International Marketing, 5th Edition

Barter is a one-time direct and simultaneous exchange of products of equal value (i.e., one product for another). Counterpurchase occurs when there are two contracts or a set of parallel cash sales agreements, each paid in cash. Unlike barter, a counterpurchase involves two separate transactions — each with its own cash value.

A buyback requires a company to provide machinery, factories, or technology and to buy products made from this machinery over an agreed-on period. In an offset, a foreign supplier is required to manufacture/assemble the product locally and/or purchase local components as an exchange or the right to sell its products locally.

A clearing agreement is a clearing account barter with no currency transaction required. With a line of credit being established in the central banks of the two countries, the trade in this case is continuous, and the exchange of products between two governments is designed to achieve an agreed-on value or volume of trade tabulated or calculated in nonconvertible ‘clearing account units’.

Switch trading involves a triangular rather than bilateral trade agreement. A third party is necessary to dispose of the merchandise, and this party pays hard currency for the unwanted merchandise at a considerable discount.

EXW (ex works) means that the price quoted applies to the point of origin, and the goods are made available to a buyer at a specific place, usually at a seller's place of business or warehouse.

FAS stands for Free Alongside Ship, and the price includes delivery of goods along side the vessel but not the cost of loading.

FOB stands for Free on Board. Usually, the point used or quotation is the port of export, and the price includes local delivery and loading.

CFR stands for Cost and Freight. The price generally includes the cost of transportation to the named point of debarkation. Insurance, however, is not included.

CIF stands for Cost, Insurance, and Freight. The price includes the cost of goods, insurance, and all transportation charges to the point of destination.

EXQ means from the dock at the import point. The term goes one step beyond CIF to include the seller's responsibility for placing goods on the dock at the named overseas port with the appropriate duty paid.

DDP (Delivered Duty Paid) is used when the seller undertakes the delivery of goods to the place named in the country of import, most likely the buyer's warehouse, with all costs and duties paid.

A bill of exchange is a written request for payment from one person (drawer) requiring the person to whom it is addressed (drawee) to pay the payee or bearer on demand or at a fixed or determinable time. It is used as a means of financing international transactions.

A bankers' acceptance is a time draft whose maturity is usually less than six months. The draft becomes a bankers' acceptance when the bank accepts it; that is, the bank upon which the draft is drawn stamps and endorses it as ‘accepted’.

With a revocable L/C, the issuing bank has the right to revoke its commitment to honor the draft drawn upon it without prior warning. An irrevocable L/C is much preferred to the revocable L/C because, once the irrevocable L/C is accepted by the seller, it cannot be amended in any way or cancelled by the buyer or the buyer's bank without all parties' approval.

A confirmed L/C is confirmed through a bank in the exporter's country, giving the exporter an additional guarantee of payment from a second bank (i.e., confirming bank) in addition to the guarantee of the buyer's foreign bank. An unconfirmed L/C, on the other hand, is not confirmed by a bank in the seller's country, resulting in less certainty and slower payment.

In the case of a back-to-back L/C, an intermediary uses the commitment of the customer's issuing bank (i.e., the customer's L/C) to collateralize issuance of the second and separate L/C by the intermediary's bank in favor of, say, the supplier. A transferable L/C, in comparison, allows the intermediary (beneficiary) to transfer once rights in part or in full to another party. The intermediary as the first beneficiary requests the issuing or advising bank to transfer the L/C to its supplier (second beneficiary).