The Lee Kong Chian School of Business
Academic Year 2013/14
Term 2
FNCE310 TRADE FINANCE
Instructors Name
Title
Email
Office
: Yong Meng / Jayesh Avlani
: Adjunct Faculty of Finance
: mengyong@smu.edu.sg / jayeshavlani@hsbc.com.sg
: LKCSB Level 5 Adjunct Office
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. This followed by an in-depth analysis and
application of these mechanisms in structuring short-term trade and commodity financing.
LEARNING OBJECTIVES
(A) Business models of trading companies/trade finance banks; key service providers to commodity trading
houses; sale/purchase contracts – key standard terms
By the end of the course, students will be able to:
(i)
Compare the organization structures of commodity trading firms and trade finance banks
(ii)
Appreciate the importance of networking with service providers in their future working career
(iii)
Construct key contract terms peculiar to the sale of commodities
(B) Incoterms
By the end of the course, students will be able to:
(i)
Appreciate/compare and contrast the responsibilities of buyers and sellers in respect of contract
of carriage, insurance, export/import licences under Incoterms.
(ii)
Identify and evaluate the passing of risks on shipment and delivered terms.
(C) Shipping documents in international trade
By the end of the course, students will be able to:
(i)
Identify the distinct roles of commercial, transport, financial, insurance documents, etc.
(ii)
Evaluate documentary risk relating to commodity trade.
(D) Documentary Collections, URC 522
By the end of the course, students will be able to:
(i)
Identify and differentiate the parties to a documentary collection operation
(ii)
Appreciate the risks to importers and exporters who trade on documentary collection terms.
(iii)
Apply the articles of URC 522 to some case studies.
(E) Documentary Credits, UCP 600, ISBP, URR 725
By the end of the course, students will be able to:
(i)
Identify and differentiate the parties to a documentary credit operation
(ii)
Appreciate how banks and trading companies view documentary risk.
(iii)
Apply the articles of UCP 600 to some case studies and
(iv)
Develop principal terms and conditions appearing on LCs that relate to the commodity business.
(F)& (G) Special types of Credits: transferable letters of credit, assignment of LC proceeds, back to back
letters of credit, red and green clause LCs
By the end of the course, students will be able to:
(i)
Identify and differentiate the various special types of credits, their key terms and conditions as
well as their attendant risks and
(ii)
Apply them to the structuring of international trade transactions.
1
(H) Demand guarantees and standby LCs- URDG 758 and ISP 98
By the end of the course, students will be able to:
(i)
Identify and differentiate the various types of demand guarantees and standby LCs, their key
terms and conditions as well as their attendant risks and
(ii)
Apply them to the structuring of international trade transactions.
(I) Banking Facilities and Services for Importers and Exporters (including forfeiting, factoring)
By the end of the course, students will be able to:
(i)
Distinguish the types of financing products applicable to importers and exporters by way of case
studies
(ii)
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 (whether oral or written) submitted for purposes of assessment must be the student’s own work.
Penalties for violation of the policy range from zero marks for the component assessment to expulsion,
depending on the nature of the offence.
When in doubt, students should consult the course instructor. Details on the SMU Code of Academic
Integrity may be accessed at http://www.smuscd.org/resources.html.
PRE-REQUISITE/CO-REQUISITE/MUTUALLY EXCLUSIVE COURSE(S)
Please refer to the Course Catalogue on OASIS for the most updated list of pre-requisites / co-requisites for
this particular course. Do note that if this course has a co-requisite, it means that the course has to be taken
together with another course. Dropping one course during BOSS bidding would result in both courses being
dropped at the same time.
RECOMMENDED TEXT AND READINGS
No textbook. Reference text: ICC Guide to Export/Import (Fourth Edition)
References will also be made to ICC Publications on Incoterms, URC 522, UCP 600, ISBP, URR725,
URDG758 and ISP98, Uniform Rules for Forfaiting
2
WEEKLY LESSON PLANS
Week
No.
1
Specific Learning
Objectives for the Lesson
-
-
-
Understand how
trade finance is
featured within trade
houses and
commercial banks
Appreciation of
compliance issues
international trade
Concepts / Topics Covered
Required Reading
Business models of trading
companies and trade finance
banks. Principal players
supporting the traders.
Assessment of Learning
(Formative / Summative)
Ice-breaker & Introduction(30 mins)
Oral questioning
Lecture (2 hours)
Dry bulk and oil companies
involving carriage by sea.
Group discussion of service providers
to traders (30 mins)
in
Examine support
services working for
trade houses
-
Identify trade houses
worldwide
(future employers)
-
Appreciate key
terms common to
international
sale/purchase
contracts
Instructional Strategies
Trade/trade environment and
trade networks.
Movements of goods from seller
to buyer
Key terms peculiar to sale and
purchase of commodities
Reflection Question
Summary: 15 mins.
3
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.
Standard Shipping Terms used
in International Trade
(INCOTERMS 2010)
Oral Questioning
Ice-breaker & Introduction (30 mins)
Reflection Question
Class discussion/lecture on sellers
responsibilities, buyer’s responsibilities
and transfer of risk.(3 hours)under
each Incoterm
Recommended reading:
Incoterms 2010 (ICC
Publication)
Summary (15 mins)
Highlight passing of risk under
INCOTERMS
4
Classify shipping documents as
follows: commercial,
transport, financial, insurance,
others
Standard Documents used in
International Trade
Oral Questioning
Written assignment on Incoterms
and Shipping Documents – to be
handed in on Week 7
Examine each document in
detail in terms of
role/function, its contents,
types/variations, etc.
Ice-breaker & Introduction (15 mins)
Display sample shipping documents for
discussion.
Lecture (2.5 hours)
Emphasize documentary risks
in trade transaction
Reflection Questions
Icebreaker & Introduction (30 mins)
4
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
Oral Questioning
Terms of Payment in
International Trade:
Documentary Collection
Recommended:
Uniform Rules For Collections
(URC 522)
ICC Uniform Rules for
Collection – a Commentary
Lecture (2 hours)
Display collection instruction
Reflection Questions
Group discussion of risks to exporters
selling on documentary collection
terms.
Summary (15 mins)
Icebreaker and Introduction ( 30 mins)
6+7
Introducing parties to a
documentary credit –
applicant, issuing bank,
beneficiary, correspondent
bank (advising, confirming,
nominated, negotiating bank)
Oral Questioning
Lecture (2 hours)
Documentary Credit
Various forms of Documentary
Credit – sight, deferred
payment, acceptance credits
Display sample LC contents
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
Discussion on bank
considerations in the
examination of export
documents – discrepancies.
Recommended:
ICC Uniform Customs and
Practice for Documentary
Credits (UCP 600)
International Standard Banking
Practice
ICC Uniform Rules for Bankto- Bank Reimbursements under
Documentary Credits
Reflection Question
5
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 Letters of
Credit /Assignment of
Proceeds
- Back-to-back LCs
- Red clause LCs
- Green clause LCs
Oral Questioning
Display samples of transferable and
back to back LCs
Lecture (2 hours)
Summary (30 mins)
Reflection Question
Ice-breaker and Introduction (30 mins)
Lecture (2 hours)
Compare and contrast red
and green clause LCs
Risks and control features
Case studies of above products
Display samples of red clause and
green clause LCs. – FCRs, Warehouse
receipts, inspection certificates
Summary(15 mins)
6
11
12+13
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
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
Ice-breaker and Introduction (30 mins)
Case Study of a Local
Coffee/Cocoa Trader
Lecture (4 hours)
In-depth explanation of export
financing:
Receivables Financing under
documentary collection and
documentary credit
General introduction to other
financing services: Factoring
and Forfaiting
Recommended:
- ICC Uniform Rules for
Demand Guarantees
URDG 758
- International Standby
Practices ISP 98
Oral Questioning
Ice-breaker and Introduction (30 mins)
Lecture (2 hours)
Reflection Question
Display sample formats and structures
of common types of guarantees and
standby LCs
Case Study approach: emphasis on
applications.
Summary (30 mins)
7
14
REVISION
15
FINAL EXAMINATION
Comments on assignment and
attempting past examination
questions.
8