Final Exam International Business Transactions

non-tariff trade barriers include?

- Quota - Embargo - Boycott - Export control

The country of origin is used to determine:

-Nominal tariff rate on import -Possible preferential treatment -Possible antidumping or countervailing duties -Potential of quotas or embargoes -Applicable gov procurement rules

what are two ways to manage currency risk

1. Hedging.. pay premium 2. Forward.. decide in contract

what is the buyers bank concerned about in terms of extending a letter of credit

1. check audited financial statements 2. check credit history 3. discovery characteristic of company 4. ask for bill of lading to reassure that the transaction is happening 6. give specimen of letter of credit to sellers bank

what three things does a bill of lading represent?

1. receipt for the goods from the carrier 2. contract of carriage between the shipper and the carrier 3. document of title to the goods described in it

what would a seller require from buyer or its bank before allowing the good to leave the loading doc?

1. specimen of letter of credit that can be testified with - bill of lading - commercial invoice - certificate of origin 2. Info about reputable bank

IMF

1944 Bretton woods a United Nations agency to promote trade by increasing the exchange stability of the major currencies

how does a treaty become law

2/3 vote by senate

executive agreement

A formal agreement between the U.S. president and the leaders of other nations that does not require Senate approval.

good faith purchaser

A purchaser who pays/gives value in the ordinary course of business without knowledge of any defect in the title to the goods for which they are paying

international franchising

A specialized form of international licensing. It occurs when a firm in one country (the franchisor) authorizes a firm in a second country (the franchisee) to utilize its operating systems, brand names, trademarks, and logos in return for a royalty payment.

Negotiating bank (seller's bank)

Agrees to pay the beneficiary by purchasing a negotiable instrument (e.g., importer's/buyer's draft).

commercial invoice

An official document which is used to indicate the name and address of the buyer and seller, the product(s) being shipped, and their value for customs, insurance, or other purposes.

inherent power

Authority claimed by the president that is not clearly specified in the Constitution. Include the power to the right to make treaties witht eh advice and consent of the Senate, power to appoint ambassadors, power to receive foreign ambassadors, power the power inherent in being commander-in-chief of the armed forces

negotiable bill of lading

B/L that can be transferred by its consignee to a third party by signing (endorsing) and delivering it to another party (the new consignee).

on-board Bill of Lading

B/L which certifies that the specified goods have been received in apparent good order and condition from the named shipper (consignor), and have been taken aboard the named ship (vessel) on the stated date.

documentary collection

Collection of a draft and accompanying shipping documents through international correspondent banks. Discrepancies may cause delays or non-pay.

What documents are required in a documentary collection in a sale of goods?

Commercial invoice, Bill of Lading, Certificate or Origin

according to the commerce clause

Congress exclusive power over trade activities between the states and with foreign countries. Trade within a state is regulated exclusively by the states themselves.

shipment contract

Contract of sale in which a seller bears the risk of loss only until the shipment of goods arrives at its named place of shipment (or port of origin).

international licensing agreements

Contracts by which the holder of intellectual property will grant certain rights in that property to a foreign firm under specified conditions and for a specified time.

what are the four groups of incoterms?

E, F, C, & D

binding ruling

Enables importers and other interested parties to get binding pre-entry classification decisions prior to importing a product and filing entries with Customs and Border Protection (CBP). It is also to get binding guidance about other CBP regulations pertaining to marking of country of origin requirements.

what country has the most FDI in the US

England, Great Britain

destination contract

Goods are not delivered until they arrive at the location given by the buyer. Contract of sale in which a seller bears the risk of loss all the way, until the shipment of goods reaches at its named place of arrival (or port of destination)

where is the world court located?

Hague, Neatherlands

Central institution embodying the international monetary system and promotes balanced expansion of world trade, reduced trade restrictions, stable exchange rates, minimal trade imbalances, avoidance of currency devaluations, and the correction of balance-of-payment problems. is an example of

IMF

Standby LoC

If a transaction fails and one party is not compensated as it should have been, the standby letter is payable when the beneficiary can prove that it did not receive what was promised. This is used more as insurance and less as a means of facilitating an exchange.

the forum for public international law disputes is

International Court of Justice/ World Court

Foreign Direct Investment

Investment made by a foreign company in the economy of another country.

issuing bank

Issues letter of credit and holds payment on behalf of the buyer until it receives confirmation that the goods in the transaction have been shipped.

"hague"

Location of the International Court of Justice, which rules on disputes between states. site of the royal residence of the de facto capital in the western part of the Netherlands,

Types of Rules of Origin

Preferential and non-preferential

How does the international court of justice work?

Primary judicial body of the UN. Only hears cases b/w countries! (so, not companies/individuals). Located in The Hague, Netherlands. Parties (countries) to a dispute have to agree to let the World Court hear it > limited. The decisions are made public. No appeal. Decisions are binding only on the parties to the case, and not to all nations of the world.

how is the United Nations structured?

Secretariat Security Council Int'l Court of Justice (ICJ) Economic and Social Council General Assembly

C Terms

Seller is responsible for certain cost after the goods have been delivered to the carrier. Risk of loss transfers when the goods cross the ships rails

direct exporting

Selling products in other countries without using an intermediary. This is tougher because you don't have a cultural contact

Bretton Woods conference

The Bretton Woods Conference, officially known as the United Nations Monetary and Financial Conference, was a gathering of delegates from 44 nations that met from July 1 to 22, 1944 in Bretton Woods, New Hampshire, to agree upon a series of new rules for the post-WWII international monetary system. Results were: creation of International Monetary Fund (IMF) and International Bank for Reconstruction and Development (World Bank)

Trans Pacific Partnership

The Trans-Pacific Partnership (TPP) is a proposed regional regulatory and investment treaty. As of 2014, twelve countries throughout the Asia Pacific region have participated in negotiations on the TPP: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam.

comparative advantage

The ability of a country to produce a good at a lower cost than another country can. Relates to global sourcing by providing cheaper/better quality products

strict compliance rule is as it related to a Letter of Credit

The prevailing standard established by the courts for examining documents According to this view, the terms of the documents presented to the issuing bank must strictly conform to the requirements of the letter of credit and Uniform Customs and Practices for Documentary Credits (UCP).

subrogation

The substitution of a third person in place of a creditor to whose rights the third person succeeds in relation to the debt. (Title company)

Irrevocable LoC

These stipulate that no amendments or cancellations can occur without the consent of all parties involved.

indirect exporting

Using an intermediary to assist in the exporting. The easiest way to start, least commitment and risk, but also produces the least profit because some of it has to go to the intermediary. You sell it through a partner

primary judicial branch of the UN

World Court

World Court

a court established to settle disputes between members of the United Nations, Court that hears cases brought by nations, against nations. Decisions are binding only on the parties to the case, and not to all nations of the world.

what is the purpose of the Bill of lading?

a document of title "to the order of" whoever has this document has ownership of the goods titled on this documents, key document in a documentary sale,

Straight Bill of Lading

a non-negotiable bill of lading that is issued to a specified consignee for the delivery of the goods and that cannot be endorsed to another party.

global sourcing is

a term commonly used to describe the procces by which a firm attempts to locate and purchase goods and services on a world basis

customs brokers

agent of the importer, experts, move shipment through customs and handle documentation

export management company

an independent firms that assumes a range of export-related responsibilities for manufacturers, producers, or other exporters. (render advice or assume full responsibility)

export management company

an independent firms that assumes a range of export-related responsibilities for manufacturers, producers, or other exporters. (render advice or assume full responsibility). Acts as a sales agent and distributor for domestic exporters in international markets

Harmonized tariff system is

an internationally standardized system of names and numbers to classify traded products

both parties have to agree for

an issue to be brought to the world court

letter of credit

an undertaking, paid for, by the bank upon presentment of certain documents

what is chosen method of dispute resolution by a buyer?

arbitration

as a seller, choice of tribunal would be

arbitration because its cheaper and more time efficient

choice of law

as a seller, you prefer the CISG because it is practical in comparison to focusing on each countries law

Transatlantic Free Trade Agreement

between th eUS and Europe, aims to protect investment and remove uneccesary and regulatory barriers

export management companies assist indirect exporters by serving as

consultants

international franchising allows the franchisee the right to use

copy or trademark

what is a commercial invoice?

describes the goods and shows the price to be paid

How do you manage currency risk?

designate in the contract, which currency the party will be paid in. or Hedge

D Terms

destination contract.. require the seller to bear all costs and risks to bring the goods to the destination determined by the buyer

Preferential rules of origin:

determine the country of origin on goods imported from countries that have been granted a trade preference by the importing country. Trade advantage is some favorable treatment

Non-preferential rules of origin:

determine the country of origin on goods imported from countries that have been granted normal trade relations status by the importing country. (NTR)

international monetary fund lends money to

developing countries to assist them with such problems as high interest rates and inflated prices

two types of exporting?

direct and indirect

security agreement

doc that provides a lender a security interest of certain asset and the asset can be used for a lein on that specific asset

Documentary sale

documents you exchange for money, for the documents

an example of a total, or near total band of nontariff barrier is

embargo

hedging

entering into a contract to discuss a price up front. Pay a premium up front to make sure the exchange rate never exceeds the threshold

freight forwarder

expedite transportation of goods and the prep of shipping or customs documents. act as the shippers agent for exporting

Foreign Law Risk

exposure to foreign laws

exchange rate risk

financial risk that exists when a financial transaction is denominated in a currency other than that of the base currency of the company.

how can currency exchange rate risk be managed

forward or hedge

Advising bank

informs and advises the seller that the letter of credit is available to be picked. They have no responsibility to honor a draft or purchase the seller's documents.

global sourcing

involves obtaining goods and services across geopolitical boundaries; primary goal is to find the least expensive labor and raw material costs and the lowest taxes and tariffs.

international law

is a rule accepted by the international community of states

implied warranty benefits the buyer because

it is broader and imposed by law

expressed warranty benefits the seller because

limits the time and extent the warranty that you are going to give for the goods you are selling

most favored nation policy

lower tariff rate negotiated with one nation automatically grants lower tariff rates to like products imported from all nations that stand in most favored nation status with the US

GATT

main purpose is to reduce tariff and open a world market to countries, started 1947

choose arbitration because

more time efficient and cheaper resolution, completely private and final

rules of origin

national laws and regulations of administrative agencies, usually customs authorities, which are used to determine the country of origin of imported products

What is the commercial invoice used for?

needed to be included in the documents handed over to receive the letter of credit

Emergency economic powers act

passed in 1977. Delegated power that congress had to the president to impose financial sanctions and other trade sanctions on countries that posed an international economic threat.

How do you manage payment risk?

payment in advance (not a likely possibility) Get a letter of credit

E Terms

place the lowest amount of responsibility on the seller. Under these terms, the seller need only make the goods available at its factory and present the buyer with an invoice for payment. Truck or rail commonly used

international business law draws from both

public and private law

an example of a quantitive nontariff barrier is

quota

Boycott

refusal to trade or do business with certain firms, usually from a particular country, on political or other grounds.

confirmed letter of credit

requires that another financial institution guarantees the payment, which is usually the case when the beneficiary does not trust (in terms of creditworthiness) the other party's bank.

Quota

restriction imposed by law on the numbers or quantities of goods, or of a particular type of good, allowed to be imported.

Export Control

restriction on exports of goods, services, or technology to a country or group of countries imposed for reasons of national security or foreign policy.

expropriation

right for the government to seize property

payment risk

risk associated with fraud, default on a sales contract and fail to pay for the goods

casualty risk

risk posed to a business by accidents, natural disasters, criminal acts, etc. things that could happen to the cargo

Free on Board (FOB)

risk transfers when goods cross the ships rail at port of shipment, seller is responsible for loading the goods by specified time, paying cost of loading, and obtaining export license

CIF Cost, Insurance & Freight

risk transfers when the goods cross the ships rail at port of shipment, seller supplies insurance, if there is damage or loss, buyer may file a claim

country of origin is determined by

rules of origin

if a letter of credit is used in conjunction with trade finance, how will the bank secure itself

security agreement and pledge agreement

Emergency Economic Powers act gave the president the right to?

seize and freeze assets, and propose a trade embargo

economic risk

the chance that macroeconomic conditions like exchange rates, government regulation, or political stability will affect an investment, usually one in a foreign country

precise language used in a sales contract

the parties agree that any dispute involving any aspect of this transaction, both parties agree to resolve it with alternative dispute resolution

legal risk

the potential for loss arising from the uncertainty of legal proceedings, such as bankruptcy, and potential legal proceedings.

delivery risk

the risk that a counter-party in a transaction may not be able to fulfill its side of the agreement by failing to deliver the underlying asset or the cash value of the contract

political risk

the risk to a firms business interest resulting from political instability or civil unrest, political change, war, or terrorism in a country in which the firm is doing business -> unpredictable

F Terms

the seller is required to deliver the goods to designated point of departure "free" of expense or risk to the buyer. risk transfers at point of departure. The buyer pays for transport and freight fees

Incoterms

there are 13 types, each classified into one of four groups, terms that classify when risk is transferred

Embargo

total or near-total ban on trade with a foreign country or countries.

three forms of international business

trade, FDI, licensing

pledge agreement

turn over the title to the bank in the case of fraud

Bilateral Investment Treaty

two countries sign an agreement that will lesson the barriers of trade amoung the US and China

World Trade Org

used to be GATT but switched on 1995, Administers the rules governing trade between its 144 members. Helps producers, importers, and exporters conduct their business and ensure that trade flows smoothly.

self executing treaty

when you sign, it becomes the law of your country,