Banking Services for International Trade

Study Notes

Main Content

Bank Account Services for Exporters and Importers: Banks offer diverse services to individuals, firms, and government agencies, including deposits, loans, advances, agency services, and more. Importers and exporters commonly use current accounts (often called Trade Current Accounts or Global Current Accounts). These accounts facilitate international trade transactions.
Benefits of the System: The system streamlines international trade by handling payment risk, facilitating financing, and managing foreign exchange risks. This is crucial in international trade as it ensures the exporter gets paid and the importer receives goods.
Risk of Non-Completion: In international trade, there's always the risk that either the exporter or importer may not fulfill their end of the deal. This risk can be mitigated by using banks to handle transactions.
Protection Against Foreign Exchange Risk: Banks and the system employed help manage the risks associated with fluctuations in currency exchange rates.
Financing the Trade: Banks support trade by providing financing solutions for goods sold and goods being shipped in transit.
Letters of Credit: This is a payment arrangement used frequently in international trade. A letter of credit guarantees payment by a bank when specific documents are presented.
- Essence of the Agreement: A letter of credit promises payment by a bank upon presentation of specific documents. This assures the seller the payment will be made, and the buyer that the goods will be delivered.
- Variations in Terms: Letters of credit can have different variations depending on the specifics and needs involved.
- Issuers of Letters of Credit: Usually, banks are the issuers of the letters of credit.
- Advantages and Disadvantages: Letters of credit offer protection against the risk of non-completion and foreign exchange. Banks are liable, provided the documents meet their requirements. But, the process and fees associated can be disadvantages to the exporter or importer.
- Liabilities of Banks: Banks are responsible for paying upon the presentation of the correct documents.
Draft: A draft is an order to pay a specific amount at a specific time. It can be converted into a different instrument.
- Conversion of Drafts: Drafts can be converted into negotiable instruments to facilitate international transactions and improve financing options.
- Types of Drafts: Drafts can be various types including sight or time-based drafts.
Banker's Acceptance: A specialized type of draft accepted by a bank, acting as a guarantee of payment.
Bill of Lading: A receipt for the goods, and a contract for transportation. It functions as a document of title, crucial for releasing and claiming the goods.
Summary: Summarized facts about the topics covered.
Conclusion: Brief summary of the importance of these topics for exporters and importers.
Tutor-marked Assignment: Instructions and details on assessment on the content learned.
References/Further Reading: Sources related to the topic explored in the study materials.

Introduction

Customer Definition: A bank customer is someone who has an account with the bank, even if they don't frequently visit.
Account Options: Bank accounts include different types of accounts to suit specific circumstances. This study guides exporters and importers.

Objectives

Liabilities of Banks: Understanding liabilities in relation to letters of credit.
Triangular Relationship: Knowing relationships between exporter, importer and bank.
Letters of Credits: Understanding different types of letters of credit.
Types of Drafts: Knowing various draft types used in transactions.

Bank Account Services for Exporters and Importers (Detailed)

Bank Services: The various diverse services offered by banks to individuals, groups and firms included acceptance of deposits, granting of loans and advances, agency services, payment and collection of checks, execution of standing orders, and remittances of funds.
Account Types: Banks generally manage three main account types: savings account, fixed deposit account, and current accounts.