The Lee Kong Chian School of Business Academic Year 2013 / 14 Term I FNCE 310 TRADE FINANCE Instructors Name : Yong Meng / Jayesh Avlani Title : Adjunct Faculty of Finance Email : mengyong@smu.edu.sg Office : LKCSB Level 5 COURSE DESCRIPTION The course will provide participants with the basic theory and traditional definition of the various payment /financing products applicable in international trade finance. Such product knowledge shall be applied to some case studies relating to structuring trade transactions. LEARNING OBJECTIVES (A) Business models of trading companies/trade finance banks; key service providers to commodity trading houses; international sale/purchase contracts key standard terms Compare the organization structures of commodity trading firms and trade finance banks Appreciate the importance of networking with service providers in their future working career Construct key contract terms peculiar to the sale of commodities (B) Incoterms Appreciate/compare and contrast the responsibilities of buyers and sellers in respect of contract of carriage, insurance, export/import licences under Incoterms. Identify and evaluate the passing of risks on shipment and delivered terms. (C) Shipping documents in international trade Identify the distinct roles of commercial, transport, financial, insurance documents, etc. Evaluate documentary risk relating to commodity trade. (D) Documentary Collections, URC 522 Identify and differentiate the parties to a documentary collection operation Appreciate the risks to importers and exporters who trade on documentary collection terms. Apply the articles of URC 522 to some case studies. (E) Documentary Credits, UCP 600, ISBP, URR 725 Identify and differentiate the parties to a documentary credit operation Appreciate how banks and trading companies view documentary risk. Apply the articles of UCP 600 to some case studies and Develop principal terms and conditions appearing on LCs that relate to the commodity business. (F)& (G) Special types of Credits: transferable, assignment of LC proceeds, back to back letters of credit, red and green clause LCs
Identify and differentiate the various special types of credits, their key terms and conditions as well as their attendant risks and Apply them to the structuring of international trade transactions. (H) Demand guarantees and standby LCs- URDG 758 and ISP 98 Identify and differentiate the various types of demand guarantees and standby LCs, their key terms and conditions as well as their attendant risks and Apply them to the structuring of international trade transactions. (I) Banking Facilities and Services for Importers and Exporters (including forfeiting, factoring) Distinguish the types of financing products applicable to importers and exporters by way of case studies Apply them to the structuring of international trade transactions. ASSESSMENT METHODS Class participation: 10% Mid- term paper: 40% (2 Written Assignments, 20% each) Final Examination: 50% (Open Book) TOTAL: 100% Academic Integrity All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication, facilitation of acts of academic dishonesty by others, unauthorized possession of exam questions, or tampering with the academic work of other students) are serious offences. All work presented in class must be the student s own work. Any student caught violating this policy may result in the student receiving zero marks for the component assessment or a fail grade for the course. This policy applies to all works (whether oral or written) submitted for purposes of assessment. Where in doubt, students are encouraged to consult the instructors of the course. Details on the SMU Code of Academic Integrity may be accessed at http://www.smuscd.org/resources.html. RECOMMENDED TEXT AND READINGS No textbook. Referrals will be made to ICC Publications on Incoterms, URC 522, UCP 600, ISBP, URR725, URDG758 and ISP98.
WEEKLY LESSON PLANS Week No. Specific Learning Objectives for the Lesson Concepts / Topics Covered Required Reading Assessment of Learning (Formative / Summative) Instructional Strategies 1 - Understand how trade finance is featured within trade houses and commercial banks Business models of trading companies and trade finance banks. Principal players supporting the traders. Dry bulk and oil companies involving carriage by sea. Oral questioning Ice-breaker & Introduction(30 mins) - Appreciation of compliance issues in international trade - Examine support services working for trade houses - Identify trade houses worldwide (future employers) Trade/trade environment and trade networks. Movements of goods from seller to buyer Key terms peculiar to sale and purchase of commodities Group discussion of service providers to traders (30 mins) Summary: 15 mins. - Appreciate key terms common to international sale/purchase contracts
2+3 List common shipping terms and their abbreviations. Compare seller s and buyers responsibilities in respect of contract of carriage, insurance, export and import licences. Highlight passing of risk under INCOTERMS Standard Shipping Terms used in International Trade (INCOTERMS 2010) Recommended reading: Incoterms 2010 (ICC Publication) International Trade Law By Indira Carr: Chapter 1: Standard Trade Terms Ice-breaker & Introduction (30 mins) Class discussion/lecture on sellers responsibilities, buyer s responsibilities and transfer of risk.(3 hours)under each Incoterm Summary (15 mins) 4 Classify shipping documents as follows: commercial, transport, financial, insurance, others Examine each document in detail in terms of role/function, its contents, types/variations, etc. Standard Documents used in International Trade Written assignment on Incoterms and Shipping Documents to be handed in on Week 7 Ice-breaker & Introduction (15 mins) Display sample shipping documents for discussion. Lecture (2.5 hours) Emphasize documentary risks in trade transaction s
5 Introducing parties to a documentary collection operation- principal, remitting bank, collecting bank and presenting bank and drawee. Discussion on the role and responsibilities of collecting bank. Examine outward collection and inward collection bank considerations. Discussion on DP and DA payments Terms of Payment in International Trade: Documentary Collection Recommended: Uniform Rules For Collections (URC 522) ICC Uniform Rules for Collection a Commentary s Icebreaker & Introduction (30 mins) Display collection instruction Group discussion of risks to exporters selling on documentary collection terms. Summary (15 mins) 6+7 Introducing parties to a documentary credit applicant, issuing bank, beneficiary, correspondent bank (advising, confirming, nominated, negotiating bank) Documentary Credit Various forms of Documentary Credit sight, deferred payment, acceptance credits Icebreaker and Introduction ( 30 mins) Discussion on principal contents of a letter of credit Examine bank s considerations in issuing LC and exporter s considerations in examining LC on receipt Recommended: ICC Uniform Customs and Practice for Documentary Credits (UCP 600) International Standard Banking Practice ICC Uniform Rules for Bank- to- Bank Reimbursements under Documentary Credits Display sample LC contents Discussion on bank considerations in the examination of export documents discrepancies.
8 Mid-term Break 9+10 In-depth explanation of special types of credit Compare and contrast transferable and back-to-back credit. Risks/Control features Special types of Credit - Transferable/Assignment of Proceeds - Back-to-back - Red clause - Green clause Display samples of transferable and back to back LCs Summary (30 mins) Compare and contrast red and green clause LCs Risks and control features Case studies of above products Ice-breaker and Introduction (30 mins) Display samples of red clause and green clause LCs. FCRs, Warehouse receipts, inspection certificates Summary(15 mins)
11 In-depth explanation of various types of demand guarantees and Standby LCs and their application to trade transactions and construction projects. Types of Demand Guarantees, and Standby LCs Recommended: - ICC Uniform Rules for Demand Guarantees URDG 758 - International Standby Practices ISP 98 Ice-breaker and Introduction (30 mins) Display sample formats and structures of common types of guarantees and standby LCs 12+13 In-depth explanation of import financing: Overdrafts/short term loans, Trust Receipts, Shipping Guarantees, Stock Financing (Collateral Management) Banking Facilities and Services for Importers and Exporters Case Study of a Local Coffee/Cocoa Trader Ice-breaker and Introduction (30 mins) In-depth explanation of export financing: Receivables Financing under documentary collection and documentary credit General introduction to other financing services: Factoring and Forfaiting Lecture (4 hours) Case Study approach: emphasis on applications. Summary (30 mins)
14 REVISION Comments on assignment and attempting past examination questions. 15 FINAL EXAMINATION