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trade finance

Transcript: NUR NABILA BINTI AZMAN NUR ASYIKIN BINTI SALIMAN SITI NURMAYSARAH BINTI JEFREE MAISYAFIRA SYAMEIN BINTI ZULKIFLI NORAIN NAJIHA BINTI SAHIBUL BAHRIN NUR SYAMIMI A'LYA BINTI ABDUL RASHID MAIN PAYMENT MECHANISMS 01DKB17F1077 01DKB17F1088 01DKB17F1091 01DKB17F1092 01DKB17F1100 01DKB17F1103 DOCUMENTARY COLLECTION PROCEDURE INVOLVES STEP-BY-STEP EXCHANGE OF DOCUMENTS GIVING TITLES TO GOODS. EITHER BY CASH OR A CONTRACTED PROMISE TO PAY AT A LATER TIME. DCP There are 6 steps: 1 & 2 STEP 1 Importer or exporter agree on the terms of sale of goods by: specifying documentary collection for payment naming a collecting bank listing required documents The exporter ships the goods to importer and obtains a negotiable transport document from the shipping firm. step 2 Exporter prepares and presents a document package to his bank consist of: a collecting order the negotiable transport document other documents insurance documents certificate of origin inspection certificate The remitting bank sends the documentation package by mail or courier to the designated collecting bank in the importer's country. It came with instructions to present them to the buyer and collect payment. step 3 3 & 4 step 4 Presentation of documents by collecting bank: review the documents to certain that they are in conformity with collection order. notifies the importer about terms and conditions of the collection order. releases the document once payment conditions have been met. makes a cash payment if the collection order allows, the importer signs an acceptance receives the documents takes possession of the shipment step 6 5 & 6 The importer will: step 5 The collecting bank pays the remitting bank immediate payment at mature date of accepted bill of exchange Urc UNIFORM RULES FOR COLLECTIONS A form an internationally accepted code of practice covering documentary collections. Not incorporated in national or international law. But it binding on all parties - all bank authorities will state that the collection is subject to URC. L/C DOCUMENTARY CREDIT @ LETTER OF CREDIT Bank is a legal party in a L/C transaction & for a fee assumes most of the risk. Opened L/C on request of an importer to pay an amount to the exporter. A definite undertaking of the issuing bank irrespective of the financial standing of importer. L/C is independent of the buyer. Counter trade COUNTER TRADE The oldest methods of payment. Exchanging goods & services with other goods & services, rather than money. A monetary valuation can be used in counter trade for accounting purposes. Term bilateral is used when in dealings between sovereign states. BARTER BUYPACK BARTER Products exchanged directly for products with equal value. No use of money for purchase or payment. BUYPACK A supplier agrees to accept future output generated by the investment as payment. For example, the exporter of equipment to a chemical plant be repaid with output of the factory that 'sold' the equipment. COUNTER PURCHASE OFFSET COUNTER PURCHASE A company sells products to a foreign country. It promises to make future purchase of a specific product made in that country. A supplier agrees to purchase products from a foreign buyer as a condition of getting the buyer's order. OFFSET An exporter sells products for cash. Then, exporter helps the importer find opportunities to earn hard currency for payment. Most common when 'big-ticket' products (military equipments) are involved. One company sells to another its obligations to purchase something in a foreign country. The arrangements often involves switching the documentation & destination of merchandise while it's in transit. SWITCH/SWAP TRADING SWITCH/SWAP TRADING BPA BILATERAL PAYMENT ARRANGEMENT To promote bilateral trade and encourage banking institutions to finance. Introduced by Bank Negara Malaysia. The settlement of net monetary obligations arising from trade between pairs of countries. Unique banking arrangement between our country and a number of developing countries. CHARACTERISTICS & BENEFITS Opportunity to export to non-traditional markets. Payment guaranteed by respective Central Banks. Converts trade-related commercial risk into sovereign risk. CHARACTERISTICS BENEFITS BPA guarantee settlements of financial claims for goods drawn under Letter of Credit (LC) between pairs of countries.

TRADE FINANCE

Transcript: Independent undertaking Documentary Credit (DC) DOCUMENTARY CREDIT DEFINITION DC is an independent undertaking Credit means any arrangement, however, named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation. Goods could be received upfront and payment could be made later example 60 days after shipment. Article 4 distinguishes the commercial contract/agreement from the DC, and makes it clear that the only basis for payment is a complying presentation. If the presentation do not comply the bank has the option to refuse the payment. DC as a Guarantee Documentary Credit A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in noway concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honour, to negotiate or fulfill any other obligation under the credit is not subject to claims or defences by the applicant resulting from its relationships with the issuing bank or the beneficiary. Issuing/Confirming bank undertakes to pay a certain amount against complying presentation. An independent undrtaking. A guarantee A mode of payment A financing instrument DC is issued by a bank - issuing bank DC is - irrevocable DC constitutes a definite undertaking DC will be honoured by issuing bank only once a complying presentation is made. TRADE FINANCE DC as a Financing instrument Complying presentation DC functions as Banks manage the payment/flow of funds. Buyer does not initiate the payment instead banks manage payment. UCP 600 - Article 4 Credits V. Contracts A beneficiary can in no case avail itself of the contractual relationships existing between banks or between the applicant and the issuing bank. Mode of payment Step 4 Step 5

trade finance

Transcript: Trade finance Agenda Agenda 1.What is trade finance? 2.Documentary collection. 3.Letter of credit 4.Letter of grantee What is trade finance? what is trade finance? Trade finance represents monetary activities related to commerce and international trade. Trade finance includes lending, the issuance of letters of credit, factoring, export credit and insurance. Companies involved with trade finance include importers and exporters, banks and financiers, insurers and export credit agencies, and service providers. Documentary collection documentary collection A documentary collection is a trade transaction in which the exporter hands over the task of collecting payment for goods supplied to his or her bank, which sends the shipping documents to the importer’s bank together with payment instructions. Types of DC Types of DC 1.Advanced payment. 2.Deferred payment . 3.Cash against documents. letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. Due to the nature of international dealings, including factors such as distance, differing laws in each country, and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. letter of credit LC 1. Cost and fright . 2.CIF 3.FOB Types of LC Types of LC 1.Bid bond. 2.Advance. 3.Final . Letter of guarantee LG THANKS THANK YOU

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