12. International Trade – Ways of Payment

13. května 2009 v 15:33 |  AJ
12. International Trade

What Is International Trade?

International trade is the exchange of goods and services between countries. This type of trade gives rise to a world economy.

Trading globally gives consumers and countries the opportunity to be increase types of goods and services not available in their own countries. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water. Services can be traded too: tourism, banking, consulting and transportation. Everything what you buy on global market is import, and what you sell on global market is an export.

Difference between international trade and domestic trade

The main difference is that international trade is typically more costly than domestic trade. The reasons are tariffs, time costs, transport, legal system or a different culture.

Some countries can product goods cheaper, so for some countries is better to buy these goods on an international market then make these goods by themselves. For example, US buy cheap textile and electronic from China and sell it on domestic market.


Transport or transportation is the movement of people and goods from one location to another. You can transport by vehicles on roads, railways, airways, waterways, canals and pipelines, and terminals for example airports, railway stations, bus stations, warehouses, trucking terminals.

Types of transportation


Human-powered transport is the transport of person(s) and/or goods using human muscle-power. Example of using muscle-power: walking, running and swimming. Is popular for low cost and cost-saving. This transport is sometimes the only type available, especially in underdeveloped regions.
Humans are able to walk without infrastructure, without using roads.


Animal-powered transport use animals for the movement of people and goods. Humans may ride on animals directly or use them for carrying goods. Animals are faster, can carry more and more endurance.


Air transportation use airplanes to transport peoples or goods to long distance in short time. It is fastest way how to transport anything. But this transport cost more then other for their advantages.
In present, planes can carry many different and large cargos or many peoples. In some cases is this way of transport only one way how to delivery fast one kind of goods, food.


Train use two parallel steel rails, known as a railway.
We have got two types of trains, trains to transport peoples and trains to transport animals, goods or materials. This way of transport is one from the cheaper transportation.


The most common road vehicle is the automobile vehicle that carries its own motor. Other users of roads include buses, trucks, motorcycles, bicycles.

Automobiles offer high flexibility and low capacity. Road transport is last part of transport, from docks, train station or airports.


Water transport use boat, ship or sailboat. Over water, such as a sea, ocean, lake, canal or river. Modern sea transport is a highly effective method of transporting large cargo of goods. Transport by water is cheaper than air transport for trans-continental shipping.


Pipeline transport sends goods through a pipe, most common are gases or oil. Any chemically stable liquid or gas. Short-distance systems exist for water and beer, while long-distance networks are used for petroleum and natural gas.

International commercial terms

EXW - Ex Works (named place) - the buyer is responsible for all charges.

FOB - Free On Board - Seller must load the goods on board the ship which choose the buyer, after board on ship it pay the buyer.

CIF - Cost, Insurance and Freight - Seller must pay for insurance, transport and costs.

DDP - Delivered Duty Paid - Seller must carry all risk and cost with transport to buyer.

Invoice is commercial documents between seller and buyer. Includes number, prices, payment terms and type of product or services.

A typical invoice contains:

• The word "invoice"
• Invoice ID number
• Date of the invoice
• Name and contact details of the seller
• Tax or company registration details of seller (if relevant)
• Name and contact details of the buyer
• Date that the product was sent or delivered
• Purchase order number
• Description of the products
• Unit price of the product
• Total price
• Payment terms

Letter of credit
A letter of credit is a document issued by a financial institution, used in trade finance. Letters of credit are commonly used to loss credit risk to sellers in both domestic and international sales arrangements.

There are two basic forms of letters of credit: Standby and Documentary. Documentary letters of credit can be Revocable or Irrevocable, the first is extremely rare.

Documentary Revocable Letter of Credit
Revocable credits may be change or even canceled by the buyer without notice to the seller. Therefore, they are generally unacceptable to the seller.

Documentary Irrevocable Letter of Credit
This is the most common form of credit used in international trade. Irrevocable credits may not be modified or canceled by the buyer. Changes in the credit must be approved by both the buyer and the seller. If the documentary letter of credit does not contain whether it is revocable or irrevocable, it automatically defaults to irrevocable.

Common Problems with Letters of Credit
Sellers may have one or more of the following problems:

• The shipment schedule cannot be met
• The stipulations concerning freight costs are unacceptable
• The price becomes too low due to exchange rates fluctuations
• The quantity of product ordered is not the expected amount
• The description of product is either insufficient or too detailed
• The stipulated documents are difficult or impossible to obtain.


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