The Handbook of International Trade and Finance: The... (PDF) (2024)

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iThe Handbookof InternationalTrade and Finance

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iiInternational Documentary LettersPayments Collections of CreditForeign CurrencyExchange ManagementTrade Risk Terms of Export CreditAssessment Payment InsuranceBonds and ProjectGuarantees FinanceTrade Finance International Cross-borderAlternatives Money Markets LeasingThis book describes in detail the different forms of risks in international trade and how to use acombination of payment, currency, financial, guarantee and insurance alternatives to formTtehrmiss bofo poaky mdenstc trhibate ws iilln s edceutraei el vtehne tdheif mfeorsetn cth afollernmgisn go ftr raidsek tsr ains ainctieornn. ational tradeand how to use a combination of payment, currency, fnancial, guaranteeand insurance alternatives to form terms of payment that will secure eventhe most challenging trade transaction.

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iiiFourth EditionThe Handbookof InternationalTrade and FinanceThe complete guide for internationalsales, fnance, shipping andadministrationAnders Grath

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ivPublisher’s noteEvery possible effort has been made to ensure that the information contained in this bookis accurate at the time of going to press, and the publisher and author cannot accept respons-ibility for any errors or omissions, however caused. No responsibility for loss or damageoccasioned to any person acting, or refraining from action, as a result of the material inthis publication can be accepted by the editor, the publisher or the author.First published in Great Britain in 2005 by Nordia Publishing Ltd for The Institute of Export asInternational Trade FinancePublished in Great Britain and the United States in 2008 by Kogan Page Limited as The Handbookof International Trade and FinanceSecond edition 2012Third edition 2014Fourth edition 2016Apart from any fair dealing for the purposes of research or private study, or criticism or review,as permitted under the Copyright, Designs and Patents Act 1988, this publication may only bereproduced, stored or transmitted, in any form or by any means, with the prior permission inwriting of the publishers, or in the case of reprographic reproduction in accordance with the termsand licences issued by the CLA. Enquiries concerning reproduction outside these terms shouldbe sent to the publishers at the undermentioned addresses:2nd Floor, 45 Gee Street 1518 Walnut Street, Suite 900 4737/23 Ansari RoadLondon EC1V 3RS Philadelphia PA 19102 DaryaganjUnited Kingdom USA New Delhi 110002www.koganpage.com India© Anders Grath, 2005, 2008, 2012, 2014, 2016The right of Anders Grath to be identifed as the author of this work has been asserted by him inaccordance with the Copyright, Designs and Patents Act 1988.ISBN 978 0 7494 7598 7E-ISBN 978 0 7494 7599 4British Library Cataloguing-in-Publication DataA CIP record for this book is available from the British Library.Library of Congress Cataloging-in-Publication DataNames: Grath, Anders, 1943- author.Title: The handbook of international trade and fnance : the complete guidefor international sales, fnance, shipping and administration / Anders Grath.Description: 4th edition. | London ; Philadelphia : Kogan Page, 2016. |Includes bibliographical references and index.Identifers: LCCN 2016018692 (print) | LCCN 2016029775 (ebook) | ISBN9780749475987 (alk. paper) | ISBN 9780749475994 (eISBN)Subjects: LCSH: International trade. | International fnance.Classifcation: LCC HF1379 .G725 2016 (print) | LCC HF1379 (ebook) | DDC382--dc23LC record available at https://lccn.loc.gov/2016018692Typeset by Graphicraft Limited, Hong KongPrint production managed by JellyfshPrinted and bound by CPI Group (UK) Ltd, Croydon, CR0 4YY

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0 1 PTICnrraetfrodaoecde r unicsvtkiiisToi nan ed1 nriskT asssessment 9 v T0BSCS0IT0ICMBCDTCT0CEAEPRSMTCPBIPAPF0C0HP0T0FTLP0SCEICDLDTITBCTCntu2456r9r7o381ieraexluoxuih dueohueoiarentvtneoaoeameurtfpn l fynpseremeueuevnrnernmumrdrcnctef-fiamtcedjdilopr rkrerteasnqdotheuceusngtntdtsnuscfimpeieaneurpmrhrdrieltrtntic cs uascrotimtuxetlbic or ncsnt nmeuoasanc reoti,tuaefratncosredeie oeoprapne ynuactdt trerfietrvtrgagrsltasia fcn rc ref si il sfnoeyesysy - mntrelp niocei a a rlu obo tenrclirl kn t ca ct bnd gc crc ditnreip edoaelmtnrftorioeranunrersuf oesntcuauatrutsea ea tdadediygiao ief xcfekr nb tfeoastkntlnysc rtsrlierdarte aq dr sid miay eorsi ndepskletiloktremyrtotostdr crnainrinmre o eunm hi rhc eh eg sit oas atltne s imeftnfsedeiace dtm(acune nomtspurne en sn o yn s ravbdetsngdeneskoat o mactaorcu ot msdsnrstnetiueta aesa odsndnosalaylfvurs efi serbrl slntind np e nrtsofkn koes d afir e rnmr (cniodirk ntmc ipa kpaom ncfpmcso anecips grtinglipair nej t ge ntokosh ltefetnuendupmoa dsnrisrs keg dnsrsceocp rue sna ai ecmi t sgoega nrocie s emnyrna(crae t sco nuehnl foydtfaes tcme y tg a s fitia:ai r canfornpvpmtec s nmofmuerestnbtcehmteahatfraednece reundasaye ysarneirngimet r nrmtbmasm tdme octnutkrn sklynea ehi fe tearease es ) cn naenlntrktpr sxye ainaitk tsaostp s g nd)fteky no etbnmsaerm r oastele noestcon nrckrftaete cd d812923812693457912v9123812v1reie4048060694136790158791801245790205745790510802t i di947895726915058359149560591595inits titutions) 8121317Business beyond borders: trade risks 9International trade practices 10Product risks 16Commercial risks (purchaser risks) 20Adverse business risks 24Political risks 26Currency risks 30Financial risks 3102 Methods of payment 35Different methods of payment 35Bank transfer (bank remittance) 38Cheque payments 47Documentary collection 49Letter of credit 56Counter-trade 7703 Bonds, guarantees and standby letters of credit 81The use of bonds and guarantees 81Common forms of guarantee 89Demand guarantees 94Standby letters of credit 98The structure and design of guarantees 100

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vi Contents04 Currency risk management 105Currency risk 105The currency markets 108Currency exposure 113Hedging currency risks 117Practical currency management 12505 export credit insurance 129A mutual undertaking 129The private sector insurance market 132Export credit agencies (offcial export credit institutions) 137Investment insurance 14606 Trade fnance 149Finance alternatives 149Pre-shipment fnance 151Supplier credits 154Refnancing of supplier credits 159Buyer credits 169The international money market 17407 structured trade fnance 179International leasing 179Lines of credit and local currency fnance 185Project fnance and joint venture 187Multilateral development banks 19108 Terms of payment 195Terms of payment and cash management 195Contents of the terms of payment 196Structure of the terms of payment 200Composite terms of payment 205The fnal design of the terms of payment 208

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Contents vii09 The export quotation 209Appendix I: Electronic documents in international trade 217Appendix II: International transport documents 221Glossary of terms and abbreviations 227Index 245Online resources for lecturers and students are available at the followingurl (please scroll to the bottom of the web page and complete the form toaccess these):www.koganpage.com/HITF4

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viiiPreFaCeThis handbook was originally published more than 40 years ago, and has sincebeen expanded and updated in new editions. Originally it was published asseparate country-specifc editions in different European countries where it soonbecame a reference handbook for companies, banks and other institutionsinvolved in international trade, irrespective of their size or the nature oftheir business.However, for practical and logistical reasons it was not possible to covermore than a handful of countries in this way, thus the idea for a completelynew and country-neutral edition that could be marketed in most countriesinvolved in international trade around the world. The only drawback withthis approach is that it is then not feasible to describe the specifcs forevery country; on the other hand, the basic aspects of international trade,payments and fnance are almost the same all over the world, which is alsothe basis for this handbook.Furthermore, there is great advantage in being able to combine this basicdescription with detailed references where such country-specifc informationcan be found. This information is nowadays readily available from internetsites from a variety of domestic institutions in most countries. It has thenbeen possible to create a situation where this book provides the foundationbut also gives readers the possibility to add whatever detailed and country-specifc information they require from other sources. There is anotheradvantage in such an approach: that the basics of this handbook shouldbe relatively stable over time, whereas detailed information from local anddomestic institutions will certainly change over time.All editions published over the years have been based on the same con-cept, which is their practical nature. They contain no theoretical elements,just information based on the author’s payment and fnance experiencegained from managerial positions as head of international departments ina number of European banks. In such positions you are necessarily involvedin thousands of trade transactions each year, and the advice and commentsgiven in this book are based on that experience.I am very pleased with this fourth international edition now published byKogan Page which contains considerably more examples and illustrationsin a new book format. I thus feel confdent that it will continue to be the

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Preface ixreference handbook of choice in numerous countries around the world, formany years to come. It will certainly be of signifcant beneft to internationaltraders in the daily work of expanding their businesses or when enteringnew markets, but the book will equally be increasingly used in trade educa-tion and as a practical tool within international departments of commercialbanks and other trade-related institutions.The author would like to thank the companies and institutions that havecontributed with support, advice and comments when creating this newedition. This help has been greatly appreciated.Anders Grath