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●Wire transfer, its pros & cons●Bank guarantee – when can we use that●Letter of Credit – contemporary
instrument of global trade●Pricing●? ? ?
So, No.1 – WIRE TRANSFER●Transfer of funds from buyer’s bank account to
an account of seller●Made either (i) before shipment or (ii) after
shipment●Direct, but level of reliability is low●By fact, the simplest form of settlements
between trading parties, if there is a trust●Pricing… - we will talk about it later
Next, BANK GUARANTEE●Buyer’s bank undertaking that they will pay,
even if their customer fails, upon the condition that the seller / supplier confirms the fulfilment of its obligations. This guarantee is referred to as payment guarantee
or●Supplier’s bank’s guarantee, promising to
return the advance payment if the supplier fails to ship the goods / provide services – advance payment guarantee
WOW, LETTERS OF CREDIT!!!●The Banking instrument whereby bank
promises to pay to supplier upon presentation of LC required and compliant documents only, thus insuring both supplier (who will receive money whatever happens to buyer…, or his intentions) and buyer (only the compliant documents will be honoured)
●the bank is very important here, therefore, parties usually choose the first-rate European bank to process the payment
HOW…
Buyer’s (Issuing) BankSeller’s Bank
Seller Buyer
1) Contract
2b) Letter of credit
3a) Shipment
3b) Documents
4) Payment
2a) LC request
And finally, smth abt PRICES
Lets do it starting from lowest, and moving to the most expensive1.Wire transfers - usually, up to 0.25% of the
amount of transfer2.Bank guarantee – also 0.25%, but do not
forget, that the company will then have to pay for transfer too.
3.Letter of credit – the price may get up to 2% of the transaction amount (it includes fee for issuance; confirmation, if any; documents check; reimbursements; & etc.)
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