Money
Banking &
Finance
By
LIAQAT ALI KHAN
MBA (Finance)
BARRIERS TO TRADE

Invisible Trade Barriers

Tariff Barriers in Pakistan

Non-Tariff Barriers in Pakistan
Invisible Barriers to Trade

Non Transparent and cumbersome
Administrative Procedures and Government
Policies and Regulations

Market Structure

Institutional Factors
Barriers in Pakistan


Lack of information:
Entry of new firms into trading with
Pakistan indicates anonymous entry into trading
which is facilitated by modern modes such as the
internet.
Lack of Adequate Banking Relations:
Some Indian banks do not recognize
L/Cs from all Pakistani banks. Moreover payments
through Asian currency union are delayed.
Barriers in Pakistan
contd.

Application of standards:
Barriers are often encountered in the
application of measures related to standards necessary
to protect human, animal or plant life or health, to
protect environment and to ensure quality of goods

Visa Restrictions:
Visas can be obtained only for specific cities
prior to entry into Pakistan
Barriers in Pakistan
contd.


Communication Problems:
Whenever there are disturbances at the
Indo-Pak border, the mobile connections are not
operational.
Trade Logistics:
Goods move by air, sea, and rail between India
and Pakistan . While road routes for trade are nonexistent, rail and air connectivity between the two
countries has been erratic.
The Channels Of Export Trade




1) Selling from the country;
(2) Selling via overseas agents
(3) Selling from the overseas base especially
established for this purpose and
(4) Giving a licence to the overseas producer
to manufacture and sell the produce in the
country.
(1) Selling from the country.

A seller can export the goods overseas
without himself having to .go abroad. if the
goods of a country are well reputed regarding
its high quality and tow price, the buyers will
themselves create a permanent market for
the products. Home producer can also secure
orders from abroad through the export
Houses which provide all possible assistance
to the home manufacturer in the shipping,
packing, insurance, finance, etc., as well.
(2) Selling by Overseas Agents

A home producer can sell his goods overseas by
employing a sales-agent in the importing country.
The appointment of a home national as sale agent
pushes up the sale as the agent can speak his
language fluently and understands the habits of his
own people and customs prevalent therein. The
home producer should however acquaint his sales
agent with all the details of the product to be sold.
The sales agent must be fully aware of the type of
the product, its uses, range of variety, supply
position, its performance, etc.
(3) Selling from an overseas Sales Base

If there is large scale demand of the goods
abroad, then the firm should appoint full-time
persons to develop overseas market to its
maximum extent.
(4) Giving a Licence to an Overseas
Producer to Manufacture.

An exporter can also increase his profits by
allowing the overseas producer to
manufacture and sell the products in his
country on the payment of a fixed royalty to
the home producer. The granting of
permission to the foreigners to produce
goods and sell in their own market on
payment of royalty has proved to be very
lucrative business for the exporters in modern
world.
Commodity Barter

Barter means direct exchange of goods for
goods. Barter system was prevalent at an
early stage of man economic life when the
wants were very limited in number. Man could
easily satisfy all his wants which he produced
himself. But as time passes his needs, began
to increase. He lost his self sufficiency. He
began to produce some goods in greater
quantity then he could consume himself
Commodity Barter (Cont….)

The purpose was to exchange some of his products
which he had in excess with those who had surplus
with themselves. For instant, if a fish man wanted to
have sinks, he could get them by giving fish to the
hunter. Similarly, if a weaver wastes a par of shoes,
he could receive that by giving some surplus cloth to
the cobbler. This direct exchange of surplus
commodity for commodity with another person
without the use of money is termed as barter in
economics.
Commodity Barter (Cont….)

Barter exists more in economically backward and
commercially underdeveloped areas of the world.
Why we go far off, in many of Pakistani village\, the
payment to village artisan is still made in kind.
Women and children in villages get sugar, cloth
spices, toy etc. directly in exchange for ghee, cotton
seeds, wheat etc, from the village shopkeepers. In
advanced countries of the world, we do not come
across the exchange of this type in their daily
business. It is because the range of wants and the
range of commodities are so wide that it is actually
impossible to satisfy them through a direct
exchanged for goods but for money.
Commodity Barter (Cont….)

the earliest stages of man as a commercial animal the exchange
of products were conducted by a method known as barter. The
barter when considered in its pure form involves the direct
exchange of goods for goods. The terms of exchange of goods
are not fixed by reference to common denominator value. Hunter
for instance exchanged his fish and meat of corn or hides were
exchanged for straw fruit was exchanged for arrows. This barter
form of exchange was given up because of the difficulties and
inconveniences faced by the people. The problems of arriving at
a double coincide of want the establishing of a common measure
of value, the safe keeping of wealth were all embarrassing for a
man. Barter as a method of trade in its pure form has almost
ceased to exist. The children for fun sake or the aged people
living in isolated areas or a mentally deranged people may have
a direct exchange of goods for goods without the use of money.
Commodity Barter (Cont….)

For centuries now the exchange of goods is
conducted in an indirect method of barter
involving a common denominator of value.
The medium in terms of which the value of all
commodities is expressed has passed
through various stages of evolution. From
barter unit of value which simply served as a
form of wealth, the bank notes and the bank
checking account are the favorite forms of
money these days
Methods of Payment





Cash in advance;
Documentary letter of credit;
Documentary collection or draft;
Open account; and
Other payment mechanisms, such as
consignment sales.
Cash in Advance


Receiving payment by cash in advance of the shipment might
seem ideal. In this situation, the exporter is relieved of collection
problems and has immediate use of the money. A wire transfer is
commonly used and has the advantage of being almost
immediate. Payment by check, may result in a collection delay of
up to six weeks. Therefore, this method may defeat the original
intention of receiving payment before shipment.
Many exporters accept credit cards in payment for exports of
consumer and other products, generally of a low follar value, sold
directly to the end user. Domestic and international rules
governing credit card transactions sometimes differ, so U.S.
merchants should contact their credit card processor for more
specific information. International credit card transactions are
typically done by telephone or fax. Due to the nature of these
methods, exporters should be aware of fraud. Merchants should
determine the validity of transactions and obtain the proper
authorizations.
Cash in Advance (Cont….)

For the buyer, however, advance payment tends to
create cash flow problems, as well as increase risks.
Furthermore, cash in advance is not as common in
most of the world as it is in the United States.
Buyers are often concerned that the goods may not
be sent if payment is made in advance. Exporters
that insist on this method of payment as their sole
method of doing business may find themselves
losing out to competitors who offer more flexible
payment terms
Letters of Credit

A letter of credit adds a bank's promise to pay
the exporter to that of the foreign
buyer provided that the exporter has
complied with all the terms and conditions of
the letter of credit. The foreign buyer applies
for issuance of a letter of credit from the
buyer's bank to the exporter's bank and
therefore is called the applicant; the exporter
is called the beneficiary.
Letters of Credit (Cont ……)

A letter of credit adds a bank's promise to pay
the exporter to that of the foreign
buyer provided that the exporter has
complied with all the terms and conditions of
the letter of credit. The foreign buyer applies
for issuance of a letter of credit from the
buyer's bank to the exporter's bank and
therefore is called the applicant; the exporter
is called the beneficiary.
Documentary Drafts

A draft, sometimes also called a bill of
exchange, is analogous to a foreign buyer's
check. Like checks used in domestic
commerce, drafts carry the risk that they will
be dishonored. However, in international
commerce, title does not transfer to the buyer
until he pays the draft, or at least engages a
legal undertaking that the draft will be paid
when due.
Open Account

In a foreign transaction, an open account can
be a convenient method of payment if the
buyer is well established, has a long and
favorable payment record, or has been
thoroughly checked for creditworthiness. With
an open account, the exporter simply bills the
customer, who is expected to pay under
agreed terms at a future date. Some of the
largest firms abroad make purchases only on
open account
Open Account

Exporters contemplating a sale on open
account terms should thoroughly examine the
political, economic, and commercial risks.
They should also consult with their bankers if
financing will be needed for the transaction
before issuing a pro forma invoice to a buyer.
Other Payment Mechanisms
Consignment sales
 International consignment sales follow the same basic
procedures as in the United States. The goods are shipped to a
foreign distributor who sells them on behalf of the exporter. The
exporter retains title to the goods until they are sold, at which
point payment is sent to the exporter. The exporter has the
greatest risk and least control over the goods with this method.
Additionally, receiving payment may take quite a while.
 It is wise to consider risk insurance with international
consignment sales. The contract should clarify who is
responsible for property risk insurance that will cover the
merchandise until it is sold and payment is received. In addition,
it may be necessary to conduct a credit check on the foreign
distributor
Countertrade


International countertrade is a trade practice whereby one party
accepts goods, services, or other instruments of trade in partial
or whole payment for its products. This type of trade fulfills
financial, marketing, or public policy objectives of the trading
parties. For example, a firm might trade by bartering because it
or its trading partner lacks foreign exchange.
Many U.S. exporters consider countertrade a necessary cost of
doing business in markets where U.S. exports would otherwise
not be sold. One consideration for smaller firms is that this type
of trade may cause cash flow problems. Therefore, many smaller
exporters do not consider this an option as they wish to do
business in U.S. dollars.