International Trade Transaction Exam 1

DAT (Delivered at Terminal)

- Seller delivers goods uploaded at a specified place inside agreed terminal. - Risk is transferred as soon as goods have ben

Importer/Buyer

Applicant

Shipments of Goods + Presentation of Documents

To be paid under the credit, the exporter must prepare the goods for shipment in due time, and must assemble all the necessary documents. The exporter is well advised to check the documents against the documentary credit specifications before presenting them to the bank.

CFR (Cost and Freight )

- Seller covers cost of freight, duty unpaid, to named port of destination. - Risk is transferred as soon as the goods have been set down inside ship

CIF (Cost, Insurance and Freight )

- Seller covers cost of insurance and freight, duty unpaid, to named port of destination. - Risk is transferred as soon as the goods have been set down inside ship

CIP (Carriage and Insurance Paid to )

- Seller delivers goods to carrier at agreed place of delivery and pays for transport and insurance to named destination. - Risk transfers at the place of delivery, whereas seller pays for transport and insurance to the destination

DAP (Delivered at Place)

- Seller delivers goods to disposal of buyer on arriving means of transport, at agreed place. - Seller assumes risk until goods are made ready for unloading from the arriving means of transport

CPT (Carriage Paid to )

- Seller delivers goods to the carrier at agreed place of delivery and pays transport to the named destination. - Risk is transferred at place of delivery, whereas seller pays for transport to the destination.

FAS (Free Alongside Ship )

- Seller is responsible for delivery of goods at quay alongside the ship. From the point onwards - Risk lies with buyer

EXW ( EX Works)

- Seller is responsible for making the goods available at the sellers premises - Buyer bears the full risk from there to destination

DDP (Delivered Duty Paid )

- Seller responsible for bringing goods to the destination, paying any duty and making goods available to buyer. - Risk transfers as soon as buyer has access to goods ready for unloading at agreed destination.

FOB (Free on Board )

- Seller responsible for delivery of goods loaded on board the ship. Risk is transferred as soon as goods have been set down inside ship

FCA ( Free Carrier)

- Seller responsible for delivery to the custody of carrier. Identified by the buyer - Risk is transferred when loading has taken place

Incoterms involve...

1. Transport costs 2. Risk of loss or damage to the goods 3. Export and Import customs clearance + payment duties 4. Insurance responsibilities

Red Clause

A red clause credit allows pre-shipment advances to be made to the exporter at the risk and expense of the applicant.

The Bill of Lading

Acts as a receipt indicating that the goods were received in apparent good order and quantity, and also stipulates the contractual rights of the holder of the bill of lading against the carrier.

Irrevocable

An irrevocable letter of credit can not be amended or cancelled without the consent of all parties

Confirmed

As stated in the definition of confirming bank above,a credit is confirmed when a bank (usually the advising bank in the exporter's country) adds its own irrevocable undertaking at the request, or with the permission of, the issuing bank in addition to that of the issuing bank.

The Credit Application

Assuming parties have agreed all terms in sales contract, the importer will apply to its bank for the credit to be issued, thus becoming the applicant. The credit application, when accepted, constitutes a contract between the importer- applicant and its bank (issuing bank).

Exporter/Seller

Beneficiary

Which Incoterm requires the exporter to provide the importer with a Bill of Lading?

CIF

Which two Incoterms are committed to payment with insurance?

CIP and CIF

Pro Forma Invoice

Common and important document in international trade. It is meant to mirror the final commercial invoice but is sent at an earlier time by the exporter. Some cases is used as the first legally binding contract

Sight

Credits may provide for payment at sight (immediately) or for payment at a specified time in the future - a usance credit.

Strict compliance

Documents presented under the credit must comply very precisely with the terms and conditions of the credit.

Which Incoterms are involve sea and inland waterways

FAS, FOB, CFR,+CIF

Purchase Order

Indicating assent to the prices and conditions contained in the pro forma invoice. Note that in transactions involving a large commercial buyer, the purchase order is often the main contract form and constitutes the first legally binding offer.

Standby

Primary function of the typical standby is to serve as a security or guarantee rather than as a payment mechanism. Under a typical standby, the beneficiary will claim payment in the event the contract partner has failed to perform or fulfil certain obligations.

Confirming Bank

The bank (normally also the advising bank) which adds its own irrevocable undertaking (known as "confirmation") in addition to that given by the issuing bank. The confirmation allows the exporter to be assured payment by a bank in the exporter's own country,

Paying Bank

The bank that reviews the documents presented by the exporter and, if they comply with the terms and conditions of the credit, arranges payment to the exporter.

Negotiating Bank

The bank which examines the documents presented by the exporter, then "negotiates" the credit (i.e., in the case of a usance draft, either advances or agrees to advance funds to the beneficiary on or before the maturity date of the draft).

Nominated Bank

The bank which is stipulated in a credit as authorized to honour (pay, issue a deferred payment undertaking or accept drafts) or negotiate.

Advising Bank

The bank which notifies or "advises" the exporter that a credit has been opened in the exporter's favour. By advising a credit, the bank is only acting as a conduit for the issuing bank

Documentary Credit (Letter of Credit)

The buyer will be obliged to open or issue a documentary credit in advance of shipment. Ideally, the sale contract will give the buyer a deadline for opening the credit.

Examination of documents by confirming bank

The confirming bank will carefully examine the documents presented by the beneficiary against the terms and conditions specified in the letter of credit. The bank will note any discrepancies or will observe if documents are complying

Independence of the documentary credit from the underlying contract

The documentary credit is independent of the underlying contract. This means that if the exporter fulfils the documentary obligations of the credit, payment must be effected under the credit regardless of disputes connected to the underlying contract.

Issuing Bank

The issuing bank receives the importer's application and agrees to "issue" or "open" the credit.

Transferrable

Transferable credits are used in "middleman" situations, where an export merchant or agent plays the role of an intermediary between a supplier and the importer.

Confirmation

When the credit application specifies a confirmed credit, the issuing bank will request that another bank, usually in the beneficiary's country, confirm the credit. By confirming the credit, the confirming bank adds its irrevocable obligation to that of the issuing bank.

Receipt + review of credit by seller-beneficiary

When the exporter receives the letter of credit, it is strongly recommended that it immediately review it, carefully checking it against the terms of the contract in light of the anticipated circumstances of the shipment.

Issuing bank review; release of the documents to the buyer

issuing bank will also review the documents it has received from the confirming bank