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International Settlement Lecturer: shao xinli
Course teaching goal This course is designed to help students to understand the fundamentals and basic methods of international settlement, grasp the basic skill of the international settlement practice operation. Its primary aim is to realize the purpose that " learn, realize and get it". it
International Settlement Ø International Settlement : An Overview Ø Instruments of payment Ø Remittance & Collection Ø Letter of Credit Ø Documents Ø Bank’s letter of guarantee Ø International Factoring Ø International Forfaiting
Chapter One International Settlement An Overview
Teaching purpose Find out about the concept, developing history and system of international settlement; grasp the concrete conditions of international settlement.
Focal and difficult points The historical development of international settlement and its system; the fund clearing systems in major international financial centers.
Key terms Settlement, International Trade Settlement, "Cargo Documentation", "Performance Certification", Control Documents, Correspondent Bank, Bank Account.
Content of Chapter One What is “International Settlement” The history of development of International Settlement Condition of International Settlement
§ 1. 1 What is“International Settlement” Commodity Production Exchange of commodity Circulation of Currency
§ 1. 1 What is “International Settlement” Settlement To pay an obligation
§ 1. 1 What is “International Settlement” Balance of payment : Current account Ø Goods Ø Services Ø Income Ø current transfers Capital & Financial account Ø capital item Ø financial item
§ 1. 1 What is “International Settlement” International Settlement Financial activities conducted among different countries in which payment are transferred from one country to another , in order to settle accounts, debts, claims, etc. emerged in the course of political, economic or cultural contracts among them.
§ 1. 1 What is “International Settlement” ØInternational Trade Settlement financial activities arisen from international commercial transactions. ØInternational Non-trade Settlement financial activities across the borders generated in the course of other economic, political and cultural contracts.
Key issues in international settlement: v. Who bears the credit risks? v. Who finances the transaction? v. Who will bear transportation costs and risks? v. In what currency will payment be made? v. What are the political and legal risks? v What are the costs of each method of financing and payment? Etc. . .
§ 1. 2 The history of development of International Settlement Five Step Features: A. From Cash Settlement to Non-cash Settlement B. From buying and selling of commodity to doing of documents C. From direct settlement among business men to indirect settlement through banks
§ 1. 2 The history of development of International Settlement Five Step Features: D. From simple trade term to complicated trade which connected with both delivery of goods and payment of proceeds E. From paper documents to electronic documents
Major processes of international trade? ØPreparation for international trade ; ØBusiness negotiation and signing a contract; ØTo fulfill the contract agreement and settlement of the proceeds.
Business negotiation n Inquity／Enquity (the act of requesting on the availability of specific products) n Offer/Quotation (a promise to supply goods on the terms stated) n Counter Offer (offer made in reply to an offer made by somebody else ) n Acceptance/Order (an offer to buy)
Business ways Ø Distribution Ø Agency Ø Consignment Ø Auction Ø Tender(bid) Ø Counter trade Barter Trade Counter Purchase Compensation Trade Ø Processing Trade
Overview of Incoterms. 2000 p 499
§ 1. 3 Condition of International Settlement A. Correspondent Banking Relationships “Correspondent banks” A bank customarily gives anther bank advice on investment. Loans. Collection Procedure. Insurance practices. Pension And profit-sharing plan. Job problem. The former bank , called “Correspondent banks”
§ 1. 3 Condition of International Settlement A. Correspondent Banking Relationships Services provided by Correspondents a. Collecting checks, drafts and other credit instruments b. Making loans or investments as agents for their customer banks c. Making credit investigations of firms that borrow in the open market d. Providing banks with funds in case of need
§ 1. 3 Condition of International Settlement A. Correspondent Banking relationships Control Documents a. List of specimen of authorized signatures b. Telegraphic test keys c. Schedule of terms and conditions or tariff
§ 1. 3 Condition of International Settlement B. Accounts The accounts which banks maintain with each other Nostro Account ---- “ours” Vostro Account ---- “yours” Loro Account ---- “theirs”
§ 1. 3 Condition of International Settlement B. Accounts Conditions for account: a. Minimum balance b. Interest rate of deposit c. Investment account d. Line of overdrawn and its interest e. Fee f. Others
How to set up accounting relationship between correspondent banks? a. Its reputation b. Its size c. Its location d. Its service e. Its fundamental policy f. Its physical features & quality of its personal g. Its momentum of early start
§ 1. 3 Condition of International Settlement C. Funds “ Convertible currency ” Ø Currency of export 、import and the three party country Ø soft & hard currency Ø currency for settlement
§ 1. 3 Condition of International Settlement D. Uniform Rules & Practice for International Settlement URC UCP URCG Uniform Law for Bills of Exchange and Promissory Note singed at Geneva Ø Uniform Law for Cheque singed at Geneva Ø Ø