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©2012PearsonEducation,Inc.Chapter18FinancingInternationalTradeQUESTIONS1.Whatisthefundamentalfinancingproblemininternationaltrade?Answer:Whengoodsareshippedinternationally,ittakestimetoshipthem,andsomeonemustownthegoods,whichrequiresfinancing,duringtheirtransitbetweencountries.Theexporterwouldliketobepaidimmediatelyuponcompletionofthegoods,butthisrequiresthattheimporterdoesthefinancing.Theimporterisnotinterestedinpre-payingforgoodsthatmaybedamagedduringshipmentandisgenerallyinterestedinpayingaslateaspossible.Thelessnetworkingcapitalthattheimporterutilizes,themorevaluableishisbusiness.Theseproblemsariseindomesticshipmentsofgoodsaswell,butwhentheshipmentandsaleofgoodsoccurwithinasinglecountry,thereisacommonjurisdictionandsystemofcourtsthatadjudicatescontractualdisputesbetweenbuyersandsellers.Whengoodsareshippedacrossborders,though,additionallegalcomplexitiesarise.2.Whatisabilloflading?Explainthedifferencebetweenastraightbillofladingandanorderbilloflading.Answer:Abillofladingisacontractissuedtoanexporterofgoodsbytheshippingcompany(alsocalledacommoncarrier)thatwilltransportthegoodstotheirdestination.Thebillofladingservesseveralpurposes,butmostimportantly,itdocumentsthattheexporter’sgoodshavebeenreceivedbythecarrier.Thebillofladingcontainsthecontractualtermsbetweenthecarrierandtheshipper(exporter).Itdescribesthekindandquantityofgoodsbeingshipped,whotheshipper(alsocalledtheconsignor)is,whotheimporter(alsocalledtheconsignee)is,theportsofloadinganddischarge,thecarryingvessel,andthecostoftheshipping.Anegotiablebillofladingisthemostcommonform.Itcanbeusedtotransfertitleorownershipofgoodsbetweendifferentparties.Astraightbillofladingstatesthatacarrierhasreceivedmerchandisefromashipperandwilldeliverthemerchandisetoadesignatedparty.Astraightbillofladingisnottitletothegoodsandisconsequentlynotrequiredfortheconsigneetoobtaindeliveryofthemerchandise.Becauseitisnotatitletothemerchandise,astraightbillofladingisnotnegotiableandcannotbeusedtotransfertitleofthegoodstoathirdparty.Consequently,itcannotserveascollateralwithacommercialbankandisusedonlywhennoexportorimportfinancingisdesired.Astraightbillofladingisusedwhengoodshavebeenpaidforinadvance,whentheexporterisfinancingtheshipmentandretainingtitletothegoods,orwhentheshipmentisbetweenaffiliatedpartiesofthesamecorporation.Chapter18:FinancingInternationalTrade©2012PearsonEducation,Inc.2Ifthetransferoftitletogoodsisdesired,orifsomeformofthird-partyfinancingisdesired,anorderbillofladingisused.Becausemostexporttransactionsdoinvolvefinancing,theorderbillofladingisthemostcommonformofbilloflading.Anorderbillofladingconsignsthegoodstoapartynamedinthecontract.Thisisusuallytheexporterbecausetheexporterwantstoretaintitletothegoodsuntilpaymentfromtheimporterhasbeenreceived.Theexportercanendorsetheorderbillofladingonthereversesidetotransfertitleofthegoodstoaspecificpartydesignatedintheendorsement.Atthedestination,thecarrierofthegoodsdeliversthegoodsonlytothepartybearingtheendorsedorderbilloflading,whosurrendersittothecarrier.Havinganorderbillofladingistantamounttohavingthetitletothegoods.Thismeansthatthegoodscanbeusedascollateralforbankloans.Banksarewillingtolendtothepartybearinganendorsedorderbilloflading.Inaddition,thegoodsareusuallyfullyinsured.Anorderbillofladingisalsorequiredwithadocumentarycreditorfordiscountingdrafts.3.Whatisthedifferencebetweenacleanbillofladingandafoulbilloflading?Answer:Acleanbillofladingindicatesthatthecarrierbelievesthemerchandisewasreceivedingoodcondition.Thisevaluationisbasedonlyonanexternalvisualinspectionofthemerchandise.Thecarrierisnotresponsibleforconductingaformalevaluationoftheconditionofthemerchandise.Incontrast,afoulbillofladingindicatesthatthecarrier’sinitialinspectionofthemerchandiseuncoveredsomedamagethatoccurredbeforethegoodswerereceivedbythecarrierforshipment.Foulbillsofladingaretypicallynotnegotiablebecausenooneknowstheextentofthedamagetothemerchandise.4.Whatarethepurposesofacommercialinvoiceandapackinglist?Answer:Acommercialinvoiceisissuedbyanexporterandgiventoanimporter.Acommercialinvoicecontainsadetaileddescriptionofthemerchandiseinquestion,includingtheunitpricesoftheitemsandthenumberofitemsthatarebeingshipped.Theinvoicealsospecifiesthefinancialtermsofthesale,includingtheamountduefromtheimporterandanychargestotheimporterarisingfrominsuranceandshipping.Apackinglistcontainsadescriptionofthemerchandisetobeexported,includingthecontainersinwhichthegoodsarepacked,thecontentsofeachcontainer,andthetotalnumberofcontainers.5.WhatdotheINCOTERMacronymsFOB,FAS,CFR,andCIFmean?Answer:TheInternationalChamberofCommerce(ICC)setsstandardsforcommercialcontracts.Thisincludesestablishingthemeaningofacronymsusedinternationally.Theacronymsindicatewhopaysthecostsofshipping,insurance,andimportduties.Forexample,ICCPublicationentitledINCOTERMS,groupsthesetermsintofourdifferentcategories.TheEterms,asinEXWfor“exworks,”indicatethegoodsareavailabletothebuyerattheseller’spremises.TheFterms,suchasFASfor“freealongsideship”andFOBfor“freeonChapter18:FinancingInternationalTrade©2012