Business English Department, College of Foreign Languages,
Hunan University
International
Payments &
Settlements
by Wang Yiping
Questions
We have studied some courses about
international trade and practices, what do
you think is the most important factor in
international trade?
What is the most difficult part in
international trade practice?
Lecture One
Introduction to the course
Objectives of studying the course
Course requirements
Suggestions of learning the course
Introduction to the course
This course is one of the important
courses of international trade and banking
practice. It will introduce the evolvement of
the international payments and
settlements, the principles of draft,
documentary collections, letters of credit,
forfeiting and factoring and their usage as
well as the international rules and
regulations regarding international
payments and especially introduce UCP
500 and UCP600.
Aim of the course
The overall aim of this course is to
develop the students’ understanding in
international payments and settlements
and to increase the students’ ability to
conduct international trade and banking
practices. The students will develop a
better understanding of the advantages as
well as the risks involved in using these
payments methods.
Aim of the course
By the end of the course, the students will
be able to understand the documentation,
international rules and regulations
regarding international trade finance; to
understand the principles of letter of credit,
documentary collections, instruments, etc.;
to understand the different types of letters
of credit and their usages in practice. This
course will also keep the students wellinformed of the latest developments in
international finance.
What will you learn in this course?
 1. Three major financial instruments:







bill of exchange（汇票）, promissory note（本票）, check
(cheque支票)
2. Four major international settlement methods
remittance（汇款）, collection（托收）, letter of credit（信用证）,
letter of guarantee （保函）
3. Other documents
commercial invoice（发票）, transport documents（运输单据）,
insurance documents（保险单）
4. International customs and practice for international settlements
URC522（托收统一规则）, UCP600（跟单信用证惯例）, Incoterms
（国际贸易术语）
Requirements
After studying the course， the students
are required to be able to draw a draft,
check or promissory note, know the
procedures of major payment methods,
issue and examine documents under a
letter of credit or collection transaction,
and apply the terms of UCP 500 and
UCP600 to analyze cases.
Suggestions of learning the course
Text book reading: previewing and
reviewing;
Pay special attention to the rules and
customs in international payment and
settlements;
The working procedures of different types
of payment methods; Always keep in mind
the four-party chart.
Remember the special terms
Seller
Buyer
Seller’s Bank
Buyer’s Bank
Resources of the course are available:
http://kczx.hnu.cn/G2S/Template/View.aspx
?action=view&courseType=0&courseId=25
67
International Payments
and Settlements (IPS)
Chapter One Introduction
Opening Remarks
In international transactions, the movement
of merchandise and the transmission of
payments identify difficult technical and legal
problems.
In international transactions, both buyers and
sellers are a distance from each other,
sellers want to get paid and buyers want to
get what they paid for.
The course provides students with the
fundamentals of payments and
settlements in international trade;
The course also empowers students to
think in terms of the International
Payments and Settlements.
Moreover, it is no easy matter to ensure
that a payment or delivery, having been
promised, will actually be made.
This curriculum provides an introduction to
the principal instruments for achieving
security of payment (documentary
collections and L/C etc.) and
security of performance (bank
guarantees) in international trade.
Opening Remarks
It also deals with financial instruments by
which international payments are
facilitated (bills of exchange, promissory
notes and checks etc.).
We hope the course will provide the
learners with useful advice and information
about payments and settlements at every
stage of an international transaction.
It will also appeal to students and general
public who wish to acquire a basic
understanding of the risks of international
trade and the means by which they can
protect against various risks.
Definition of IPS
The general implication of IPS
IPS are financial activities conducted among
different countries in which payments are
effected or funds are transferred from one
country to another in order to settle accounts,
debts, claims, etc. emerged in the course of
political, economic or cultural contacts among
them.
Definition of IPS
As everybody knows, most international
payments originate from transactions in the
world trade. They are money transfers as a
result of international clearing, such as
visible trade, invisible trade/financial
transaction/payments between governments/
others.
How many international transactions
can you list?
visible trade有形贸易
 invisible trade无形贸易
 financial transaction金融交易
overseas remittances 海外汇款
 educational expenses教育开支
 inheritances遗产继承
How many international transactions can you list?
 technology transfer技术转让
 patent 专利
 copyright contract 版权合同
 foreign exchange market transactions金融市场
交易
 export credits出口信贷
 syndicated loans辛迪加贷款/银团贷款
 international bond 国际债券
Definition of IPS The special implication of IPS practice
1.International Trade Settlement
 With the expansion of global trade amongst
countries, the role of banks in international trade
finance is becoming more important. Most
transactions must be settled through banks.
Without the bank’s participation, international
trade would not have been developed to the stage
we have reached today.
Definition of IPS The special implication of IPS practice
2. International Non-Trade Settlement
 There are many ways by which funds can be
transferred from one country to another under
trade service. When the tourists, merchants,
delegations or other people go abroad, they need
money to spend, to buy something, or to pay for
various expenses and charges there.
The most common means for them to carry funds
are cash, traveler’s check, traveler’s letter of
credit and credit card.
Evolution of IPS: from cash settlement
to non-cash settlement
Before the sixth century B.C, goods were exchanged
between traders in different countries on a barter
basis. A barter system put the trading parties at great
inconvenience.
A medium of exchange was created in the form
of coins at the beginning of the 15th century
B.C., thereby ending the barter transactions.
These coins were measured and exchanged by
weight and fineness among trading countries for
settling international payments.
1. From cash settlement to non-cash
settlement
Non-Cash Settlement非现金结算
13 century A.D.
Exchange for GBP1,250.00
Instruments
Bill of exchange
Promissory Note
Cheque/check
Beijing,1 April,2003
At sight pay to the order of DEF Co.the sum
of Pounds one thousand two hundred and fifty only
Expensive
Risky
Turnover of funds slow
To
XYZ Bank,
London
For ABC Co., Beijing
(signature)
End of 18 century
Foreign exchange bank
13 century A.D.
Bill of exchange
end of 18 century
A.D.
Foreign exchange bank
Foreign exchange market
From cash settlement to
non-cash settlement
Since then, international payments have been
effected by shipping precious metals taking the
form of coins, bars or bullions to or from the
trading countries.
This direct transfer of precious metals is
called a cash settlement.
The shipment of gold or silver across
national boundaries was both expensive
and risky.
Freight costs were high, the risk of being
lost, stolen or robbed was omnipresent（无处
不在）, and what is more, the speed of
transferring funds depended on the speed
of transportation facilities, which often
slowed the turnover（周转） of funds.
Evolution of IPS
Non-cash settlements
From the thirteenth century A.D., bills of
exchange were created, gradually taking the place
of coins in international payments, and the bill of
exchange market began to develop.
With the establishment of foreign exchange banks
at the end of the eighteenth century, international
payments could be settled by way of transferring
funds through the accounts opened in these banks.
From then on, the non-cash settlement era began.
Evolution of IPS
Nowadays non-cash settlements
universally adopted all over the world.
are
There is no denying the fact that the
establishment of foreign exchange markets
does play a very important role in creating
and developing non-cash settlements, for
foreign exchange banks are allowed to buy
and sell foreign exchange freely in these
markets so as to meet the needs of
international banking business.
2. From direct payment made between traders to
payment through a financial intermediary
As mentioned above, initially,
international trade payments were made
by the buyers directly to the sellers by
means of precious metal shipments.
As foreign exchange banks were set up
over time in different regions the world
over, the payment channel changed,
especially after a new means of payment,
namely the bill of exchange, had been
widely used in IPS.
These banks acted as intermediaries
effecting international payments by the
buyers to the sellers.
Evolution of IPS
With the worldwide banking network and
modern banking technicality, banks can not
only provide easy and quick transfer of
funds needed for conducting international
trade but also furnish their customers
valuable economic and credit information.
Nowadays they have become the center of
international settlements.
3. From payments under simple price terms to
payments under more complex price terms
In the past, international trade payments were
settled on very simple price terms, such as cash
on delivery, cash on shipment, cash with order,
cash before shipment, etc. In modern
international trade, a more comprehensive and
exact set of terms has been developed.
As indicated in INCOTERMS 2000
(International Rules for the Interpretation of
Trade Terms) ICC Publication, the price
terms available for use are multifarious（各种各
样） and more complicated than before. 13
terms
Incoterms 2010, 11 terms
EXW
EX WORKS(…named place)工厂交货条件
FCA
FREE CARRIER(… named place)交至承运人条件
FAS
FREE ALONGSIDE SHIP (… named port of shipment)船边交货条件
FOB
FREE ON BOARD (… named port of shipment)装运港船上交货条件
CFR
COST AND FREIGHT (… named port of destination)成本加运费条件
CIF
COST, INSURANCE AND FREIGHT (… named port of shipment)成本
加运保费交货条件
CPT
CARRIAGE PAID TO (… named port of shipment)运费付至——交货
CIP
CARRIAGE AND INSURANCE PAID TO (… named port of shipment)
运保费付至——交货条件
DAT
Delivered At Terminal (… named place)目的港交货条件
DAP
(new delivery term) Delivered At Place 特定地点交货条件
DDP
DELIVERED DUTY PAID (… named port of shipment)完税交货条件
4.
Internet era
With the development of computer technology,
business is done and payments and settlements
are effected by means of all kinds of payment
systems, which make it quicker and safer and
more convenient for both the buyer and seller.
Internet is developing very fast, people are trying
to make payment on line. This is called net
banking.
Although there are a lot of problems to be solved,
net banking is very promising.
Communication network
环球银行间金融
电讯协会
ＳＷＩＦＴ
ＣＨＡＰＳ
伦敦交换银行
自动收付系统
纽约清算所交换银
行相互收付系统
ＣＨＩPＳ
ＦＥＤＷＩRＥ
联邦储备
清算系统
settlement
Domestic Settlement
International settlements
International Trade Settlement
Instruments
Bill of
Exchange
Promissory
note
Methods
Documents
Main methods
Other methods
basic
Remittance
Factoring
Invoice
Collection
Letter of
guarantee
Forfeiting
Check
International Non-Trade Settlement
Letter of Standby letter
credit
of credit
Bill of
Lading
Insurance
documents
Additional
Packing
list
Weight
list
Rules
URC
UCP
Certificate of
Original
All kinds of
Certificates
URG
Correspondent Banking Relationship
Definition of Correspondent Bank
International banking is effected through the
cooperation of commercial banks all over the
world. This cooperation comes from the
establishment of correspondent relationships
between banks.
The so-called correspondent bank may be
defined as “a bank having direct connection or
friendly service relations with another bank.”
Even for large international banks such as the
Bank of China, the establishment of
correspondent relationship is still very
important because they cannot do any business
without the cooperation of local banks.
Agency Arrangement
 Under an agency arrangement, a Chinese
bank, for example, may have a prior
agreement with a foreign bank to the effect
that each will function as the agent of the
other in its own country.
The banks may open deposit accounts
with, and entrust business to each other
on a reciprocal basis.
Control Documents
When establishing a correspondent
banking relationship, two banks concerned
will exchange information on the services
they can perform or cooperate for each
other.
Usually “A” Bank and “B” Bank shall be
supplied with the control documents when
they are establishing an agency banking
relationship. The control documents
include:
List of Specimen Authorized
Signatures
The authorized signatures are used for
authentication of the messages, letters,
remittances, letters of credit, etc. addressed
by the bank to its correspondent bank.
A bank’s signature book contains
facsimiles（副本） of signatures of authorized
officers. A bank draft will not be paid if it
bears no authorized signatures.
When signatures thereon, such as letter of
credit are found out of their previous
shapes compared with the specimen in
authorized signature book, they have to be
confirmed by tested telex.
Telegraphic Test Keys
The telegraphic test keys are code
arrangements that enable the banks
receiving cables from other banks to verify
that the cables/telexes are authentic in the
absence of written signatures. These
codes are strictly confidential.
Telegraphic Test Keys
In compliance with the request in “A” Bank,
“B” Bank is enclosing under sealed cover
a table of his serial and rotation numbers
to be used in conjunction of Telex/Cable
messages from “B” to “A”.
It is important to destroy the testing
documents and confirm that fact by
returning letter duly signed as soon as “A”
receives the canceling letter.
Terms and Conditions
By negotiation, both correspondent banks
may reach some agreements on the
terms and conditions of their business.
Terms and Conditions
For example: “If instructions to cancel a
collection are received prior to the
presentation
of
bills
to
drawees,
commission will be charged at minimum
rate for collections.
Postage, cable charges and any other
expenses arising from transactions
entrusted to our care are to be collected
from you at their actual costs.”
SWIFT Authentic Key
This is an electronic “key” that is used
between SWIFT member banks for
authenticating all messages to be
transmitted through SWIFT.
Inter-bank Accounts
A current account or a checking account
may be opened between banks with the
establishment of a correspondent banking
relationship.
Any bank before opening an account in its
correspondent bank, must be aware of the
detailed conditions of this connection,
such as amount of initial deposit, minimum
credit balance for covering the cost of
services provided, interest rate of the
account, overdraft permission, and how
often the statement of account is sent.
Nostro and Vostro Account
Nostro accounts are the foreign currency
accounts (due from account) of a major
bank with the foreign banks abroad to
facilitate
international
payment
and
settlement.
As the counterpart of nostro account, Vostro
account is an account (due to account) held
by a bank on behalf of a correspondent
bank.
due from bank: 存放同業；應收同業
銀行款項(Mainland China & HK);同業
借項；應收同業銀行款項 (Taiwan)
amount due from banks (abroad) 存放
(海外)银行同业的款项
amount due to banks abroad (海外)银
行同业的存款
Example
From the point of view of a UK bank, a nostro
account is our bank’s account in the books of
an overseas bank, denominated in foreign
currency. An example would be an account
in the name of Midland Bank, in the books of
Bank of New York, denominated in USD.
Midland Bank is a customer of Bank of New
York.
When funds are remitted from the
United Kingdom, nostro accounts are
used if the payment is denominated in
foreign currency, and vostro account
are used if payment is denominated
in GBP.
Services provided by correspondents
1.Collecting checks, drafts,
other credit instruments;
and
2.Making loan or investments as
agents for their customer banks;
Services provided by correspondents
3.Making credit investigations of firms
that borrow in the open market;
4.Providing
banks
with
foreign
exchange
facilities,
including
commercial and traveler’s checks;
5.Providing banks with funds/loans in
case of need.
Homework
Search the ICC website, and download the
different versions of Incoterms, and
analyze the differences between these
versions.
Reference book:
网上支付与结算（第2版）
2013-08-01 /电子工业出版社