Terms of Quoting Prices /Methods of Payment in Foreign Trade

Welcome to class!

In today’s class, we will be talking about terms of quoting prices/methods of payment in foreign trade. Enjoy the class!

CONTENT

Cost, Insurance and Freight (CIF): The price quoted includes the cost of the goods, insurance and freight up to the port of destination while the purchaser is responsible for all subsequent charges.
Free Alongside Ship (FAS): The price quoted covers all expenses till the goods arrive at the side of the ship.
Free on Board (FOB): The price quoted covers all expenses (costs) up to the loading of goods on the ship at the port of departure.
Free on Rail (FOR): The price quoted covers all costs up to the loading of goods on the railway at the terminus of departure.
Cost and Freight (C&F): The price quoted includes the cost of the goods and freight charges from the country of export to the importing country but not insurance.
Franco (Rendu or Free): The price quoted includes all types of expenses until delivery to importer’s warehouse.
Loco (Spot or Ex-Warehouse or Ex-Works): This is the price quoted when a quotation is immediate and goods are sold just where they are – that is the warehouse of the exporter and the buyer must bear all the cost of removing the goods.

Evaluation

The importer could pay the exporter through one of the following methods of payment, all of which use the banks as intermediaries.

Mail transfer: This is an order to pay sent by letter or airmail by a bank to its branch or agent in a foreign country to pay a specified sum of money to a named beneficiary.
Telegraphic Transfer (Cable Transfer) or Telex Transfer: Here the payment order is sent by a bank via telegraph, cable or telex to another bank in another country to pay a specified sum of money to a named beneficiary.
Foreign Bill of Exchange: This is a bill drawn by the exporter and sent to the importer who is expected to accept it and send it back to the exporter. The exporter can then discount the bill with a financial institution.
Traveller’s Cheques: This is an order or instruction upon a bank to pay a stated sum of money in foreign currency. Travellers (and businessmen) to other countries can use the travellers’ cheque to settle their bills.
Banker’s Draft (Bank Draft): Here, the importer asks his banks to draw a foreign draft in favour of the exporter he wishes to buy goods from.
Letter of Credit: A letter of credit is a letter addressed by a banker to its correspondent or agent bank requesting it to advance a sum of money to the holder and to debit the sum so paid to the account of the banker issuing the letter of credit.

A letter of credit could either be:

Most payments in foreign trade are made using a confirmed and irrevocable letter of credit.

Evaluation

Reading assignment

Essential Commerce for SSS by O.A. Longe Page 53 – 64

Theory

List four means of payment in foreign trade.
Write short notes on the use of Telegraphic transfer as a means of payment in foreign trade.

In our next class, we will be talking about the Ports Authority. We hope you enjoyed the class.

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