Export-Import Final Exam

What are the advantages of Export Factoring?

(1) Allows for immediate payment against receivables and increases working capital (2) provide bookkeeping services (3) assume credit risk in the event of the buyer's default or refusal to pay (4) factoring is a good substitute for bank credit when the latter is too restrictive or uneconomical

What is the benefit of countertrade for buyers?

1. transfer of technology 2. alleviation of balance of payment difficulties 3. market access and maintenance of stable prices

Export Working Capital Program (EWCP)

Another program under SBA 7a loan program, designed to provide financial assistance to export-ready companies. Loans provide up to a 90% guarantee to lenders so they will open up working capital for export businesses.

Accidental Discrepancies

Can be easily corrected by the exporter or the issuing bank. ex: typos, omission to state the L/C number, errors in math, improper endorsement or signature on draft

Antiboycott Enforcement & Penalties for noncompliance

Criminal: fines & imprisonment Civil: revoke export license, denial of export privileges, imposition of a fine, denial of tax benefits

Eximbank Guarantees

Provide repayment protection for private sector loans to creditworthy buyers of US exports. Covers 100% of political and commercial risks

Overseas Private Investment Corporation (OPIC)

a US government agency that encourages US companies to invest in foreign countries by ensuring that the companies will not lose money from foreign currency devaluation or foreign government takeover

Benefits of Free Trade Agreements

bid on certain government procurements in the partner country. obtain prompt and effective compensations develop product standards

What is internal financing?

using owns of resources retaining more profits in the business reducing accounts receivable reducing inventories

What are the disadvantages of export factoring?

(1) not available for shipments less than 100,000 (2) continuous/repetitive transactions (3) factors do not work for receivables with maturities of less than 180 days (4) factors do not work with developing countries because of inadequate framework (5) exporter could be held liable for disputes concerning merchandise

What are the four main reasons for export administration regulations (EAR)?

(1) protect national security by restricting the export of items that would make a contribution to the military of a country that is detrimental to the national security of the US (2) export regulations further foreign policy goals such as supporting human rights, regional stability, antiterrorism (3) preserve scarce natural resources and restrict the export of goods to protect the domestic economy from excessive drain (4) nonproliferation of weapons of mass destruction

What do anti boycotting laws prohibit?

(1) refusals to do business (2) discriminatory actions against any US person on the basis of race, religion, gender, national origin (3) giving info to a boycotting country (4) implementing letters of credit with prohibited conditions or requirements

Documentary Draft Steps

1. Agreement between buyer and seller for the purchase of goods. Seller plans to ship the goods to buyer and prepares the necessary documents. 2. Seller presents documents to their bank (the remitting bank) 3. Remitting bank forwards documents to buyer bank or the collecting bank. 4. Collecting bank presents documents to the buyer. 5. The buyer accepts the documents and pays the collecting bank. 6. The collecting banks advises the remitting bank of acceptance of payment. 7. The remitting bank advises seller on acceptance of payments

Steps in the documentary letter of credit:

1. Buyer contacts the seller. Transaction must be financed with a letter of credit. 2. Buyer applies to issuing bank, which issues a L/C to purchase goods. 3. Issuing bank (buyers bank) sends L/C to seller's bank (advising bank) to confirm the L/C 4. The advising bank notifies the seller that the L/C has been issued and is available 5. When the seller is satisfied with the L/C, the US seller arranges for shipment 6. After shipment, advising bank pays the seller 7. Advising bank sends docs to issuing bank 8. Issuing bank reviews/accepts docs and reimburses advising bank. 9. Buyers bank (issuing bank) gives the buyer the docs to present for acceptance 10. The buyer arranges for clearance of merchandise and gives up the bill of lading 11. The buyer pays the issuing bank on or behalf the draft maturity date.

Is an export control license required?

1. Is the item intended for export subject for EAR? (certain technology or software, certain US persons, weapons of mass destruction) 2. Is the item classified under the ECCN or CCL? Exporters should classify their product according to the commerce control list. 3. Do general prohibitions apply? (prohibited end users, embargoed destinations) 4. Are there any controls on the country chart? 5. Apply for export license 6. Destination control statement, shipping export declaration

OECD (Organization for Economic Cooperation and Development) Arrangements

1. cash payments: min of 15% of the contract price to be paid in cash 2. max repay is 5 years 3. min interest rates 4. min premium rates 5. tied aid: aid conditioned on the purchase of goods and services from the donor countries is limited 6. special sector understandings

Theories on countertrade

1. countertrade is positively correlated with a country's level of indebtedness 2. countertrade is positively correlated with a country's level of exports 3. countertrade is partly motivated in order to substitute for foreign direct investment 4. the stricter level of exchange controls, the higher level of countertrade activity

what are the benefits of countertrade for sellers?

1. increased sales opportunities 2. access to sources of supply 3. flexibility in prices

Countertrade concerns of the WTO

1. significant departure from the principals of free trade 2. results in higher transaction costs 3. inconsistent with the national treatment standard that embodies most trade agreements

How do you determine the capital needs of your business?

1. stage of evolution: startups may be smaller than those needed during the growth and expansion stage 2. ownership structure: younger firms more likely to receive equity financing 3. distribution channels- how expensive it is to operate

compound duty

A combination of specific and ad valorem duties

What is countertrade?

A commercial agreement in which the exporter is required to accept in part or total settlement of its deliveries, a supply of products from the importing country.

International Trade Loan Program

Assist businesses already engaged in international trade and those hurt by import competition

The Certified Development Company

Assists in the development and expansion of small firms and the creation of jobs. Program is designed to provide fixed-asset financing. Cannot be used for working capital or inventory, consolidating or repaying debt..

Forms of countertrade: Be Careful Of Sisters Stealing Cute Boots

Buyback: an arrangement in which a private firm will sell/license technology to an overseas customer with an agreement to purchase part of the output produced from the use of such technology. Involves the use of money. Co-dependency Counter-purchase: the person exporting goods promises to purchase goods from the purchaser or the importing country. Not related items. (involves hard currency) Offset: exporter (seller) allows a foreign government to reduce the cost of purchasing the exporters product by coproduction, subcontracting, investments, transfer in tech. (involves hard currency) such arrangements are mainly used for defense related sales, or other high tech products Swap: counter purchase involving debt (involves hard currency) Switch trading: a switch trader will buy or market counter traded goods Clearing arrangement: two governments agree to purchase a certain volume of each others goods/services over a given period of time. Barter: direct exchange of goods/services for goods

Discrepancies

Documents submitted that contain language or terms different from those in the L/C or some other irregularity. They can be corrected, but must be fixed in a reasonable time after shipment and before the L/C expires

specific duty

Expressed as specific amount of currency per unit of weight, volume, length, or other unit of measurement

Buy American Act

Legislation mandating that U.S. government purchases and third-party purchases that utilize federal funds must buy domestically produced goods, if the price differential between the domestic product and an identical foreign-sourced product does not exceed a certain percentage amount.

What are financing companies?

Loans for insurance companies and pension funds. commercial finance companies.

What is the SBA 7a Loan guarantee program?

Long-term loans to startups or existing small businesses used for working capital needs. Ex: purchase inventory, help carry receivables, purchase real estate to house business, acquisition of furniture and fixtures.

What is the Small Business Investment Companies? (SBICs)

Private co's funded by the SBA that were established to provide loan capital to small businesses. They prefer to finance existing small businesses with a track record. They consider loans for startup capital.

What are Antiboycott Regulations?

Prohibit US firms from US firms participating in foreign boycotts or embargoes not authorized by the US. Individuals and companies located in the US are covered. Also foreign subsidiaries controlled by US firms.

Foreign Corrupt Practices

Prohibits bribery of foreign officials by US individuals and corporations to obtain or retain a business. Establishes standards for maintaining corporate records and internal accounting objectives. Subject to all US citizens and residents Apply to all publicly held corps registered with the SEC and other domestic concerns. Criminal and Civil Penalties

Export Credit Insurance Program (ECIP)

Promote US sales abroad by protecting exporters against loss in the event of default by a foreign buyer or debt arising from commercial or political risks

Sanctions and Violations of EAR:

Prosecution of violators: 1. prevent violations before they occur with pre-license checks. 2. Conduct investigations 3. Violations: criminal and Administrative Cases 4. Find RED Flags: similar name/address as someone on the denied persons list

Tariffs

Taxes on imported goods

Eximbank

The export credit agency of the U.S. which guarantees working capital loans for U.S. exporters, guarantees the repayment of loans, makes loans to foreign purchasers of U.S. goods and services, and provides credit insurance protecting U.S. exporters.

Export credit agencies (ECAs)

The general term for entities that are established by governments to support export activities through export loans, credit guarantees, or a combination of both. They differ in the goals, magnitude, and types of services

Ad Valorem Tariff

a tax set as a fixed percent of the value of an imported product

Free Trade Agreement

an agreement between member countries to remove duties and trade barriers on products traded among them.

Working capital guarantee program

enables exporters to meet critical pre-export financing needs, such as build up inventory or marketing

What are sources of external financing?

family and friends banks- asset based financing lines of credit- short term loans intended for purchases of inventory and payment and operating costs person and commercial loans credit cards SBA financing companies equity sources

Eximbank Direct Loan Program

fixed rate loans to creditworthy foreign buyers for the purchase of US capital equipment, projects, and related services

nontariff barriers

forms of restricting imports other than tariffs, such as quotas (ceilings on how many goods of a certain kind can be imported) prohibited imports: narcotics, drug paraphernalia prohibited without a license: arms, ammunition imports requiring a license: alcohol, animal, animal products require leveling: wool, fur

SBA export express loan

helps in developing and expanding export markets expand production facilities

tariff-quota

hybrid form of trade restriction lower tariff rate for a certain quantity of imports and a higher rate for quantities that exceed the quota rates on these imports are raised after a certain quantity has been imported

absolute quota

limits the amount of a good allowed into the country to some specific quantity ex: dairy products, animal feed, chocolate, wine

Customs Brokers

move global shipments through customs and handle documentation entry and admissibility of merchandise classification and valuation

Generalized System of Preferences (GSP)

rich states give trade concessions to poor ones to help their economic development

Range of Export Credit Agency (ECA) services

short-term insurance medium long term export credit fixed rate financing foreign exchange risk cover direct loans investment insurance bond support

What does the SBA do?

the SBA has different facilities for lending that can be used at different stages of the business growth cycle.

What is factoring?

the process of selling accounts receivable for cash. the amount of discount depends on the kind of products involved. it enables exporters to offer flexible terms of sale (open account) without assuming credit risk. Importers prefer this because they forgo costly payment such as L/C

Major discrepancies

there are discrepancies that fundamentally affect the essential nature of the L/C. certain discrepancies cannot be corrected under any circumstance. ex: presentation of docs after the expiration date of the L/C, shipment of merchandise later than the specified date under the L/C, or expiration of the L/C.

Minor Discrepancies

these are minor errors in the documents that contain the essential particulars required in the L/C and can be corrected by obtaining a written waiver from the buyer. ex: failure to legalize documents, discrepancy between the wording on the invoice and the L/C