INDICATIVE CONTENT

September 28, 2020

September 28, 2020

 Overview of International Payment

INTERNATIONAL PAYMENT  Foreign Exchange Rate, Derivatives and Balance of Payment

Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

 Instruments of International Payment

 Methods of International Payment

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Lecturer: Vũ Thị Đan Trà (PhD)

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CORE TEXTS
ASSESSMENT
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September 28, 2020

 The formal assessment of this course will be conducted through  Dinh Xuan Trinh (2011) International Payment, Labour
attendance, one closed book mid- term test and and a closed Publishing House
book examination.
Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

 Nguyen Van Tien (2011), International Payment, Statistical
 Attendance 10% Publising House
 The closed book mid-term test 30%
 The closed book examination 60%
 The students’ participation and performance in classroom
activities will be highly appreciated and scored by adding to the
mid-term test result.

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RECOMMENDED ADDITIONAL READING RECOMMENDED ADDITIONAL READING

2. International Laws and Conventions: 3. National Laws:
 Uniform Law for Bill of Exchange- ULB 1930  Law on assignment instruments (This Law has been effective

 Uniform Law for Cheques- ULC 1931 from 01 July 2006)

 Ordinance on foreign exchange control (This Ordinance has
been of full force and effect as from 1 June 2006)

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 LECTURE SEQUENCE

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RECOMMENDED ADDITIONAL READING
4. International Uniform Rules and Practices: Lecture Topics

 UCP 600 2007: Uniform customs and Practice for Documentary Credits 1. Introduction to International Payment
(2007 Revision, ICC Publication No.600, in force as of July 1, 2007.

Foreign Trade University, HCM campus

 ISBP 745 2013: International Standard Banking Practice for the 2. Exchange rates and Foreign Exchange market
examination of documents under documentary credit, subject to
3. Exchange rates and Foreign Exchange market (cont.)
UCP600-2007 ICC
 eUCP 1.1 2007 4. Balance of payment
 URC 522, 1995, ICC- Uniform Rules for Collection.
5. International payment instruments
 The Uniform Rules for Bank to Bank Reimbursement under
Documentary credit- URR, No. 725, ICC 6. International payment instruments (cont.)

8-15 Methods of Payment

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Foreign Trade University,

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CONDITIONS IN THE PAYMENT TERM

DIFFERENT FORMS OF TRADE RISK OF FOREIGN TRANSACTIONS
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 Currency
 Place of Payment
Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

 Time of Payment

 Method of Payment

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CURRENCIES INTERNATIONAL CURRENCIES

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September 28, 2020

 World currency • USD - The Bretton Woods Agreement (1944-1971)

 International currency
SDR - The Jamaica Monetary Agreement in 1976
Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

•
 National currency

 Convertible currency • Transferable rouble- The Multilateral Clearing Arrangements in

 Account currency
SEV (Council of Mutual Economic Assistance) (1964- 1991)
 Payment currency
• EUR- The Maastricht Treaty in 1992 (it created the European
Union and led to the creation of the single European currency,
the Euro)
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 CURRENCY CONVERTIBILITY II. PLACE OF PAYMENT

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 A country’s currency is said to be freely convertible when the  Buyer’s country
country’s government allows both residents and nonresidents to  Seller’s country
purchase unlimited amounts of a foreign currency with it.

Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

 The third party’s country
 A currency is said to be externally convertible when only
nonresidents may convert it into a foreign currency without any
limitations.
 A currency is nonconvertible currency when neither residents
nor nonresidents are allowed to convert it into a foreign currency

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TIME OF PAYMENT ADVANCE PAYMENT

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 Advance Payment  Performance Bond
 At Sight Payment: COD, COB, D/P; D/P x days, COR  Pre-shipment finance for an exporter by an importer
Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

 Deferred Payment

 Mixed/ Combined Payment

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PERFORMANCE BOND
PERFORMANCE BOND
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 Case 1:
 PA = Q (HP- MP).  Case 2:
 Where:  PA = TA [(1+R)N – 1] + Pe
Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

- PA: Performance Bond Amount  Where:

- Q : Quantity of items - PA: Advance Payment Amount

- HP: High price - TA [(1 + R)N -1]: Interest for pre-shipment period
- MP: Market price - R: Interest rate
- N: Maturity
- Pe: Penalty (6% TA)

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 PRE-SHIPMENT FINANCE PRE- SHIPMENT FINANCE

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 Pre-shipment finance for exporters is the finance required to
bring an export transaction to the point of shipment – either to PA [(1 + R)N -1]
manufacture, process, or purchase merchandise and commodities
 DP = ──────────.
for shipment overseas

Foreign Trade University, HCM campus

Q
Where:
- DP: Discount Price
- PA: Advance Payment Amount
- R: Interest rate (month/year)
- N: Maturity (month/year)
- Q: Quantity of items

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PREPAYMENT
PRE- SHIPMENT FINANCE
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 Low risk for seller because buyer pays up-front.  From the exporter’s point of view the simplest method of payment is
 Partial prepayment more realistic than prepayment in full. remittance (by SWIFT, telegraphic transfer or mail) through a bank on
acceptance of the order, or even at some time prior to shipment of the
Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

goods.
 In most cases the buyer is not likely to favor this method, except
perhaps when the buyer is an overseas affiliate of the exporter, or when
the buyer urgently requires the goods, and the exporter is in a position
to dictate the terms of sale.

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MANAGING PAYMENT RISKS

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 Advance Payment Bonds: Should the exporter fail to meet their

obligations under the export contract, the buyer can call on the
bond to recoup payments made in advance.
Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

 Performance Bonds: The buyer may call on the bond if the exporter
fails to perform their obligations under the export contract.

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 September 28, 2020

September 28, 2020

Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

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INCOTERMS 2010 DAP

DEFERRED PAYMENT

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DAT/ DPU
(Incoterms
EXW 2010/2020)  COD x days
Importer DDP  COB x days
Exporter

Foreign Trade University, HCM campus

CFR  D/A

CIF  COR x days

CPT
Transportation Transportation
to Dock CIP to Buyer Import
FCA Dock of
Duty
Dock of
FAS Exportation Importation
FOB Loading
Ocean Marine Unloading
onto
Freight Insurance Charges
Vessel
Price/Shipping Terms 27 28
Cost - Risk Equation

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IV. METHODS OF PAYMENT METHODS OF PAYMENT

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 How to pay? Non- documentary methods of payment Documentary methods of payment

Remittance Documentary Collection
 By what to pay? What are commercial documents/ financial
Open account Documentary Credit
Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

documents?
Letter of Guarantee Authority to Purchase
Clean Collection
Stand-by LC

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 METHODS OF PAYMENT: THE CASE OF THE US NEWLY BORN METHOD OF PAYMENT

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 Bank Payment Obligation

Simply put, a BPO is an irrevocable document given from a

Foreign Trade University, HCM campus

Foreign Trade University, HCM campus

buyer’s bank to a supplier or seller’s bank, where an
agreement is made to pay a specified amount of money on
an agreed future date under the condition of electronic
matching of data.

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Foreign Trade University, HCM campus

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