1. Introduction to International Trade: a. Definition
- What is trade
o Concept of buyer
o Concept of seller
o Market place
b. Historical perspective
- Important landmark events related to trade
c. Need for trade and changed profile of markets
- The economic reasons for international trade
- Dependencies and efficiencies created by trade
- Various economic theories related to trade (Mercantilism, Absolute Advantage, Comparative Advantage, Opportunity Cost)
- Balance of Trade and Balance of Payments
- Changed profile of foreign exchange markets (since 2000)
- Growth of multinational companies and its impact on trade practices
2. International Trade
I. Modes of Trade Settlement
a. Open Account
i. Definition
ii. Terms under Open Account
iii. Advantage to buyer/disadvantage to seller
b. Documentary Collections
i. Definition
ii. Types of documentary collections
- Clean
- Documentary
• Documents against payment
• Documents against acceptance/bill of exchange
• Documents against letter of undertaking
• Avalization
iii. Advantages/disadvantages of different types to seller/ buyer
c. Documentary Credits
o Definition
o Parties to Letter of Credit (Issuing Bank, Confirming Bank, if any, Beneficiary)
o Checklist – terms in the Letter of credit
o Fundamentals of documents scrutiny
o Common errors of exporters and importer
o Discrepancies
- Understanding what can be resolved
- How to resolve discrepancies
d. Advance Payment / Settlement through Escrow Account
o Payment options available to exporter
Disadvantage/risks for buyer
II. Forms of documentary credits
o Advance Payment Credits/Red Clause Credits
o Irrevocable and unconfirmed credits
o Revolving Credits
o Transferable credit
o Back-to-back LCs
o Stand-by credit
o Availability of credit
- Available by payment
- Available by deferred payment
- Available by acceptance
- Available by negotiation
III. Transaction Due Diligence
o Know your Customer (KYC)
o Know your customer’s customer (KYCC)
o Know their “credit” bank
o Know their country
o Understand the trade cycle
o Understand transaction risks
o Understand regulations
o Understand the terms
o Understand the commodity
o Pricing rationale
o Trade-based money laundering
o Scrutinizing the counter-party’s credentials
3. International conventions/practices and documents in International Trade o International Conventions/Practices
i. UCP 600
ii. URDG 758
iii. URC 522
iv. URR 725
v. Incoterms 2010
vi. ISBP 681
vii. ISP 98
o Documents involved in Trade Transactions
Financial documents
o Bill of Exchange (B/E) or Draft
o Promissory Note Commercial documents
o Sales Contract
o Pro Forma Invoice
o Commercial Invoice
o Certificate of Origin (CO)
o Shipper's Export Declaration (SED) Transport documents
o Bill of Lading
o Air Transport Document
o Combined transport document
Other documents
o Packing List
o Inspection Certificate
o Insurance Policy/ Certificate
o Product Testing Certificate
o Health Certificate
4. Local market regulations and practices o Overview of local regulations
Registration (Importers & Exporters) Order, 1993 Import and Export Control Act, 1950
Import Policy Order Export Policy Order
Foreign Exchange Regulations Act, 1947
Foreign Exchange Manual (8th Edition, 2002)
• Circulars – as amended by the State bank of Pakistan Prudential Regulations
Anti Money Laundering Ordinance, 2007 Anti Money Laundering Rules, 2008
Bill of Lading Act, 1856 Contract Act, 1872
Negotiable Instrument Act, 1881
Carriage of Goods by Sea Act, 1925 Customs Act, 1969
Income Tax Ordinance, 2001
o Other regulations
Export finance scheme
o SBP Export Finance Scheme Part – I
o SBP Export Finance Scheme Part – 2
5. Role of banks in trade
LC advising/ Confirmation/ Transfers and Documentary Collection
o Correspondent bank network
o Credit lines
o Facilitate
1. Confirmation of documentary credits
2. Examination of documents
3. Payment/Negotiation/Discounting
4. Routing and settlement of trade transactions
5. Dispute Resolution
o Issuance of guarantees and credits
Types of the bank guarantees Evaluation of bank guarantees
Guarantor’s liability under the guarantee
Liability of principal or instructing party under their counter-guarantee Commencement of the guarantee
Amendments to the guarantees Payment of beneficiary claims
Payment of claims under counter- guarantees Extinguishment of liability under guarantee
Non – payment of claims under guarantees Expiry of the guarantee
Communication between guarantor, instructing party and the principal Standby LCs
Trade Financing
o Import financing
Finance against imported merchandise (FIM) Foreign currency import facility (FCIF)
Finance Against Trust Receipts (FATR) Structured import finance facilities
Import Loans (unsecured) – direct credit lines Foreign Bill Purchase (FBP)
o Export financing
Credit facilities extended by
• SBP
o Export Refinance Facility Part 1 – 2
o Long term Financing – Export Oriented Projects
o Locally Manufactured Machinery
• Banks and FIs
o Purchasing and discounting foreign bill
o Forfaiting and factoring
o Pre-shipment and post-shipment financing
• Export/Buyer
o Usance/Packing credit
o Pre-shipment and post-shipment financing
o Categories of Bank charges
6. International trade risks and its mitigants
• Market risk
• Cross border/Country/Sovereign risk
• Supply risk
• Counter party risk
• Commercial risk
• Communication/transmission/transportation risk
• Fraud risk
• Forex/Currency risk
• Political risk
• Civil commotion, Acts of terrorism and Force Majeure
7. Role of treasury in international trade
• Adequate FX positions
• Forward cover facility for Importer / Exporters
• Market based pricing
• Spot sale for Import payments
• Spot purchase for export receipts
• Up to date Nostros reconciliation
• Prompt facilitation of transactions to & from foreign banks through Nostros / Vostros
