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International Business


Procedure for a Letter of Credit Transaction

  1. The first step is an agreement on the terms of sale between the importer and exporter. They then sign a sales contract. It is vital to note that there is a difference between a sales contract and a letter of credit.
  2. The second step entails the applicant applying to its bank to give him/her a letter of credit. The application of this letter is supposed to be in agreement with the terms of the sales contract ( 1).
  3. If an importer and the bank reach a consensus on the working conditions, the issuing bank gives a letter of credit. In a scenario where the issuing bank and the beneficiary are located in varied counties, the issuing bank may be forced to use the advising bank to give credit to the beneficiary.
  4. The advising bank then takes the letter of credit to the exporter without any negotiations. The first role of the advising bank is to ensure that the advise precisely show the terms and conditions of the credit received.
  5. It is the duty of the exporter to cross check the letter of credit immediately after receiving it from the issuing bank. If he/she realizes some changes, he/she should inform the applicants about those changes and demand for amendments. On the other hand, if the conditions in the letter of credit appear to be reasonable, the beneficiary begin to produce the goods so that he can make the shipment on or prior to the latest shipment date indicated in the letter of credit. The exporter ships the order based on the terms and conditions indicated in the credit
  6. After loading goods, the beneficiary collects all documents demanded by the credit and gives them to the advising bank.
  7. The advising bank takes the documents to issuing bank on behalf of the exporter.

8 & 9. The issuing bank goes through the documents based on the terms and conditions of the credit. If the documents are found to be compatible after cross examining them, the issuing bank honors payment.

10. The documents are posted to the applicant and use them to clear merchamdisefrom the customs.

Question 5

Foreign trade zones are areas that are secured under the United States Customs and Border protection (CBP) supervision that are usually outside the territory of CBP upon activation. It is situated near entrance ports of CBP ports. The permission to create these facilities is given by the Foreign-Trdae zones Board. There are various advantages of foreign trade zones over a bonded warehouse, and they include the following; With a foreign trade zone, one fills customs entry when goods are removed from the foreign trade zone while with bonded warehouses, it is a must for a custom entry to be filled before goods enter the warehouse ( 1). A foreign trade zone is advantageous over a bonded warehouse because duties in FTZ are due before release from bonded warehouse, while in a bonded warehouse; duties are due when goods have entered the United States customs. The amount of tax and duty on goods that are within the zone may vary because of the operations performed within the zone. As a result, a zone user who intends to take goods for consumption to CBP territory may make a decision on whether to pay the duty rate applied on foreign material brought into the zone. Furthermore, duties are not paid for materials that are consumed, wasted, or destroyed within the zone. Manufacturing of goods is permitted within the FTZ ( 1). This is not applicable in a bonded warehouse where manufacturing is prohibited. Another advantage is that goods within FTZ can be inspected and controlled 24 hours per day unlike in a bonded warehouse where goods can only be inspected and controlled within normal working hours.

Question 10

A freight forwarder is a representative who works on behalf of exporters, importers or other organizations to plan for an efficient transportation of merchandise. They use computer systems to organize for probable means of transport, putting into consideration the kind of goods and the delivery requirements of the client ( 1). They use various services, for instance, road, rail, and shipping lines. The responsibilities of freight forwarders include the following;

The majority of foreign forwarders are most likely to specialize in a specific service area, the kinds of markets and modes of transport. They are considered travel agents of global trading. For instance, if an individual or a company has consignment goods that have to be transported from one country to the other, a forwarder looks and makes booking for best routes and means of transport depending on the requirements of an individual or company. Furthermore, they help importers and exporters to reduce expenses. This is done through arranging the transportation of large numbers of consignments, and loading goods that are to be transported to a similar destination to reduce freight changes for individual businessmen. They arrange for proper packing, putting into consideration the weight, price, type of goods, and the transportation of goods to their final destination ( 1). They also do customs clearance; they fill in customs paperwork on behalf of traders, and make payments of duties owned and taxes. They also give several insurance services. A freight forwarder can give exporters advice with regard to a letter of credit. They can pack goods for export and make decisions on the type of materials that have to be used.

Works Cited’Freight Forwarder: Job Description | Prospects.Ac.Uk’.N.p., 2015. Web. 13 Jan. 2015. ‘About Foreign-Trade Zones and Contact Info | U.S. Customs and Border Protection’. N.p., 2015. Web. 13 Jan. 2015. ‘Export.Gov – Chapter 3: Letters Of Credit’. N.p., 2015. Web. 13 Jan. 2015.