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Countertrade Strategies and Payment Terms

This document outlines different pricing strategies and terms of sale/payment used in international trade. It discusses various types of countertrade agreements as well as trade terms like EXW, FOB, CIF, and DDP that define responsibilities of buyers and sellers. It also explains financing methods like open accounts, letters of credit, and cash in advance and how they balance risk and cost between importers and exporters.

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Vickesh Malkani
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178 views15 pages

Countertrade Strategies and Payment Terms

This document outlines different pricing strategies and terms of sale/payment used in international trade. It discusses various types of countertrade agreements as well as trade terms like EXW, FOB, CIF, and DDP that define responsibilities of buyers and sellers. It also explains financing methods like open accounts, letters of credit, and cash in advance and how they balance risk and cost between importers and exporters.

Uploaded by

Vickesh Malkani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Chapter 17

Pricing Strategies:
Countertrade and
Terms of
Sales/Payment
Chapter Outline

 Countertrade
- Types of Countertrade
- Problems and Opportunities
 Price Quotation
 Terms of Sale
- Trade Terms
- Quotation Guidelines
Chapter Outline

 Methods of Financing and Means of payment


- Consignment
- Open Account
- Cash in Advance
- Bill of Exchange (Draft)
- Bankers' Acceptance
- Letter of Credit
Countertrade

 goods for goods trade (vs. monetary trade)


 government mandate to pay for goods and
services with something else other than cash
Countertrade

Advantages
 serving as trade financing
 buyer getting rid of surplus of own products
 no concern for fluctuation of exchange rates
Countertrade

Disadvantages
 cumbersome and time-consuming
 costly
 inferior form of exchange

- requiring "double coincidence of wants"


Types of Countertrade
 Barter
- single transaction of direct exchange of products of
equal value
 Counterpurchase (Parallel Barter)

- two transactions of cash sales agreements (of


unrelated products)
 Compensation Trade (Buyback)

- products sold and later bought by a party are related


Types of Countertrade
 Offset
- for the rights to sell its product in a foreign market,
the seller must manufacture the product locally (in
the host country)
 Clearing Agreement

- line or credit established in central banks of two


countries
- use "clearing account units" for exchange of
products
Trade Terms
 EXW (Ex Works)
- price of product only; nothing else being included
 FAS (Free Alongside Ship)
- EXW + local transportation in seller's country
 FOB (Free on Board)
- FAS + loading onto the vessel
 CFR (Cost & Freight)
- FOB + international transportation
Trade Terms

 CIF (Cost, Insurance, and Freight)


- CFR + insurance
 DEQ (Delivered Ex Quay)

- CIF + unloading
 DDP (Delivered Duty Paid)

- DEQ + local transportation in buyer's country


Methods of Financing &
Means of Payment

 Consignment
 Open Account
 Cash in Advance
 Bill of Exchange (Draft)

- Sight Draft
- Time Draft
Methods of Financing &
Means of Payment

 Bankers' Acceptance
 Letter of Credit (L/C)
- Revocable vs. Irrevocable
- Unconfirmed vs. Confirmed
- Standby
- Back-to-Back
- Transferable
Export Payment Terms and Risk Level

 Open account (highest risk for exporter)


 Sight draft
 Time draft
 Irrevocable L/C
 Confirmed irrevocable L/C
 Cash in advance (least risk)
Export Payment Terms and Cost

 Open account (least cost for importer)


 Sight draft
 Time draft
 Irrevocable L/C
 Confirmed irrevocable L/C
 Cash in advance (highest cost)
L/C: Advantages/Disadvantages

 Advantages
– Security (for both parties)
– Seller receiving early payment by discounting L/C
 Disadvantages
– Lacking flexibility
– Complex and potentially costly

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