Eastern Mediterranean University BANK406 Corporate Banking Law and Practice CHP 1

Introduction As export is a complex process, it needs knowledge of markets, export procedures, rules, regulations and so on. That is why help of specialized firms such as ‘ export houses’ or ‘confirming houses’ are needed for exports. ●Export House; A company which specializes in the exports of goods and services. ●Confirming House; A firm in exporting country acting as an agent and guarantor for an importer and paying the exporters invoice on behalf of the importer, thus eliminating the credit risk.

A confirming house may act in two ways; 1) It acts according to instructions of the buyer, buys the goods in its own name and gets the price of the goods and a commission. 2) It acts according to instructions of the buyer but buys the goods in the buyer’s name *When confirming house act as an agent the contract becomes established between the seller and the buyer. If confirming house buys from the seller and resell to the buyer, it becomes principal in contracts.

International Trade ● Trade is, all kinds of activities that make the transfer of commercial goods and services possible from producers to consumers. ● From this point of view, there is no difference between trade within the country and the international trade. In both case the aim is to make it easier for the consumers to reach goods and services. ● The difference between trade within the country and international trade occurs when certain problems arise related with the international trade ● The problems faced in international trade are different from the ones faced in international trade. The question is why the problems are different ?

Why the problems are different? Because different countries have ; ● Different Laws and Policies ● Different Money ● Different Markets ● Long Distances

Different Laws and Policies ● Every country makes its laws according to its needs and conditions. So it is possible to see different laws and policies in different countries. ●Thus, solution of problems that arise as a result of international trade varies from one country to another. If there is a problem between a buyer and a seller , one of the parties will be faced with foreign laws. ● International arbitration is a leading method for resolving disputes arising from international commercial agreements and other international relationships. Businesses choose arbitration because experienced arbitrators have developed expertise in designing procedures that maximize time and costs efficiency.

Different laws and policies (cont.) ● In the domestic trade, traders have one set of regulations and policies to follow regarding accountability in the domestic environment. One set of laws will be applied to both side and there will be no conflict. ● Economic policies also vary from one country to another, because each country determines its economic policies by considering its national interests. That is why in international trade sometimes it is possible to face certain trade restrictions like import prohibitions,.

Different Money ● The monetary system means all the measures taken by a country in order to organize its money, like choosing or defining the monetary unit . This is a very important issue, because a national currency is one of the symbols of national sovereignty. ● Today each country has its own monetary system thus in international payments there is no certain monetary unit. ● The money, which will be used in international trade should be accepted by the exporter (usually this is the national currency of the exporter). So the money that the importer has should be exchanged.

Different Money (cont.) ● In international trade there is a need for exchange of the national currencies .As a result, this causes certain risks and damages. ● One of the most important risk is the exchange rate risk, which is the result of the changes in exchange rates during the payments in international trade. ● Another risk is the exchange control, which obligates all the natural and legal persons to give all kinds of foreign exchanges they obtained to a central institution.

Currency War ● A currency war refers to a situation where a number of nations seek to devalue their currency to gain a competitive advantage. ● Why do countries want a weaker currency ? If you devalue your currency, it means your exports are relatively more competitive ( cheaper to foreigners). Therefore you will export more. Also imports become more expensive so there should be a rise in Aggregate Demand. This should help boost economic growth and reduce unemployment.

Different Markets ● Each country has a national market and these markets vary from one country to another as a result of the state intervention ● Language, morals and habits also affect the formation of markets. ● In international trade first of all one of the parties must understand the language of the other side. ● Additionally, qualities and standards of goods are different.

Long Distances ● In international trade, usually there are long distances between the seller and the buyer and this causes lots of problems. ● E.g. it becomes harder for both sides to get information. And it is very important to know with whom you are entering into a transaction. * The risk is much higher in international trade than domestic trade.

Conclusion ● The seller would not like to share the control of the goods before he receives payment and the buyer would not like to make payment before he receives the goods. ● Also the both side do not want to have capital tied up in goods, which are in transit. * There is a certain risk for the seller related with payment as the buyer is in another country.

Solutions ● The seller can make an arrangement with a bank in his/ her country to guarantee the payment. ● Government Sponsored export Credit Scheme ( GSECS) protects seller from losses as a result of political causes. ● In international sale the type of carriage is very important and it differs according to nature of the goods, the urgency, availability and cost of different methods of carriage. ● Insurance- both buyer and seller protect themselves from loss or damage. *Apart from international sale contracts other contracts must be made with bankers, carriers and insurers

Export Import Bank ( EXIM Bank) ● Government or semi-government agency which commonly provides insurance cover to exporters against losses from non-payment by the importers, as a means to promote the country’s foreign trade. Other services offered by EXIM Bank may include; ● Marine insurance ● Post-shipment discounting of invoices ● Pre-shipment advances against confirmed orders. ● Help in finding new markets.

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