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International Business Transactions

Basics of Foreign Trade

Forms of International Business Transactions


Basic Transaction

Documentary Sale

Stage One - The Sales Contract

  • Simple offer and acceptance; or
  • Buyer requests pro forma invoice requesting price quotation for specific type and quantity of goods - most often not a formal offer, because of unresolved issues
  • Seller responds with pro forma invoice - "in form only" - shows the price offered for the specific goods and the amount that the buyer will owe if the parties form a contract

Stage Two - The Letter of Credit

  • This contains a promise from the buyer's bank to the seller that the bank will pay the amount in the sales contract - condition to the promise being that the seller produce documents to demonstrate that it has shipped the goods according to the sales contract - letters may be confirmed or not

Stage Three - Seller Ships the Goods

Stage Four - Seller Obtains Payment Through the Letter of Credit

  • Sight draft - seller draws on the buyer's bank - the contract created earlier between the buyer and the bank allows the bank to do this

Stage Five - Buyer Uses the Bill of Lading to Obtain the Goods

Incoterms 2020

Categories of Commercial Terms -2020

Incoterms that Apply to Any Mode of Transportation Are:

  • EXW - Ex Works
  • FCA - Free Carrier
  • CPT - Carriage Paid To
  • CIP - Carriage and Insurance Paid To
  • DPU - Delivered at Place Unloaded (DAT - Delivered at Terminal in Incoterms 2010)
  • DAP - Delivered at Place
  • DDP - Delivered Duty Paid

Incoterms that Apply to Sea and Inland Waterway Transport Only:

  • FAS - Free Alongside Ship
  • FOB - Free on Board
  • CFR - Cost and Freight
  • CIF - Cost, Insurance, and Freight