The present work deals with the instruments of the international financial market and the importance of the study of international finance; as well as the steps and procedures that must be carried out for applications for these instruments, their advantages and disadvantages.
- IMPORTANCE OF THE STUDY OF INTERNATIONAL FINANCE
In current times where the issue of globalization is within the portfolio of developed and underdeveloped nations, knowledge of international finance becomes vital to see how international factors influence the crazy economy.
- It helps to predict the way in which international events would affect our company. It helps to anticipate the actions to be taken to counteract these facts. It helps to exploit business opportunities. Importance of the study of international finance. Reduction of trade barriers. Reduction of geographic space. Reduction the role of the state in the economy Specialization of countries in the production of goods and services in the preparation of which are relatively efficient Globalization of markets.
1.1 Comparative and Competitive Advantages
Comparative: It is the advantage that the country has to produce a good at a lower cost than other countries, within these we have geographic factors and labor. It is when a country specializes in the production and export of the goods it can produce at a relatively low cost that it imports the goods it produces at a relatively high cost.
Competitive: It is usually called this way, the corporate advantages that do not come from the specific endowment of a country's natural resources or from another similar factor, but from the skills and technology that is incorporated into the processes. International Trade risks, country risks.
- CREDIT LETTERS
Letters of credit are a payment instrument, subject to international regulations, whereby a bank (Issuing Bank) acting on request and in accordance with the instructions of a client (payer) must make a payment to a third party (beneficiary) against the delivery of the required documents, as long as the credit terms and conditions are met. In other words, it is a written commitment made by a bank to make the payment to the seller at its request and according to the buyer's instructions, up to the amount of money indicated, within a certain time and upon delivery of the indicated documents. This instrument is one of the simplest documents in its form and one of the most complex in terms of content. Also called «Commercial Credit», «Documentary Credit»,and sometimes just credit.
Every letter of credit originates from a merchandise purchase-sale contract (although it may originate from the provision of services).
In summary, letters of credit are: a promise from a bank or credit institute to pay a certain amount of money; it is paid against the presentation of documents that certify a fact or legal act; Your deadline to use the letter of credit must be pre-established. After the term has expired, the beneficiary of the letter of credit cannot turn on it; It must be issued by a commercial bank.
The credit agreement is the one that regulates the relationship between the issuing and ordering bank. This contract defines the conditions under which the bank is willing to issue letters of credit on behalf of the payer. In this contract, as in any credit agreement, an obligation is created for the bank to make a credit available to its client (originator of the credit) for a specific term and under specific conditions.
The credit contract is not a pre-contract or a promise to contract, but on the contrary, a binding contract for the bank is precisely to have in favor of the client a certain availability to issue the letters of credit approved in the contract, being the object of the contract the existence of the availability of credit in favor of the client and not the letter of credit itself.
Letter of Credit Description
- Name and address of the payer and beneficiary Amount of the letter of credit Documents to be demanded, within these we can mention: Maritime bill of lading Air guide Commercial invoice Packing list Certificate of origin Price list Certificate of analysis Certificate of Departure and destination Date of expiration of the letter of credit Description of merchandise Type of letter of credit (Irrevocable, Confirmed, etc.) Types of shipments (Partial (allowed or not allowed) Insurance Coverage Payment methods Special instructions
2.1 Classification or Types of Letters of Credit
Within letters of credit we can find numerous types and among the most important are:
- Revocable Letter of Credit Irrevocable Letter of Credit Transferable Letter of Credit Back to Back Letter of Credit Single Rotary Letter of Credit Stand By Letter of Credit Conditional Letter of Credit Confirmed Letter of Credit Unconfirmed Letter of Credit
Below we describe some of the most important types of letters of credit:
- Revocable: A revocable letter of credit allows reforms, modifications and cancellations at any time and without the consent of the exporter or beneficiary of the terms explained in the letter of credit. Due to considerable risk to the exporter, they are not normally accepted. Irrevocable:An irrevocable letter of credit requires the consent of the issuing bank, the beneficiary or exporter and the applicant to render any reform, modification or cancellation of the original terms. This type of letter of credit is the most widely used and preferred by exporters or beneficiaries, since payment is always assured and documents that comply with the terms of the letter of credit are presented. Irrevocable letters of credit may or may not be confirmed. The irrevocable Letter of Credit may not be unilaterally revoked. It must have the agreement of all the parties involved. Transferable:An irrevocable letter of credit can also be transferred. According to transferable letters of credit, the exporter can transfer all or part of his rights to another party according to the terms and conditions specified in the original credit with certain exceptions, thus, it is difficult to maintain flexibility and confidentiality, even if necessary. Transferable letters of credit are often used when the exporter is the agent of the importer or an intermediary between the supplier and the importer, rather than the actual supplier of the merchandise. When using a transferable letter of credit, the exporter uses the credit granted by the issuing bank and avoids borrowing or using his own funds to buy the merchandise from his supplier. From there,which is a viable pre-export financing tool. For a letter of credit to transfer, the transfer must be stated in the terms of the letter of credit. Before making the transfer, the exporter must contact the bank in charge of disbursing the funds (the bank that makes the transfer) in writing. The bank making the transfer, whether or not it has confirmed the letter of credit, is only required to make the transfer up to a point and in the manner specifically stated in the letter of credit. Transferable letters of credit involve specific risks. When a bank opens a transferable letter of credit to a buyer, neither party can be sure of the provider.Both must rely on the importer's assessments of the exporter's reputation and ability to operate. In order to reduce all risk and prevent the shipment of lower quality merchandise, an independent inspection certificate will be required in the document. For simplicity, many banks prefer simple transfers over multiple transfers, however multiple transfers will be made if the conditions are correct. Partial transfers can be made by one or more providers if the original letter of credit terms allow partial shipments. The process of this type of letters of credit can be complicated and difficult, requiring a high level of precision in coordination.Incomplete and / or ambiguous information on transferable letters of credit is always a factor causing a problem. In addition, the transferable letter of credit beneficiary must be available throughout the letter of credit negotiation process in order to assist the transferring bank.Confirmed: The confirmed letter of credit adds a second guarantee from another bank. The advisory bank, the branch or the correspondent bank through the issuing bank sends the letter of credit, adds its obligation and commitment to pay the letter of credit. This confirmation means that the seller / beneficiary can additionally observe the creditworthiness of the confirming bank to ensure payment.
- Unconfirmed: An unconfirmed letter of credit is when the document supports only the guarantee of the issuing bank. The advising bank simply informs the exporter of the terms and conditions of the letter of credit, without adding its payment obligations. The exporter assumes the payment risk of the issuing bank, which is normally located in a foreign country. Supported Letters of Credit: Supported Letters of Credit are two letters of credit that together form an alternative transferable letter of credit. The backed letter of credit allows exporters (sellers or intermediaries) who do not qualify for an unsecured bank loan to obtain a second letter of credit in favor of the supplier.
If a foreign buyer issues a letter of credit to an exporter, some banks and financial institutions will issue independent letters of credit to the exporter's suppliers so that the merchandise can be purchased. If the initial letter of credit has not been duly completed, the second is still valid and the issuing bank is obliged to pay according to the established conditions. Many banks are reluctant to this type of agreement. Because backed letters of credit involve two separate transactions, multiple participating banks are likely to be involved and the risk of confusion and dispute is higher. To protect yourself,A bank will require the exporter to submit all relevant documents that are part of the first letter of credit before issuing the second letter of credit. The second is formulated to confirm the original and the expiration date will appear before the date of the first, ensuring that the seller has sufficient time to present the documents within the first deadline. Standby letter of credit: Unlike a commercial letter of credit that is basically a payment mechanism, a Standby letter of credit is a kind of bank guarantee that is used to cover financial obligations for non-payment. The bank issues a Standby letter of credit that is retained by the seller, which in turn provides the customer with open account conditions.If the payment is carried out in accordance with the conditions stipulated by the seller, the letter of credit is not issued. However, if the client cannot make the payment, the seller presents a bill of exchange with copies of the invoices to the bank to make the payments, and other necessary documents. The standby letter of credit generally expires after twelve months. Advance on account against letter of credit: An advance on account against letter of credit works in the same way as backed up letters of credit with the exception that the bank or financial entity issues cash to suppliers instead of issuing another letter of credit.the seller presents a bill of exchange with copies of the invoices to the bank to make the payments, and other necessary documents. The standby letter of credit generally expires after twelve months. Advance on account against letter of credit: An advance on account against letter of credit works in the same way as backed up letters of credit with the exception that the bank or financial entity issues cash to suppliers instead of issuing another letter of credit.the seller presents a bill of exchange with copies of the invoices to the bank to make the payments, and other necessary documents. The standby letter of credit generally expires after twelve months. Advance on account against letter of credit: An advance on account against letter of credit works in the same way as backed up letters of credit with the exception that the bank or financial entity issues cash to suppliers instead of issuing another letter of credit.An Advance on account against letter of credit works in the same way as backed letters of credit with the exception that the bank or financial institution issues cash to providers instead of issuing another letter of credit.An Advance on account against letter of credit works in the same way as backed letters of credit with the exception that the bank or financial institution issues cash to providers instead of issuing another letter of credit.
2.2 Benefits of the Letter of Credit
- Specialized advice to verify credit terms and conditions. Proof of all commissions and expenses. Document review to ensure that they adhere to the contract. Quick payment. Timely and truthful information on the account statement of your credit operations. Commercial proof of all commissions and expenses charged for this service.
Requirements: It only requires presenting the original instrument.
2.4 Import letter of credit
Documentary credit (Letter of Credit) is the instrument that formalizes the agreement under which a bank, acting at the request of an importer and in accordance with its instructions, agrees to make payment to an exporter, against the presentation of a series of documents required within a specified time limit, provided that the terms and conditions set forth in the credit have been met. In general, the importer requires having a line of credit with the bank or making the necessary provision of funds in order to process the credit. Through this contract aimed at individuals, the bank is obliged - on behalf of the importer - to pay its supplier a certain sum of money for the purchase of products or services, provided that the established conditions and terms are met,ensuring the receipt of the documents corresponding to the transaction.
Benefits
Payment is made against the documents that represent the merchandise and, therefore, that enable the transfer of rights over said merchandise. The bank will not be responsible for the merchandise subject to the transaction at any time, its responsibility is limited to the documents that protect it, hence the name of documentary credit.
Requirements
Have a documentary credit opening contract and an instrument to protect against currency risks.
Have a line of credit or special line of credit authorization.
Sign a promissory note.
Present purchase order, order or pro-forma invoice or purchase-sale contract.
2.5 Parties involved in a letter of credit
Who offers it: The letter of credit is offered by banking institutions, that is, the issuing bank (which opens or issues the letter of credit).
Who are the users: In this type of instrument, the users are the buyers or importers (originator or applicant of the letter of credit). Similarly, the seller (beneficiary of the letter of credit) is also a user.
Expanding this chapter, below we detail the parties involved in a letter of credit:
A) Originator: (buyer in the fundamental relationship) Buyer-Importer. Request the opening of the letter of credit. The originator of the letter of credit is the person who goes to the bank to order that a letter of credit be opened on his own behalf and in favor of a specific beneficiary, who may draw the letter of credit against the presentation of certain documents, normally the documents evidencing the shipment of certain merchandise.
- A purchase-sale link that runs directly between the originator of the letter of credit and the beneficiary. A link of credit between the originator of the letter of credit and the issuing bank. The issuing bank agrees with the payer, subject to the agreed credit conditions, which will establish on behalf of the payer a letter of credit in favor of the beneficiary.
In the documentary relationship there must always be at least one issuing bank that agrees with the originator to open the documentary credit, and in turn, is the one that is placed as the principal in the documentary credit chain. In addition to the issuing bank, there may be a multiplicity of additional banks in the chain, which perform, to a greater or lesser degree, the functions of the issuing bank in relation to documentary credit.
B) Beneficiary (Seller):
Exporter in favor of whom the letter of credit is issued. You have the right to demand payment once the terms and / or conditions established therein have been met.
The beneficiary of the letter of credit is the person who has the right to turn against the letter of credit and demand payment thereof by submitting the documents established in it. The beneficiary of a letter of credit is the active subject of the documentary credit legal relationship, that is, he has the credit right that arises from the letter of credit. At the same time, the beneficiary of the letter of credit is the seller in the fundamental relationship, that is, the contract of sale and purchase of certain goods and services.
C) Banks in relation to:
Issuing bank: Issues the letter of credit in favor of the beneficiary by order of the importer. Acquires the responsibility against the payer to notify the seller and pay him through our correspondent bank once he has fulfilled the terms and conditions established in the letter of credit.
Confirming bank: It assumes the obligation to cancel the letter or amounts of the letter of credit vis-à-vis the beneficiary regardless of whether or not they have received the refund from the issuing bank. A confirmed letter of credit implies a commitment to pay the beneficiary of two banks: the issuer and the confirmer.
Reporting Correspondent Bank: When the issuing bank does not have a branch in the beneficiary's place, it uses the services of a correspondent bank to notify the beneficiary of the opening of the letter of credit. The correspondent bank can act as a simple reporting bank without acquiring any obligation to the beneficiary, although it is in regular use for the confirming correspondent bank, thereby acquiring the obligation to pay the beneficiary, once it has complied with the terms and conditions of the letter of credit.
Paying bank or refunded: Is the bank to make the payments to the beneficiary, its name is indicated in the text of the letter of credit. You are not obliged to make payments until you receive the funds from the confirming bank or the issuer.
Negotiating Bank and Accepting Bank: Bank that decides to negotiate the documents (advance payment) to the beneficiary against presentation of the documents required in the letter of credit.
- Both parties, buyer and seller must enter into a purchase and sale agreement and an order in accordance with the general conditions of the transaction, and the payment of the same by means of a letter of credit. The buyer or importer will notify the bank of their preference in their locality. to issue a credit in favor of the seller or exporter. The issuing bank in turn must request another correspondent bank in the country of the seller to notify or confirm the credit to the seller in accordance with the agreed conditions. In this case, you must inform the seller of the existence of a credit in your favor.The seller must go to the bank where the credit is available to present all the documentation that proves that the merchandise has been shipped in accordance with the stipulated in order to request payment according to the specified maturity. banks act only as intermediaries between buyer and seller, limiting themselves exclusively to the review of the documentation that protects the credit, it is of great importance to carefully review the following aspects, among others, to avoid future complications: The type of credit (notified, confirmed, revocable, irrevocable) The rights and obligations of the parties, known as Incoterms, such as those mentioned below: CIF (cost,insurance and freight) The seller deposits the merchandise at the designated place and covers the cost of freight and insurance premium. C&F (cost and freight) The seller deposits the merchandise at the indicated place and covers the cost of freight. FOB (free to On board) The seller limits himself to depositing the merchandise on board the means of transport. The price established, considering the applicable exchange rate. The description of the merchandise must coincide with the order. Dates planned for boarding and presentation of documents. shipment.considering the applicable exchange rate The description of the merchandise must coincide with the order. Dates planned for boarding and presentation of documents. Shipping conditions.considering the applicable exchange rate The description of the merchandise must coincide with the order. Dates planned for boarding and presentation of documents. Shipping conditions.
2.6 Terms of the Letter of Credit: Costs, Terms, Guarantees, Maximum Amount to Finance:
TERMS: They are the commitments of delivery of the merchandise, established in the letters of credit, previous agreement between a buyer and a seller. Within the most common terms, we can cite the following:
FOB (free on board): It means that the seller fulfills his delivery obligation when the merchandise has passed the ship's rail at the agreed port of shipment. This means that the buyer has to bear all the costs and risks of loss or damage to the merchandise from that point on. The FOB term requires the seller to dispatch the export merchandise. It can only be used for transport by sea or inland waterways. When the ship's side has no practical purpose, as in the case of roll-on / roll-off or containerized traffic, it is preferable to use the term FCA.
FAS (Free Alongside Ship): It means that the seller fulfills his delivery obligation when the merchandise has been placed alongside the ship, on the quay or on barges, at the agreed port of shipment. This means that the buyer must bear all the costs and risks of loss or damage to the merchandise from that moment on.
The FAS term requires the buyer to clear the merchandise at customs for export. This term should not be used when the buyer is unable to carry out, directly or indirectly, the export procedures. This term can only be used for transport by sea or inland waterways.
EXW (Ex Works): It means that the seller has fulfilled his delivery obligation when he has made the goods available to the buyer in his establishment (eg, factory, workshop, warehouse, etc.). In particular, it is not responsible for loading the merchandise in the vehicle provided by the buyer, nor for clearing it from customs for export, unless otherwise agreed. The buyer bears all the costs and risks of taking the merchandise from the seller's address to the desired destination. This term, therefore, is the least binding on the seller. This term should not be used when the buyer is unable to carry out export formalities directly or indirectly. In such circumstances, the term FCA should be used.
D) FCA (Free Carrier) = It means that the seller has fulfilled his obligation to deliver the merchandise when he has placed it, cleared through customs for export, by the carrier appointed by the buyer, at the place or point set. If the buyer has not indicated any specific point, the seller can choose within the stipulated place or area, the point where the carrier will take charge of the merchandise. When, in accordance with commercial practice, the seller's assistance is required to conclude the contract with the carrier (such as by rail or air transport), the seller may act at the buyer's expense and risk. This term can be used with any mode of transport, including multimodal.
CFR (Cost and Freight): It means that the seller has to pay the expenses and freight necessary to get the merchandise to the agreed destination. The CFR term requires the seller to clear the export merchandise. It can only be used in transport by sea or shipping.
C IF (Cost, insurance and Freight): It means that the seller has the same obligations as under CFR, although, in addition, he must obtain maritime insurance to cover the buyer's risks of loss or damage during transport. The seller contracts the insurance and pays the corresponding premium.
Among other less common terms we can mention: CPT (Carriage Paid To), CIP (Carriage and insurange Paid To), DAF (Delivered at Frontier), DES (Delivered ex Ship), Costs:The costs include the expenses of: opening, use, modifications, and the financing itself of the letter of credit. Normally, the opening and utilization commissions are determined in percentage form applied to the amount of the letter of credit and in the indicated currency. These percentages vary depending on the relationship between the bank and the client, that is, those clients who have a higher frequency of imports and consequently more open letters of credit and greater solidity in their company, the percentage of these costs will be lower than those clients that have a lower frequency of imports or solidity risks. Modification expenses are normally charged with absolute values in the currency that the letter of credit was opened.Other relevant costs that are in a letter of credit are those inherent in the financing itself, which is normally charged with Libor rates and in some cases Prime plus a spread, said spread is determined based on the country risk and the solidity of the company.
Guarantee: In the fundamental relationship, the bank may require the client to establish the guarantees that the bank considers necessary for the purposes of opening documentary credits. If the bank is going to require some form of guarantee on the documents, it must be specified in the credit relationship contract. These documents must be in the name of the issuing bank (about the documents and the possibility of naming them in the name of the bank.
Deadlines:As for the terms of validation of the letter of credit, as it is basically a short-term instrument, it can range from one month to one year, although frequently the terms of validity of the letter of credit are stipulated in quarterly terms, subject to extension or modification. The terms of validity of the letter of credit are previously negotiated between the beneficiary and the buyer and this is basically subject to the probable dates of shipments. There are also deadlines for reimbursement and which is that the originator of the credit is obliged to reimburse the bank for the amounts that the bank has in turn paid to the beneficiary. It is important that the bank imposes limitations on the client regarding the terms for the reimbursement of the amounts drawn by the beneficiary under the letter of credit.The repayment term refers to the term that the issuing bank grants the originator of the credit to reimburse the amounts that the bank, in turn, must pay to the beneficiary of the credit. In principle, if the credit agreement does not set a term, the originator of the credit must immediately reimburse the issuing bank at the bank's request. If the payer wants financing, it will be previously negotiated between the issuing Bank and the payer, generally these financing are short-term and are governed in the case of imports with Libor or Prime rates.the originator of the credit must repay the issuing bank immediately upon request of the bank. If the payer wants financing, it will be previously negotiated between the issuing Bank and the payer, generally these financing are short-term and are governed in the case of imports with Libor or Prime rates.the originator of the credit must repay the issuing bank immediately upon request of the bank. If the payer wants financing, it will be previously negotiated between the issuing Bank and the payer, generally these financing are short-term and are governed in the case of imports with Libor or Prime rates.
Maximum Amount to Finance: The limit of the amount to be financed will depend on the payment capacity of each client or the payer of the letter of credit, since it will be subject to the guarantees offered by the payer to the bank. Normally, large companies and with a certain frequency of products to import, negotiate with the different national or foreign banking institutions amounts of credit lines. These lines of credit are like an open credit to finance the payer through letters of credit for the maximum amount that his line of credit with each bank has approved.
2.7. Legal aspects of the letter of credit
In addition to being specifically regulated in the General Law on Securities and Credit Operations, the legal framework for documentary credits derives from international regulations issued by the International Chamber of Commerce ("ICC"), a global business organization in charge of establishing the rules governing the exchange of goods at the international level, for which purpose it has issued the "Uniform Uses and Rules for Documentary Credits." The original text of the aforementioned rules has been modified on various occasions and has been officially adopted by most countries worldwide, the latest revision of which is in force to date is known as Publication 500.Adherence to these rules and specific forms developed by the International Chamber of Commerce have led to the creation of uniform practices worldwide in the area of documentary credits.
After opening the Letter of Credit, the Importer (buyer) and the Exporter (seller) must sign a commercial agreement in the form of:
• A Commercial Contract (purchase / sale).
- Pro-forma invoice issued by the exporter and accepted by the importer. Exchange of notes (informal contract).
Advantage:
- The Credit exists previously, therefore the operation is expedited. It can be used and paid in partial amounts of the total line.
Requirements:
- Audited Financial Statements at Closing Board of Directors in force. Mercantile Registry and its modifications R.IF Photocopy of Identity Card of the Obligor (signer).
Agreement under which an exporter receives from the Bank, the communication that there is a guarantee in his favor, to be able to export his merchandise in exchange for conditions of his buyer, issuer of the Letter of Credit. They are governed by the Uniform Rules and Uses Relating to Documentary CCI 500 credits (Publication 1993).
Characteristics:
All the intermediation operation by the Banks is carried out as long as the conditions established in the letter of credit are met. Once the amount corresponding to the value of the documents has been received, the Bank will immediately pay your client.
III. COLLECTIONS
Collections - What is a collection?
Collection is the formal process of presenting the drawee with an instrument or documents for payment or acceptance:
- Promissory note Exchange bills of lading Shipping documents Other security
To inquire about this service you can contact our International Department. An executive will assist you and provide you with all the information for sending or receiving documentary collections.
3.1 Parties Intervening in Collections
Assignor
Also called the principal is the party that requests a bank to process the collection.
Sender Bank
It is the bank to which the payer requests the collection process.
Collection Bank
It is any bank, other than the sending bank that intervenes in the collection process.
Presenter Bank
The collecting bank that makes the presentation to the drawee.
Drawee (Drawee)
It is the person to whom the presentation must be made in accordance with the collection instruction.
3.2 Characteristics of Collections
The rights and obligations of the parties involved in collection, are regulated by the Uniform Rules of Collection URC (Uniform Rules for Collections) 522, the Chamber of Commerce Intenacional.
There are two types of collections:
- Simple.- They are those that only comprise one or more financial documents (bills of exchange or promissory notes). Documentary.- They are those that comprise commercial documents and / or accompanied by financial documents.
In both cases, collections can be managed for demand collection or for term acceptance.
Advantages for the buyer
- The buyer receives bank advice for the management of the documents and their payment.
Advantages for the seller
- Processing of the documents by specialists of the operation. Greater security of the collection of the documents. In the cases of collections in sight, security in the maintenance of the property of the merchandise until the collection. In the cases of collections with deferred payment (against acceptance) the exporter can obtain an executive document (bill of exchange) with which he can judicially claim the payment.
| Collections - Basic process | |
| The buyer and seller agree to the terms of the purchase, including aspects related to transportation, credit period (if applicable), last date of shipment, conditions of sale ("Incoterms")
The seller (transferor) ships the merchandise and prepares the related documents such as invoice, packing list and bill of exchange if it is against acceptance and requests your bank (remitting bank) to process a collection and send it to the address of the BAC Financial Network bank in your country. The sending bank attaches to the documents a letter of instructions and sends them to the local bank by courier. The local bank (presenting bank) receives the documents and presents them to the buyer (drafted) and will deliver them following the instructions of the sending bank, so that if they indicate:
When canceling the collection, the local bank will send the payment according to the reimbursement indications indicated in the instruction letter and will give a copy of the transfer to the drawee (buyer) for their records, also will deliver the documents (if it is at sight) or the accepted letter canceled (if it is in installment). |
- TRANSFERS ABROAD
characteristics
- They can be issued in any currency. It is a quick means of payment. It eliminates possible losses. They are paid or paid in the place / city / country that the client wants through a Correspondent Bank, which may well be chosen by the client. It is used in relationships of mutual trust between exporter and importer.
Customer benefits
- Security and speed in the payment and situation of funds to a beneficiary in any city in the world, where there is a Banking Institution It is a much cheaper means than the collection and the letter of credit and even the bank transfer taking into account the costs of sending the money order or check in addition to the possible loss.
- BANK DRAFTS
Similar to a check, a money order is used to pay bills or make purchases when cash is not accepted. Usually you have to pay a certain cost for the service, so you need to compare to find the best price.
Advantages for the client in the turns
- The exporter receives a payment commitment from a bank which adds security and speeds up the collection thereof. The importer knows at the same time what the exchange rate is. In the case of the personal check, it is unknown until the moment of making it effective. The bank cost for the importer is less than the transfer cost. We must take into account the possibility of loss or theft of it as well as shipping costs to the exporter. GUARANTEE
These are guarantees issued in favor of a beneficiary to support a commitment made by one of its clients, for which the institution agrees to pay a certain amount of money in the event that the client defaults on his obligation.
Participation guarantees are used, as the name implies, to participate in public and private tenders in order to ensure the seriousness of the offer and the commitment to deliver to the beneficiary, in case the tender is awarded, a guarantee of compliance.
For their part, performance guarantees are issued to ensure the beneficiary a certain sum of money in the event of default by the principal (customer) on the agreed terms and conditions, either as a result of the award of a public or private tender. or other specific purpose.
CONCLUSIONS
The importance of international trade lies in the extent to which it contributes to increasing the wealth of countries and their peoples, wealth that we measure through the indicator of the production of goods and services that a country generates annually (GDP). On this basis, freedom of trade has been defended as an instrument that allows us to achieve an objective that we can consider universal: the improvement of the living and working conditions of the world population that is closely related to the economic income generated and its distribution..
Currently, this belief, however, has neither been shared by all countries nor, above all, applied. On the contrary, the most prevalent approach in the economic history of the last three centuries has been to limit and regulate trade flows according to the different economic, political and social interests of the states. The degree of intervention and limitation of trade has varied over time, as we will analyze later, but it reached its peak in the 1930s when the international economy experienced one of its worst crises. Precisely, to avoid repeating these episodes of deterioration in international economic relations, the design of the postwar international economic order clearly betfor a liberalization of international trade as a means for the production and well-being of all countries to increase. Despite this, this process of trade liberalization has not been automatic or widespread.
International Finance: It is the area of finance that studies all those aspects that are generated outside the national borders of a country and that directly and indirectly affect the decisions of our company.
The three determining aspects in the study of globalization:
- Competitive Aspect Customs Aspect Quantitative Aspect
