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 ... 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... 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... 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