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Question For Chapter 2
Question For Chapter 2
=> The complete set of contract terms: size of order, terms of delivery, terms of payment,warranty
provisions and so on.
2. How can the exporter avoid the "price trap" occurred in many negotiations when the buyer demands
concessions about delivery time, method of payment, etc?
=> As items in the contract are negotiated, the exporter should assess the influence of each factoron
price, and adjust the price accordingly. Sometimes the exporter improves his terms withoutadjusting the
price, but only in order to create goodwill for future deals, to ensure that theexporter gets the order, or
for some other business reason.
3. What are the 5 steps in negotiating payment?
=> - Mode of payment: How will payment be made?
-Timing: What is the date of payment?
-Place of payment: Where must the money be before payment is considered complete?
- Delay: What delay in payment is excusable?
-Results of delay: What are the results of non-excusable delay in payment?
4. Why payment in international trade tightly controlled?
=>Because in international business, trust is rare, court is far away and unpredictable
5. What are the common methods of payment in international trade?
=> There are 4 common methods of payment in international trade:
-Payment on open account with no security.
-Payment on open account secured by export credit insurance.
-Payment on open account secured by a payment guarantee
-Payment by letter of credit
6. What is payment by open account? What are the risks for the exporter if he accepts payment by open
account?
=>Open account means the exporter ships the goods to the buyer and just waits till a forced dateas agreed
in their contract for payment from the the buyer. Normally, the exporter onlyaccepts open account
method of payment if he has known the buyer quite well and they haveestablished a long-term and
trustworthy business relationship
7. What are methods of payment in small purchases?
-Cash on delivery.
-Cash against invoice.
-Cash with order
12. What does the exporter have to suffer from late payment?
Bank interest.
15. What points at which money is deemed to be paid does the Buyer prefer?
-When the buyer instructs the bank to pay.
-When the buyer pays the money into his bank.
16.What points at which money is deemed to be paid does the Seller prefer?
-When the buyer’s bank transfers funds.
-When funds reach the seller’s bank account.
18.What payment does the importer have to pay the exporter in case of late payment?
Compensation for losses due to late payment.
20.In order to take out non- payment risk insurance, what does the exporter have todo?
Contact an insurance company and explain the details of the business, applies for a quotationfrom the
insurance.
21What can we imply when the insurance company refuses to offer an insurancequotation?
-The insurance company knows the buyer’s uncreditworthiness.
-The business is risky.
28. What are some common guarantees in business? Explain each of them briefly.
-For the risk of non-payment: Payment guarantee.A payment guarantee makes sure that the exporter will
receive payment. It commits the bankto pay if the buyer defaults. The payment guarantee is usually for
100% of the contract price.
-For the risk of revocation: Tender guarantee.This type of guarantee is used in case that the exporter
who bids on a contract to supply goodsor materials to a government department or agency is withdrawn.
A normal figure for tenderguarantee is usually from 1.5% to 5% of the contract price.
-For the risk of non-performance: Performance guarantee.Performance guarantee makes sure that if the
exporter works badly or not at all, the guarantor
will pay, within stated limits, the costs of the exporter’s failure to perform. A figure for
performance guarantee is from 5% to 10% of the contract price.
-For the risk of losing prepayment: Prepayment guarantee.This guarantee promises the buyer that the
bank will return advance payments if the exporterfails to deliver. The guarantee is often for 100% of the
prepayment.
35. Explain the two principles that make letters of credit safe for both exporter and buyer: Autonomny
and Strict compliance.
-Autonomy means that the L/C is a contract in its own right, entirely separate from thecontract for the
safe of goods.
-Strict compliance means that the exporter must present to the bank shipping documentsthat comply in
all respects with the terms of the credit. Small deviations will result inrefusal by the bank to pay.
36. What are the most common problems with L/C that cause discrepancies?
-Documents required by the credit are missing.
-Documents required to be signed are not signed.
-The credit amount is exceeded.
-The credit has expired.
-Documents are not presented within the required time.
-Shipment was short.
-Shipment was late.
37. What are the 3 ways the exporter can proceed once the bank has indicateddiscrepancies?
-Provide the missing paperwork or correct errors.
-Ask the buyer to instruct the bank to change the terms of the letter of credit, i.e., to issue anamendment.
-Ask the bank to process the letter of credit with the discrepancies but to pay only when(and if) the
issuing bank permits payment.
45. If a Letter of Credit requires“ a full set of original air waybills” to be submitted, what will be the
problem for the exporter?
Normally, an air waybill is issued in 03 originals and 09 copies. If a L/C requires “a full set oforiginal
air waybills”, this is obviously a mistake or an incorrect requirement.
Only the secondoriginal goes to the buyer or consignee. The exporter cannot submit that full set and
may berefused by the issuing bank when asking for payment as the bank must insist on strictcompliance.
48. About the expiry date of a Letter of Credit, why does buyer wants an early datewhile exporter wants
a later date?
-The buyer will want an early date to save bank charges.
-The exporter will want enough time after delivery to present the documents and to correctany
discrepancies that might be discovered by the bank.