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Questions and Answers
What is one of the key risks associated with international trade that involves the risk of collecting money?
Which type of risk involves fluctuations in market prices over time during international trade?
Which risk in international trade is specifically related to changes in exchange rates?
What type of risk is described as the risk of not receiving goods during international transactions?
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Which factor is NOT mentioned as a risk associated with international trade?
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What is the primary consideration when evaluating target items for export?
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In which phase is a market deemed 'partially opened'?
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Which factor is NOT considered a competitive element in market selection?
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Which of the following terms refers to the market that has no openings for foreign trade?
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Which economic development phase is characterized by a lack of infrastructure and a low standard of living?
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What is the focus of secondary considerations in item selection for export?
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What does a strong government interference suggest in the context of market selection?
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Which of the following is a key aspect of selecting transportation companies during international trade?
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What is the primary purpose of the United Nations Convention on Contract for the International Sales of Goods (CISG)?
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Which set of rules pertains specifically to terms used in international commercial contracts?
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Which of the following Acts is related to marine insurance?
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The Warsaw Convention (1929) is primarily concerned with which mode of transport?
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What are the INCOTERMS used for in international trade?
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Which regulation outlines uniform procedures for documentary credits in international trade?
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What type of contract do the Uniform Rules for a Combined Transport Document (1973) address?
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What is the focus of the Hague-Visby Rules (1968)?
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What is the primary function of a drop-shipping distributor?
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Which of the following steps is NOT part of the drop-shipping process?
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What distinguishes an agent from a drop-shipping distributor?
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Which statement about agents is correct?
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In the context of international trade, where are export agents typically located?
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What happens after the buyer places an order in the drop-shipping process?
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Which role does NOT take title to the goods?
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What is the main revenue model for agents?
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What is the purpose of using Incoterms in international trade?
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Which of the following is NOT a characteristic of an international trade contract?
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What is the primary focus of the main contract in international trade?
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During which phase of international trade is market research and credit inquiry conducted?
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What does the phase of 'bargaining with prospective buyer' primarily involve?
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What is the role of a subsidiary contract in international trade?
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Which term refers to different modes or methods of payment in international trade?
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What is the significance of conducting a market survey in international trade?
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Study Notes
International Trade
- International trade involves transactions between businesses located in different countries.
- International trade is distinct from domestic trade which involves businesses within the same country.
Risks of International Trade
- Transactions occur between parties who may not know each other.
- Time delays create vulnerabilities for business dealings.
- Credit Risk: Potential for not receiving payment for goods or services.
- Mercantile Risk: Potential for not receiving the goods as ordered, or not receiving them on time.
- Exchange Risk: Potential for financial losses from fluctuations in exchange rates during the time between agreeing on a price and payment.
- Market Risk: Potential for financial losses from fluctuations in the market price of goods or services.
International Trade Law & Regulations
- CISG (United Nations Convention on Contracts for the International Sale of Goods): Serves as a reference rule when drafting contracts between sellers and buyers.
- INCOTERMS (International Rules for the Interpretation of Trade Terms): Standardizes commercial terms used in international trade, defining responsibilities and costs.
- Hague Rules (1924) and Hague-Visby Rules (1968): International regulations governing the liability of carriers in the transportation of goods by sea.
- Warsaw Convention (1929): International regulation governing the liability of carriers in the transportation of goods by air.
- Uniform Rules for a Combined Transport Document (1973): Governs the liability of carriers in multimodal transport.
- Marine Insurance Acts (1968): Legislation related to marine insurance contracts.
- Institute Cargo Clause (ICC): Standardized clauses used in marine insurance policies.
- Uniform Rules for Collection (1995): Defines standards for international collections.
- UCP (Uniform Customs and Practices for Documentary Credits): Defines standards for issuing and processing documentary credits.
The Process of International Trade
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Item Selection & Overseas Market Research:
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Target Item Selection: Evaluate competitiveness and differentiate factors of the goods to be exported.
- Primary Considerations: Price, Quality, Usage, Design, Major Consumers.
- Secondary Considerations: Differentiation Factors, Comparative Advantages and Disadvantages.
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Market Selection: Identify the most suitable market for the target items.
- Market Demand Phase: Introduce, Grow, Mature, Potential.
- Economic Development Phase: Underdeveloped, Developing, Developed.
- Market Opening Phase: Unopened, Partially Opened, Opened, Fully Opened.
- Competitive Elements: Monopoly, Oligopoly, Potential Competitors.
- Government Interference: Strong, Medium , Weak.
- Other Elements: Culture, Climate, Religion, Propensity to Consume.
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Target Item Selection: Evaluate competitiveness and differentiate factors of the goods to be exported.
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Import/Export Marketing: Strategies and activities to promote and sell goods in international markets.
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Discovery of Trading Partners & Credit Investigation: Identifying potential business partners and assessing their financial stability.
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Negotiation & Acceptance of Trade Terms & Conditions:
- Define the conditions for the trade engagement.
- Payment Terms: L/C, D/A, D/P, T/T etc.
- Payment Currency & Exchange Rate: Exchange Rate Risk Management.
- Incoterms: Selection of LSP (Logistics Service Provider).
- Transportation Mode & Logistics Cost: Cost Analysis.
- Duty & Tax: Market Price & Market Survey.
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Signing a Trade Contract: Legal agreement outlining the terms and conditions of the trade deal.
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Characteristics of International Trade Contract:
- Negotiation between parties in different countries.
- Dealing with different languages, customs, trade practices, currencies, and laws.
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Sales Contract: Agreement for the sale of goods.
- Main Contract: Key aspects of the sales agreement (Quality, Quantity, Price).
- Subsidiary Contracts: Agreements related to transportation, insurance, letters of credit, foreign exchange, and other aspects of the trade.
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Characteristics of International Trade Contract:
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Issuing & Accepting of L/C (Letter of Credit): A financial instrument used to guarantee payment to the seller.
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Selection of Transportation Company & Sign an Insurance Contract: Selecting a logistics provider and securing insurance coverage for the goods.
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Import/Export Customs Clearance & Payment & Acceptance: Completing required customs procedures and finalizing payment.
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Claim & Arbitration: Resolving any disputes that may arise concerning the trade transaction.
Drop Shipping
- A distributor who sells merchandise for delivery directly from a supplier to the customer without physically handling the product.
- The drop-shipping distributor takes title to the goods before delivery to its customer.
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Drop-shipping process:
- Find Products: Locate suitable products to sell.
- Advertise Products: Promote the products to potential buyers.
- Find Seller: Locate a supplier who will fulfill orders.
- Find Customers: Identify and engage with buyers.
- Buyer places order & pays.
- Order & Payment made to Seller:
- Seller Ships to Buyer.
Agent
- an intermediary who arranges transactions between buyers and sellers.
- Export Agents: work in the country where the product is produced.
- Import Agents: work in the country where the product will be sold.
- Agents typically receive a commission for their services.
- Agents do not take title to the goods.
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Description
Explore the complexities of international trade, including the various risks that businesses face when engaging in transactions across borders. This quiz covers critical aspects of credit, mercantile, exchange, and market risks, alongside the relevant legal frameworks like the CISG.
