it is usually must be prepared in the language of
that country.
Certificate of origin: In order to enable them, a certificate of origin is required by certain
countries determine if the product is eligible for preferential tariff treatment. It is a statement as
the source of the export product and is usually obtained From the local Chamber of Commerce.
Inspection certificate: in this case certificate may be required for some buyers and countries the
specification of the shipped product. it is usually performed by a third party. There are some
Requirements are usually mentioned in the contract and quotation. Inspection Certificates are
usually requested for some products with grade designations, machinery, equipment, etc.
Insurance certificate:, An insurance certificate needs to be issued stating the type, terms and
amount of insurance coverage, when an exporter provides insurance . The certificate is subject
to negotiation and must be approved prior to presentation to Bank.
Commercial invoice: A commercial invoice is a bill of lading from a seller to Buyer. There
should be include basic information about the transaction- product details information, delivery
terms and condition , payment terms and condition, order date and a specific time etc.
Commercial invoice is required to clear the goods from the foreign buyer's customs, and arrange
for payment. Govt of importing countries to determine the price of goods using commercial
invoices.
Dock receipt: dock receipt is a receipt that is issued by a shipping company as proof of
receiving the goods for shipment. it ensures the carrier is accountable for the safe custody of the
good until it is delivered to the destination. A similar document is said to amates receipt.
Destination control statement: This statement enter on commercial invoices, leading bills, in
the air Waybill, and Shipper's export announcement. It is intended to inform the carrier And
other parties that the item can only be exported to the specified destination.
Shippers export declaration: Shipper Export Declaration is issued for specific export control
And to compile trade data. It is necessary for invoices of higher value $ 2,500 carriers and
exporters also have to declare hazardous cargo.
Pro forma invoice: A pro template invoice is a temporary invoice sent to a potential buyer. It is
usually in response to subsequent requests for price quotes. A quote Usually describes the
product, and says the price at a certain delivery point, Invoice time, and payment terms.
Buyer is required to obtain a foreign currency or import permit. Quotation of such invoice is
subject to change without notice There is a gap between time and when to prepare a quote
Invoices are made to foreign customers.
Export packing list: An export packing list itemizes to the contents of each individual package.
Export packing list indicates the type of package. Export packing list shows the weight and
measurement for each package. It is used by export and customs Importing countries inspect the
goods and confirm by the exporter Total cargo weight, volume, and shipment of the correct
product. The packing list should be included in the package or it should be enclosed in a
waterproof envelope outside the package marked-Packing List Closed.
Manifest: A manifest is a detailed summary of the total cargo of a ship for customs purposes. It
covers cargo status, and Heavy lifts and minimizes their position.

Transportation ata important na

Air transportation:
It is the least utilized mode of transportation for cargo. Air transportation is less than 1% of the
total international freight movement. However, it is not limited to the fastest growing mode and
movement only high priced products.
There are many factors that can contribute to such growth Air travel. They are:
1) In this context, a lot of infrastructure is being invested ,there is potential demand for heavy
imports in developing countries Equipment and services. It is estimated that the amount of such
imports About $ 17.8 billion in land transport, sea, and airport projects South America alone.
Some of them export certain types of equipment Countries, such as bulldozers, buses, or oil-
drilling equipment, often do not fit into an ideal sea vessel.
2) Delays in cargo delivery can be overwhelming Financial loss or penalty for suppliers. There
can be no such demand Compromise using the traditional mode of the vehicle for heavy Freight
airfreight became the only efficient means of transportation Goods to ensure timely delivery.
3) The last two decades have seen significant technological changes The size and design of the
aircraft has been changed to handle heavy cargo. In addition, it has contributed to the
improvement of terminal facilities in many countries Increased speed and better handling and
storage of shipments at airports, thus minimizing loss or damage to cargo.
4) There are integrators and forwards have also played a role. Improvement Integrated service
carriers have increased the amount of air cargo.
There are some advantage and disadvantage of Air Transportation:
Advantage:
1) We can very Quick delivery of perishable Products, production Part, etc by air transportation.
2) For air transportation , there is no need heavy packing for shipment.
3) by air transportation inventory and storage costs are reduces.
4) it reduces inventory cost and documentation.
5) And by air transportation we can achieves savings in total transportation cost and provides
reliability of service.
Disadvantages:
1) Usually air transportation is very expensive for high-bulk Freight and standards must be high
enough for high freight cost justification.
2) Air transportation is Inefficient for short distances, which Quickly driven by truck. Only
Express air service, such as UPS Or DHL, are equally competitive Services.
3) For air transportation it is must be small in shipping container enough to fit in an air carrier.
4) For air transportation it is not suitable for that product Sensitive to low pressures and
Temperature variation.

Air cargo rates:

As the distance from the destination point as well as the weight and size of the shipment are
important determinants of air Cargo rate. International Air Transport Association hall In that
forum fares and rates are discussed between member airlines. Large carrier Integrated airlines are
under increasing competitive pressure. Although traditional carriers offer airport-to-airport
services, integrators have the added benefit of providing direct delivery services to customers,
including customs clearance and import duties to overseas destinations.
Ocean Freight:
Sea shipping is the least expensive and most effective mode of transportation in foreign trade. It
is especially suitable for moving such as bulk freight products and other raw materials. Now a
days almost all sea freight Travels in containers, resulting in minimal handling at the port. If a
full container-loaded cargo is sent, a freight forwarder arranges for the container to be delivered
to the shipper's premises. when the container Fully loaded, it is taken by truck to a port for
loading on a ship.
Types of ocean carriers:
Private fleets: These are large fleets of specialized ships owned and operated by merchants and
manufacturers to carry their own goods. In addition Its cost advantage, ensures the availability of
ownership of a private fleet Cars that meet the special needs of the firm. Such ships can happen
occasionally Leasing to other companies during limited activity. Some companies in certain
industries like oil, sugar or wood own their own fleet.
Tramps: Tramps is a vessel leased for transportation, which is usually bulk cargo that Fill the
whole ship.
The main reason for Tramp's continued existence Shipping is that
1) it provides the essential sea transport at the lowest possible cost, and
2) it can be adapted to modified and / or unforeseen requirements for transportation.
Conference lines: this line is a voluntary association of ocean carriers operating on a specific
trade route between two or more When the country shipping conference goes back to the
nineteenth century These national associations were established for trade between England and
its colonies. One of the distinguishing features of a liner service is that the vessels are regular and
repeat from a designated port on a trade route and at breaks. The amount of cargo generated
along that route is established as a reaction.
The role of freight forwarders in transportation: A freight forwarder is the party that
facilitates the transportation of goods Process foreign destinations and documentation on behalf
of shippers or perform activities related to those shipments. 1) they advises the exporter on the
most economical choice of transportation and the best way to pack and ship cargo to reduce costs
and prevent damage and 2) book for air, sea or land. Arranging transportation and pickups,
Transportation, and delivery of goods. The forward also confirms that Products are packed
correctly and have labeling and documentation requirements The cargo destination is cleared at
the port so it is filled. When a letter When credit is used, the forwarder ensures that it adheres
strictly to enable the exporter to accept payment. So, the advantage of a forward goes Freight
moving far away. Forwards help shippers and consignees Tracking and tracing cargo. They can
negotiate a better rate with the carrier Because they can buy space on airlines or ships at
wholesale prices. The wide array of services they provide also helps shippers save time &
Money.

Chapter 7

Pricing in international trade:

For competitiveness in the world market Price is an important factor . pricing is a policy and
method Secret information For many companies. And sometimes this information are not
readily available to outsiders. For to make a reasonable profit and Competitive in the market
Export price should be high enough and still low enough.
An important element of pricing is the relationship of value to consumers Put on the product.
value results from the overall consumer perception Satisfaction provided by the product.
Pricing in the world market is often used as an instrument of accomplishment The marketing
purpose of the firm. Can use firm fixed acquisition value To reach the level of market share,
profit, or return on investment, or something Other specific goals. The following policies for
pricing and markup are generally applicable to both domestic and export markets:
High markups are common in industries with relatively low competition. Markups are also more
common in companies that have industry Produce different products instead of the same product.
The High markup can be taken as rent arising from market power. For In the chemical industry,
for example, specialization has the most benefits Chemicals designed and manufactured for
special industrial use. Higher markups can also be due to R&D costs and The cost of increasing
the efficiency of the workforce.

In areas where competition has increased, export prices are relatively low. Competitive price
changes or demand conditions may cause export price declines. Markup Comparatively less for
textiles, food, electrical appliances and motor vehicles; They hold high positions in the
pharmaceutical, computer, etc. industries Industrial chemicals, and television and
communication equipment. Less markup for the former Due to the fragmented and non-divisive
nature of these industries, which makes it difficult to apply market power.

Determinants of export prices:

There are Several variables affect the level of export prices. Some of it Firm interior. Other
factors are that the firm is external. There are a major internal variable is the cost that is included
in the export price. There are some common costs associated with exports include market
research, credit Checks, business trips, product changes, special packaging, freight forwarders
etc. In many countries channels are often responsible for price increases long delivery. Genarelly
, manufacturers' representatives suggests high price controls to exporters.

Supply and demand: Export price is connected with its raw materials, parts and other inputs. In a
competitive economy, any increase in demand is followed by a high Prices, and for high prices
it turn to moderate demand. It is often said that the export of manufactured goods exhibits the
same value Featured as primary products and their prices vary by state World demand and
supply.
Location and environment of the foreign market: Sometimes there is a need to change the
product in different markets for weather conditions and this is reflected in the price of the
exported product. Products that go bad High-humidity conditions require special and also need
more expensive packaging. We can say for example, engines that will be exported to tropical
countries Requires additional cooling capacity.

Economic policies such as exchange rates, price controls, and tariffs also influence export
pricing:
For exchange rate devaluation improves price competition, and this leading to Export volume
and market share increase. We can say In the export market where buyers are accustomed to
discussing prices, a flexible price is preferred which applies equally to all buyers.

Government regulations in the home country:

Export price also depend on government regulation in the home country. So there different
regulations is an effect on the export price of the country. For example, U.S. The government's
move to reduce the impact of its no-confidence motion on competition abroad has increased
Americans' ability to compete on price.

Pricing in export markets:

Export price decision is different from domestic price decision in the home market. Market
differences need to be considered in export decisions .it depends on the existence of cartels or
trade associations, and the existence of different channels of distribution.
It is customary to charge a high price during introduction and growth. The stage of a product
and the gradual decrease in price as the product matures. Other pricing options include 1)
multicenter pricing, which Pricing sensitive to local conditions, 2) geocentric value, by which a
Firm hit an intermediate position.
There are four methods for export Price.
Cost based pricing:
In this case, There are most common pricing method used by exporters is based at a completely
cost-based price. Under this method, a complete markup rate with full cost is determined and
then added to the price of the product. And the price markup rate may be based on the desired
target rate of return Investment.
The marginal approach to pricing: Marginal prices are more common in the exports market than
domestic market. It is often employed by businesses for unused power or profit Market share. In
this system, incllude only variablr cost of production. price does not cover the total cost of the
product. For this reason lower price sale in the export market than domestic market.

Skimming versus Penetration Pricing:

In this system, charging a premium price for a product is common Industries, where there is less
competition. These products are directed at the high-income, price-resilient segment of the
market. The penetration-price policy is based on charging lower prices for exports to stimulate
market growth. higher profits can be earn by increasing market share and maximizing revenue.
Demand-Based Pricing: in this system, the export price is depend on what the consumer is
willing to pay for the product or service. When the price is set depending on the demand, then it
will help to provide data to identify the level of market survey Demand .Generally, the level of
demand usually sets the price range that will be acceptable to customers. Sometimes companies
test-market a product Different prices and then they setup a fixed price which results in
maximum sales.
Competitive pricing: it is very important in setting pricing the export market. The competitive
pricing system, export price is established by maintaining the same price level as a competition,
reduce the price or increase the price with some level Product improvement. price cutting is a
more effective strategy for smaller competitors than influential companies. The factor of
establishing a pricing strategy is also an important to estimate of the possible reactions Existing
and potential competitors.