International Logistics Ch7

Front 1

Advising Bank

Back 1

The bank that determines whether the issuing bank is a legitimate bank and whether the terms of the letter of credit offered by the issuing bank on behalf of the importer are appropriate.

Front 2

Amendment

Back 2

A change to a letter of credit to which all parties to a letter of credit agree: the exporter, the importer, the issuing bank, and the advising bank.

Front 3

Applicant

Back 3

The firm asking the issuing bank for a letter a credit. Usually, the applicant is the importer.

Front 4

Aval

Back 4

In a documentary collection transaction, the fact that a presenting bank is willing to sign the draft on behalf of the importer

Front 5

Bank guarantee

Back 5

A contract from a bank whereby the bank guarantees that an exporter will perform as required by its contract with the importer. If the exporter does not perform, the bank pays a compensation to the importer. Bank guarantees are illegal in the United States.

Front 6

Banker's Acceptance

Back 6

In a documentary collection transaction, the alternative whereby the exporter is not certain that the importer will readily accept signing a draft after being notified by the presenting bank that the documents have arrived. It therefore asks the presenting bank to “accept” the draft on behalf of the importer.

Front 7

Beneficiary

Back 7

The firm named in a letter of credit as the firm to which the bank is insuring payment if the importer does not pay. Usually, the beneficiary of a letter of credit is the exporter.

Front 8

Bill of Exchange

Back 8

In a documentary collection transaction, another term for a draft.

Front 9

Commercial Risk

Back 9

The probability of not getting paid by a certain creditor, because this creditor does not have the funds to pay the debt, or because the creditor refuses to pay the debt.

Front 10

Confirmed letter of Credit

Back 10

A payment alternative in which the exporter asks a bank to provide an additional level of payment security to a letter of credit: Should the importer not pay and should the issuing bank not pay, the confirming bank will pay.

Front 11

Confirming Bank

Back 11

The bank providing an additional level of payment security to the beneficiary of a letter of credit; the confirming bank certifies that it will pay the letter of credit if the importer and the issuing bank do not pay.

Front 12

Contractor

Back 12

When used in the context of a bank guarantee, a company fulfilling a large construction contract, usually the construction of a substantial infrastructure work or a major project.

Front 13

Correspondent Bank

Back 13

A foreign bank with which a domestic bank has a preferred business relationship.

Front 14

Country Risk

Back 14

The probability of not getting paid by a certain creditor because the creditor’s country does not have the funds to pay the debt (insufficient foreign exchange reserves) or because the creditor is not legally allowed to pay the debt (political embargo).

Front 15

Credit Insurance

Back 15

An insurance policy under which commercial risk is covered; in exchange for a premium paid by the exporter, the insurance company will bear the risk of nonpayment by the importer, deducting a slight percentage of the receivable

Front 16

Date Draft

Back 16

In a documentary collection transaction, a date draft is a promissory note that the importer has to pay a number of days (30, 60, 90, or 180 days) after the exporter ships the goods.

Front 17

Discrepancy

Back 17

A difference between the documents required by a letter of credit and the documents provided by the exporter.

Front 18

Exposure

Back 18

The relative consequences of a particular risk for an exporter; the risk of a $50,000 loss would represent a greater exposure for a small exporter than for a large exporter.

Front 19

Gurantor

Back 19

The bank that provides a bank guarantee. If the party to which it provides a guarantee does not perform, the bank pays a compensation to the injured party.

Front 20

Instruction Letter

Back 20

A document sent by an exporter to a presenting bank in which the exporter spells out its instructions regarding how it expects the bank to handle the documents and how it expects the bank to handle an importer that does not accept the draft sent.

Front 21

International Factoring

Back 21

A means of financing international receivable accounts, by which a firm can ask a factoring company to advance funds on a receivable account

Front 22

International Forfaiting

Back 22

A means of financing an international transaction in which an exporter collects a series of drafts from the importer and sells them to a forfaiting firm who buys them without recourse.

Front 23

Irrevocable letter of credit

Back 23

A letter of credit is said to be irrevocable if it cannot be changed without the express approval of the issuing bank and of the beneficiary.

Front 24

Issuing Bank

Back 24

The bank providing the letter of credit to the importer. It is that bank that, should the importer be unable to pay and should the exporter provide all the necessary documents, has the contractual obligation to pay the beneficiary.

Front 25

Political Risk

Back 25

The probability of not getting paid by a certain creditor because the creditor’s country does not have the funds to pay the debt (insufficient foreign exchange reserves) or because the creditor is not legally allowed to pay the debt (political embargo).

Front 26

Presenting Bank

Back 26

In a documentary collection transaction, the bank that interacts with the importer on behalf of the exporter. The presenting bank is the one receiving the documents from the exporter or from the remitting bank and that holds them until the importer either signs a draft or pays the exporter.

Front 27

Protest

Back 27

In a Customs transaction in the United States, the formal request by an importer to have Customs reconsider its classification, its valuation, or its determination of a country of origin.

Front 28

Remitting Bank

Back 28

In a documentary collection transaction, the bank that interacts with the exporter and with the presenting bank in the importing country. The remitting bank is the one that receives the documents from the exporter and then sends them to the presenting bank.

Front 29

Sight Draft

Back 29

In a documentary collection or a letter of credit transaction, a sight draft is a promise by the importer that it will pay immediately, “at sight.”

Front 30

Stand-by-letter of credit

Back 30

A type of letter of credit that covers more than one shipment; a stand-by letter of credit allows for multiple bills of lading, issued on different dates.

Front 31

Time Draft

Back 31

In a documentary collection transaction, a time draft is a promissory note that the importer has to pay a number of days (30, 60, 90, or 180 days) after it accepts the draft by signing it.

Front 32

Trade Acceptance

Back 32

In a documentary collection transaction, the alternative whereby the exporter expects the importer to readily accept signing a draft after being notified by the presenting bank that the documents have arrived.

Front 33

Among other reasons, international transactions are perceived to have more risk of non-payment because of ___.

Back 33

a) a lack of credit information b) a lack of personal contact c) no easy legal recourse

Front 34

The risk(s) that an exporter takes in requesting cash in advance as a means of payment is/are ___.

Back 34

it puts the exporter at a competitive disadvantage because competitors who offer some form of credit are more likely to get the business.

Front 35

International commercial risk can be evaluated by ___.

Back 35

a) credit report companies
b) factoring houses
c) some accounting firms, insurance companies, and banks

Front 36

An exporter can conduct its international business in a manner similar to the way it and most companies conduct domestic business by using ___.

Back 36

an open account

Front 37

International factoring ___.

Back 37

a) is more complicated than domestic factoring
b) can be used to extend credit beyond what the exporter can normally afford
c) often involves factoring firms in both the exporting and importing countries

Front 38

The importer's bank is called the ___

Back 38

issuing bank

Front 39

A standby letter of credit is similar to a "simple" letter of credit except for ___.

Back 39

a) it generally has a much longer validity period
b) it usually applies to more than one shipment from the exporter to the importer
c) it allows the exporter to extend an open account to the importer, using the letter of credit only if the importer doesn't meet its obligations

Front 40

The instruction letter is part of the documentary collection ___.

Back 40

in which the exporter, through the remitting bank, tells the presenting bank what it is expected to accomplish

Front 41

Sometimes a third bank, in addition to the issuing bank and the advising bank, becomes involved with a letter of credit. This bank is called a ___

Back 41

correspondent bank (or confirming bank).

Front 42

Credit terms can be considerably lengthened through ___.

Back 42

international forfaiting

Front 43

There are four classes or types of documents with which an international logistician must be familar

Back 43

Billing and payment documents.
Exporting documents.
Importing documents.
Transportation documents.

Front 44

Types of billing (invoices)

Back 44

commerical invoices
pro forma invoices
consular invoices

Front 45

export documents

Back 45

export license
shippers export declarations
end-use certificates
export taxes
export quotas

Front 46

import documents

Back 46

certificate of origin
certificate of manufacture
certificate of inspection
certificate of certification
Phyto-sanitary certificate
certificate of analysis
certificate of free-sale
import license
certificate of insurance

Front 47

transportation documents

Back 47

bill of lading
air waybill
uniform bill of lading
intermodal bill of lading
packing list
instructions
shipment of dangerous goods
manifest

Front 48

why is it more difficult and riskier to collect receivables from a foreign purhcaser

Back 48

no easy legal recourse
higher litigation cost
corruption in legal system
lack of credit information

Front 49

what is the difference between commercial risk and political risk

Back 49

commercial risk - the creditor does not have the funds or does not want to pay
political risks - countyy's government may change. policies may change
exchange rates may change

Front 50

describe documentary collection

Back 50

process by which an exporter aske a bank located in the importer's country to not release the documents (bill of lading) until the importer satifies certain requirements (payment)

Front 51

describe a letter of credit

Back 51

a document in which the importer's bank essentially promised to pay the exporter if the importer does not pay

Front 52

what is factoring

Back 52

a process by which the creditor uses an intermidiary (factor) to finance the receivables

Front 53

what is a bank guarantee

Back 53

a bank is requested to secure the performance of the exporter. usualy happens when an exporter is building a plant in another country and the importing country want to make sure the project is completed.