1.

In negotiating price and payment, what should the price the exporter quotes
relateto?
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
acceptspayment 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.
8. What are payment insurances?
 
Bank guarantee.
 
Export credit insurance.
9. Who can offer bank guarantee?
A bank.
10. Who can offer export credit insurance?
An insurance company.
11. What are the two main elements in payment?
 
Time.
 
Structure.
12. What does the exporter have to suffer from late payment?
Bank interest.
13. What is an incentive for early payment?
Offer a discount.
14. How to fix payment date?
To use a calendar date or interval times.
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.
17. When delay in payment is excused?
 
Delay happens in the grace period.
 
Delay is caused by force majeure events.
18. What payment does the importer have to pay the exporter in case of late payment?
Compensation for losses due to late payment.
19. What may reduce risk for exporters?
Exporter may reduce risk by spreading risk with the third party.
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.
21. What can we imply when the insurance company refuses to offer an
insurancequotation?
 
The insurance company knows the buyer’s uncreditworthiness.
 
The business is risky.
22. What does the insurance premium depend on?
 
 The type of the goods

 The creditworthiness of the buyer.

 The stability of the buyer’s country and so on.

 
23. What is the guarantee triangle?
That is the relationship of the principal, guarantor and beneficiary in terms of guarantee.
The principal (the buyer) makes a promise to pay the contract price to the beneficiary (the
seller).Then the principal ask the guarantor (the bank) to issue a guarantee. In case the
principal failsto pay, the guarantor will pays money to the beneficiary.
24. What is Export credit insurance?
It is a guarantee of payment for the exporter from a third party, an insurance company,
whichissues an export credit insurance policy covering the risk of non-payment. The
exporter has
to pay the costs for that guarantee. The insurance company will pay the exporter in case t
he buyer fails to do so.
25. What is a bank guarantee?
 It is a guarantee of payment for the expoerter from a third party, a bank. The bank may
issue a bank guarantee assuring in case the bank will pay for the exporter in case the
buyer fails to doso. The buyer has to pay the costs of that guarantee.
26. Distinguish Export credit insurance and Bank Guarantee?
Both of them are guarantee of payment from a third party, providing the exporter
withsome level of security in terms of payment.
 
For export credit insurance, the exporter has to pay for that guarantee while it is the
buyerwho pays for a bank guarantee. The third party offering export credit insurance is
theinsurance company while the bank offers a bank guarantee.
27. What are some limitations of Export Credit Insurance?
There is always a long wait between the time when the buyer fails to pay and the
timewhen the insuarance company compensates the exporter, says six months typically.
 
When compensates is paid, it is unlikely to cover 100% of the original invoice price.So
with export credit insurance, the export is covered against the worst.
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.
29. In terms of guarantee, what does it mean by “without demur or objection”? 
It means “on first demand”. Whenever the benefici
ary demands payment under the guarantee,the bank will pay.
30. What is a Conditional Guarantee?
It is a guarantee from a bank but with serious, objective conditions that must be met
before payment by the bank is possible.
31. What is a Letter of Credit? Why it is also called Documentary Credits?
A letter of credit is a binding agreement by a bank to pay a certain sum of money when
theexporter presents the necessary documents to the bank. In a letter of credit
transaction,documents are exchanged for money, so they are formally also called
Documentary Credits.
32. What kind of method of payment makes late payment impossible?
The confirmed, irrevocable, at-sight L/C.
33. What are steps in issuing an L/C?
 There are 4 steps in issuing an L/C:

 The exporter and the buyer sign a contract.

 The buyer asks a local bank to open a letter of credit.

 The issuing bank asks a bank in the exporter’s country to advise the exporter that
the letter of credit has been opened.

 The advising bank advises the exporter that the letter of credit has been opened.
34. What are the steps in presenting a Letter of Credit?
 There are 6 steps in presenting a Letter of Credit:

 The seller ships the goods.

 The seller gets shipping documents.

  The exporter presents the shipping documents to the advising bank.

 The advising bank checks the documents and (if appropriate) pays the exporter.

 The advising bank notifies the issuing bank that the credit has been presented and
forwardsthe shipping documents.

 The issuing bank transfers necessary funds to the advising bank.

35. Explain the two principles that make letters of credit safe for both exporter
and buyer: Autonomy 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 indicated
discrepancies?

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.
38. Distinguish Irrevocable and Revocable Letter of Credit.
A revocable L/C is the L/C that can be cancelled at any time by the buyer or by the
issuing bank.
 
An Irrevocable L/C is the L/C that can only be cancelled with the written consent of
theexporter.
39. Distinguish the Confirmed and Unconfirmed L/C. 
The Unconfirmed L/C is less secure than the Confirmed one. Normally, the exporter
hasgot certain security for the non-payment risk when using the L/C as a method of
paymentin their sales of goods to the buyer. The issuing bank will have to pay the
exporter for thegoods in case the buyer fails to do so.
 
With the Confirmed L/C, there is a promise from another bank, the confirming bank,
usually the advising bank too, to pay for the goods, if the buyer fails to do so. It’s a kind
of double guarantee for the exporter so he knows for sure that he will get money as long
as hesubmits a set of documents, strictly complying with the terms and conditions stated
in theL/C.
40. What is the term ”Settlement by Sight Payment”? 
The Seller presents the documents to the Paying bank.
 
The Paying bank immediately pays the Seller.
41. What is the term ”Settlement by Deferred Payment”? 
The Seller presents the documents to the Paying bank.
 
The Paying bank agrees to pay the Seller the face value of the credit when it matures.
42. What is the term: “Settlement by Acceptance”? 
The Seller presents to the Accepting bank the documents and bill of Exchange (time
draft)drawn usually on the Buyer.
 
The Accepting bank agrees to pay the bill when it matures.
 
43. What is the term: “Settlement by Negotiation”? 
The Seller presents to the Negotiating bank the documents and a Bill of Exchange
drawnusually on the buyer.The Negotiating bank negotiates the bill (i.e., pays it at a
discount).
44. What are the associated documents with the L/C? 
 Commercial invoice.

 Transport document.

 The insurance document.

 
Other documents such as: certificate of origin, certificate of analysis, packing list,
weightlist, phytosanitary certificate, etc.
 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.
46. What are steps in negotiating the terms of a Letter of Credit?
 
Agreement: The exporter and the buyer discuss and list all required documentation.
 
Incorporation: The list is incorporated into the contract.
 
Specification: The buyer applies for the letter of credit specifying the agreed
documentation.
 
Verification: The exporter checks the credit to see that required documentation is
asagreed.

Compliance: The exporter rigorously checks documentations and submits it to the bank.
47. What are different segments in a Letter of Credit?
There are 21 segments in a Letter of Credit:
 
 Applicant.

 Issuing bank.

 Application date.

 Date and place of expiry of the Credit.

 Benificiary.

 Method of issue.

 Transfer of the credit.

 Confirmation.

 Amount.

 Partial shipment.

 Transshipment.
  Availability.

 Insurance covered by the buyer.

 Transport information.

 Description of the Goods.

 Incoterms.

 Documents.

 Presentation period.

 Additional Instructions.

 Authorization to Debit.

 Signature.
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.
49. Distinguish Partial shipments and Shipment in installments.
 
Shipment in installments means that an agreed schedule has been set up, for example,
threeequal shipments in March, August and October 2012.
 
A Partial Shipment is simply an incomplete shipment with some part of the goods
tofollow later.
50. Name types of L/C you know?
 
 At-sight L/C.

 Advised L/C.

 Back-to-back L/C.

 Confirmed L/C.

 Deferred Payment L/C.

 Irrevocable L/C.

 Red Clause L/C.

 Revocable L/C.

 Revolving L/C.

 Stand-by L/C.

 Transferable L/C.

 Traveler’s L/C.

 Unconfirmed L/C