Joseph Melvyn Ledesma

BSBA-4A

BA132 International Business and Trade

My Activity Answer & Explanation

__C__1. Seafood Inc.'s most realistic option to obtain trade financing would be negotiating an
advance on the documentary credit with TESCO. This option allows Seafood Inc. to receive funds in
advance based on the documentary credit, which can help with their immediate financial needs
related to the trade transaction. However, it's important to consider the specific terms and
conditions of the documentary credit and negotiate with TESCO accordingly.

__A__2. In the context of this transaction, the main benefit that would be lost if Seafood Inc. were to
relinquish the documentary credit payment option is option a: Seafood Inc. has a commercial risk
concern about the buyer's ability to pay, which documentary credits help mitigate. Documentary
credits provide a level of security by ensuring that the bank will make payment on behalf of the
buyer upon presentation of the required documents. This mitigates the risk of non-payment or
default by the buyer, giving Seafood Inc. confidence in receiving payment for their goods and
reducing the commercial risk associated with the transaction.

__B__3. Seafood Inc. might consider receiving payment by documentary collection for the following
reasons: option b - it offers TESCO an incentive to continue its business relationship with Seafood
Inc. in the long term. By opting for documentary collection, Seafood Inc. demonstrates a willingness
to work with TESCO in a mutually beneficial manner. This can help foster a stronger and more
sustainable business relationship between the two companies, potentially leading to future
opportunities and collaborations. It is important to note that documentary collections do not
eliminate commercial risk entirely, as there is still a level of trust and reliance on the buyer's
willingness to make payment.

__A__4. If TESCO requested 14-day payment terms instead of the revolving credit, the best option
for Seafood Inc. would be option a: Documentary collection. With the documentary collection,
Seafood Inc. can maintain some control over the shipment of goods while still allowing TESCO to
make payment within the agreed-upon timeframe. This method involves the use of banks to handle
the collection of payment and the release of documents to the buyer upon payment or acceptance
of a draft. It provides a certain level of security and reduces the risk of non-payment compared to
open account terms (option b). Therefore, option a, documentary collection, would be the most
suitable choice for Seafood Inc. in this scenario.
5. In this scenario, since the buyer and seller have entered into an agreement that the buyer would
pay by irrevocable documentary credit, the buyer cannot unilaterally cancel the order without valid
reasons. Irrevocable documentary credits provide a level of commitment and assurance to the seller
that payment will be made upon compliance with the terms and conditions specified in the credit.

If the seller has already received notification from their bank about the availability of the credit, it
indicates that the credit has been established and is in effect. Therefore, the buyer's decision to
cancel the order based on finding a more attractive offering would not be a valid reason to cancel
the order.

However, it's important to review the specific terms and conditions of the agreement and the
documentary credit to determine any provisions related to cancellation or disputes. In such cases, it
is advisable for the seller to consult with their bank and seek legal advice to understand their rights
and options for recourse in this situation

6. In a situation where the seller has evidence that the goods were shipped but the shipment was
made after the last shipment date mentioned in the credit, the bank's obligation to pay the credit
would depend on the specific terms and conditions outlined in the documentary credit. The bank's
decision to refuse payment could be based on the non-compliance with the agreed-upon terms.
However, it is advisable for the seller to consult with legal professionals or experts in trade finance
to understand their rights and options in such a scenario.

__C__7. In the given scenario, the coffee trader who wants to conceal the identity of the cooperative
from the buyer in Europe should consider using a back-to-back credit.

A back-to-back credit allows the trader to establish two separate credits: one with the cooperative
as the beneficiary and another with the buyer in Europe as the beneficiary. This way, the trader can
use the credit received from the buyer to finance the payment to the cooperative without revealing
their identity. It provides a layer of confidentiality and allows for smooth trade financing while
maintaining the desired level of anonymity.

8. Based on the information provided, it appears that the buyer's bank was not required to add its
guarantee to the payment of the bill of exchange. The seller's instruction to the bank to obtain
acceptance on the bill of exchange does not necessarily include a requirement for the buyer's bank
to provide a guarantee. It's important to review the specific terms and conditions of the agreement
between the seller and the buyer to determine if such a guarantee was explicitly mentioned or
required.