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Chapter 19
Financing International Trade
Lecture Outline
Payment Methods for International Trade
Prepayment
Letters of Credit
Drafts
Consignment
Open Account
Trade Finance Methods
Accounts Receivable Financing
Factoring
Letters of Credit
Banker’s Acceptances
Working Capital Financing
Medium-Term Capital Goods Financing (Forfaiting)
Countertrade
Agencies that Motivate International Trade
Export-Import Bank of the U.S.
Private Export Funding Corporation (PEFCO)
Overseas Private Investment Corporation (OPIC)
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Financing International Trade 2
Chapter Theme
This chapter first suggests why international trade can be difficult. Then, it explains the various ways in
which banking institutions can facilitate international trade by resolving problems faced by the exporter
and importer.
Topics to Stimulate Class Discussion
1. Assume that you receive a call from an old friend who has set up a computer parts store. He says that
he plans to begin exporting these parts soon. What potential complications should he consider?
2. Why do exporters sometimes sell off their banker’s acceptances? Would they be better off obtaining a
short-term loan instead? What information is necessary to answer this question?
3. What is the common role of a banking institution in international trade besides financing?
POINT/COUNTER-POINT:
Do Agencies that Facilitate International Trade Prevent Free Trade?
POINT: Yes. The Export-Import Bank of the U.S. provides many programs to help U.S. exporters conduct
international trade. The government is essentially subsidizing the exports. Governments in other countries
have various programs as well. Thus, some countries may have a trade advantage because their exporters
are subsidized in various ways. These subsidies distort the notion of free trade.
COUNTER-POINT: No. It is natural for any government to facilitate exporting for relatively
inexperienced exporting firms. All governments provide a variety of services for their firms, including
public services, and tax breaks for producing products that are ultimately exported. There is a difference
between facilitating the exporting process and versus protecting an industry from foreign competition.
The protection of an industry violates the notion of free trade, but facilitating the exporting process does
not.
WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you support?
Offer your own opinion on this issue.
ANSWER: This issue will lead to many conflicting answers. Students will vary in what they perceive as
free trade. Is it appropriate for a country to promote free trade while it indirectly subsidizes some firms
that export products? Every country could be criticized for subsidizing its exporters in some way. There is
no perfect answer but students should realize that governments subsidize firms but simultaneously
complain if other governments use a similar strategy.
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
