– Imagine an importer and an exporter who would like to do business with one another – Because of the distance between the two, it is not possible to simultaneously hand over goods and receive payments in person – How do participants in international trade mitigate the risks associated with conducting business with a stranger?
Goods & Services Flow from Supplier to Trident to Buyer
Domestic Buyer (US)
Canadian Buyer (Calgary, Alberta)
International Trade Finance
Trident as an Exporter
Chapter 8
International Trade Finance
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The Trade Relationship
• Trade financing shares a number of common characteristics with traditional value chain activities conducted by all firms
– Unaffiliated unknown party – Unaffiliated known party – Affiliated partu
International Trade Finance
Financing Trade: The Flow of Goods and the Flow of Funds
2.
Protection against non-payment
2.
Possible protection against non-payment
2.
No protection against nonpayment
The Trade Dilemma
• International trade must work around a fundamental dilemma:
The Mechanics of Import and Export
1st: Exporter ships the goods
Importer
Importer Preference
2nd: Importer pays after goods received
Exporter
1st: Importer pays for goods
Domestic Supplier (US) Mexican Supplier (Monterey, MX)
Mexican Pesos
Goods & Services Flow from Supplier to Trident to Buyer
US$
Trident Corp.
(Los Angeles) US$ Canadian $
The Trade Relationship
• Understanding the nature of the relatimporter is critical to understanding the methods for import-export financing utilized in industry • Three categories of relationships:
Affiliated Party
This is a foreign subsidiary of Trident, a business unit of Trident Corporation
Requires: 1. A contract
Requires: 1. A contract
Requires: 1. No contract
Importer
Exporter Preference
Exporter
2nd: Exporter ships the goods after being paid
The Bank as the Import/Export Intermediary
Importer
6th: Importer pays the bank. 2nd: Bank promises exporter to pay on behalf of importer. 1st: Importer obtains bank’s promise to pay on importer’s behalf.
– All companies must search out suppliers for goods and services – Must determine if supplier can provide products at required specifications and quality – All must be at an acceptable price and delivered in a timely manner
Importer is…
Unaffiliated Unknown Party
This is a new customer which Trident has no historical business relationship with
Unaffiliated Known Party
This is a Long-term customer with which there is an established relationship of trust and performance