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International Trade, Cash Management and Taxes

International Trade, Cash Management and Taxes. Payment Terms in International Trade. 1. Cash in advance (importer pays first) 2. Letter of Credit, L/C (bank is credit risk) 3. Draft (importer is credit risk) 4. Consignment (importer pays after making a sale)

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International Trade, Cash Management and Taxes

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  1. International Trade, Cash Management and Taxes

  2. Payment Terms in International Trade • 1. Cash in advance (importer pays first) • 2. Letter of Credit, L/C (bank is credit risk) • 3. Draft (importer is credit risk) • 4. Consignment (importer pays after making a sale) • 5. Open Account (importer makes periodic payments)

  3. Letter of Credit • 1. Irrevocable vs. Revocable • 2. Documentary vs. Clean • 3. Confirmed vs. Unconfirmed • 4. Transferable (to a secondary beneficiary)

  4. Drafts (Bill of Exchange) • 1. Drawer (usually the payee) • 2. Drawee (payer) • 3. For confirmed L/C the drawee is the confirming bank • 4. Sight Draft (paid at dox presentation) • 5. Time Draft (paid at specified future date) • 6. Banker’s Acceptance

  5. Documents in International Trade • 1. Bill of Lading • 2. Commercial Invoice • 3. Insurance Certificate • 4. Consular Invoice

  6. Financing Trade • 1. Banker’s Acceptance • 2. Discounting Trade Draft • 3. Factoring (non recourse) • 4. Forfaiting (popular in Western Europe) • Medium term receivables • Usually capital goods • 1.25% over cost of funds

  7. Government Sources of Export Financing and Credit Insurance • 1. Ex-Im Bank • 2. Private Export Funding Corp. (PEFCO) • 3. Export Credit Insurance • 4. Foreign Credit Insurance Association

  8. Countertrade • 1. Citi’s Export Trading Company • 2. Barter (Iran oil for guns) • 3. Counterpurchase • Pepsi sells soft drinks for Russian rubles • Uses rubles to buy and export vodka 4. Buyback (natural gas from investment in gas fields)

  9. FX Risk and Trade Transactions • 1. Do nothing • 2. Forward contracts • 3. Options • 4. Timing Options

  10. International Taxes • 1. Value Added Tax • 2. Income Tax • 3. With-holding Tax • 4. Excise Tax (import tariff) • 5. Sales Tax • 6. Payroll Tax

  11. International Cash Management • 1. Multilateral Netting • 2. Re-invoicing Center • 3. Concentrating FX Exposures • 4. Leading and Lagging intercompany payments • 5. Borrow and deposit with banks as necessary • 6. Captive Finance Company

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