International Sales Contracts
International
sales contracts are the riskiest contracts, as little is often known about the
buyer. Currency, tariff, insurance, and title risks must be considered,
especially concerning bills of lading, upon which monies are usually borrowed.
The buyer invariably requires possession to release the goods from the
port.
Globalising
the world’s economy has made it easier for domestic and international
organisations to trade products and services globally. With the advent of
worldwide logistics, e-commerce, and more accessible language translation,
global marketplaces have been opened to businesses of all sizes.
Global Trade Risks
The
disadvantages and commercial risks of conducting trade on a worldwide basis
are:
- Shipping,
Customs, and Duties.
- Exchange
Rates.
- Language
Barriers.
- Cultural
Differences.
- Servicing
Customers.
- Returning
Products.
- Intellectual
Property Theft.
Exchange
rate risks affect an organisation’s profitability as their volatility can
reduce profitability. Exposure can occur in three ways:
- Transactional: Time-related in terms of exchange
rate volatility between ordering and payment for goods and services.
- Translational: In terms of financial resources
held in foreign subsidiaries.
- Economic
or Operating:
In terms of future exchange rates affecting the valuation of cash flows
and capital.
The
fundamental types of exchange rate policy are:
- Fixed: Exchange rates are fixed or
allowed to fluctuate within narrow margins against a nation’s currency
value, either in terms of gold, another currency, or a basket of
currencies.
- Freely
Floating: Market
forces without intervention freely determine a free or flexible floating
exchange rate.
- Pegged: Exchange rates are “pegged”
against a nation’s currency value, either in terms of gold, another
currency, or a basket of currencies.
- Managed
Float: The
nation’s fiscal policy influences the exchange rate, which is loosely
controlled by the nation’s central bank intervention.
Global Trade Restrictions
Governments
have three primary means to restrict trade:
- Quota: A system imposing restrictions on
the specific number of goods imported into a country allows governments to
control the number of imports to help protect domestic industries.
- Tariffs: These increase the price that
consumers pay for imported goods and services in line with the fees
charged by domestic producers.
- Subsidies: These are given to assist
domestic industries in competing with foreign markets to increase their
competitiveness by influencing the pricing of domestic markets.
The
danger of supporting domestic industries through tariffs and subsidies is that
prices can increase, market choices are reduced, environmental issues are not
considered, and the production of products and services is vested in the least
efficient organisations.
Governments
must ensure their country’s wealth by promoting the use of local resources, in
which they can be the most competitive. They must also use training, regional
market development, and research to increase the financial stability of the
trading environment, negate any harmful effects caused to the environment
through global warming, and decrease their carbon footprint. Free Trade
Agreements must be encouraged to harmonise the legal standards of international
trade to minimise its inherent risks and harm to the environment.
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