Chapter 16, Problem 1CTD

Summary Introduction

To discuss: The steps to be followed by the exporter to take the effect to export to Country P from City C.

Introduction:

Export refers to the sending of goods from one country to another country and whereas import refers to receiving goods from one country to another country.

Explanation of Solution

The steps to be followed by the exporter to take the effect to export to Country P from City C:

Step: 1

Country P (importers) places an order to Country U (exporters) if they are willing to ship under the letter of credit.

Step: 2

Specification of details on delivery item and price

Step: 3

The importer should apply to any international bank (Bank of city M) to get the letter of credit in the favor of exporter.

Step: 4

The bank will send the letter of credit to the exporter’s bank (City C bank and trust).

Step: 5

The exporter’s bank will advise the exporter to open the letter of credit in its favor.

Step: 6

A common carrier is used by the exporter to importer. This will give the exporter a bill of lading.

Step: 7

The export will give 90 days’ time to export bank (City C bank and trust) which is drawn on bank of City M in agreement with letter of credit and bill of lading.

The exporter will endorse the bill of lading so that the title of goods will be transferred to holder of the document.

Step: 8

Then the exporter bank will present the draft to the importers bank and they will accept the draft and will promise to pay them in 90days

Step: 9

Bank of city M will return the draft to City C bank and trust.

Step: 10

Exporter bank will intimate the export that the draft was accepted by them and payable in 90 days.

Step: 11

Now the export will sell the draft at discount with City C bank and trust and receives the discounted cash value in return.

Step: 12

The importers bank will notify the importer on the arrival of the document and the bank will release the document and the importer can take the possession.

Step: 13

The bank of city M will receive the cash in 90 days so that it will have funds to pay the drafts which are maturing.

Step: 14

In 90 days the final stage is that the City C bank and trust will present for the payment to the bank of City M and the bank will pay.