International payment system Flashcards
International payment system
The internatioanl payment system includes every payment between states, companies and institutions. It consists of incoming and outgoing payments to abroad
Commercial paymets
Resulting from commercial operations (export, import, transport)
Non-commercial payments
Resulting from tourism, cultural and other relations between contries (payment of pensions, scholarships)
What regulates international payment system ?
The payment system can be contractual or non-contractual. It is regulated by Commercial code, Payment system act, Bill of exchange and cheque act, foreign exchange act.
Correspodent bank system
Payments are made via correspodent (mutually administrated) bank accounts:
Nostro (our) account - bank accounts administrated by correspodent banks (bank A has accounts in bank B,C,D)
Loro (your) account - bank accounts of correspodent banks (Bank B,C and D have bank accounts in bank A)
Clearing payment system
Payments are made via clearing bank which administrates bank account of all participating banks
SWIFT
Society for Worldwide Interbank Financial Telecommunication - provides technical support for its member banks
Participants in international payment system
Payer - debtor who pays money
Payer’s bank - debtor’s bank
Payee - beneficiary who receives money
Payee’s bank - beneficiary’s bank,
Correspodent bank - intermediary bank which provides interbank settlement when payer’s and payee’s bank don’t have a direct connection
Exchange rate
It is the price of one currency regarding another currency or currencies. For example 1 USD = 0,98 EUR. An exchange rate index is the price of one currency regarding a basket of other currencies, weighted according to their importance in the country’s international transactions
Fixed exchange rate
Exchange rate whose value is fixed against the value of another currency or currencies and is maintained by the government. If market forces are pushing down the value of the currency, the government will step in and seek to increase its price (by buying the currency)
Revaluation
Rise in fixed exchange rate
Devaluation
Fall in fixed exchange rate
Floating exchange rate
A floating exchange rate is one which is determined by market forces. If demand rises or the supply decreases, the value will rise
Appreciation
Rise in floating exchange rate
Depreciation
Fall in floating exchange rate
Methods of international payment system
Based on the nature of the goods, relationship between the business partners, the situation at the market, international economic and political situation:
Cash payments
Cashless payments
Based on the ways of documents delivery:
Non-documentary payment methods
Documentary payment methods
Cash payments
this payment is used rarely in foreign trade due to the thigh risk of loss or theft, it is used to pay small maounts in tourism, cultural and sports events, fairs and exhibitions
Cashless payment
This payment is widely used in foreign trade due to the high security and credibility, it includes direct payment (SEPA), bill of exchange, promissory note, cheque, documentary letter of credit, documentary collection, bank guarantee
Non-documentary payment methods
submission of additional documents isn’t necessary (cash, direct payment, bill)
Documentary payment methods
submission of additional documents is necessary (documentaryy letter of credit, documentary collection, bank guarantee)
What is direct payment
Direct payment is a payment made straight to the actual payee, without sending it through a intermediary or a third party. It is processed by the payer’s bank based on the payer’s order. Direct payment is the simplest and most used payment method of international payment system.
Characteristics of direct payment
represented by the money transfer from the payer’s bank account (e.g. importer’s bank
account) to the payee’s bank account (e.g. exporter’s bank account),
used by business partners who know each other well,
submission of additional documents isn’t necessary (non-documentary payment
method),
fast payment method with low costs,
the riskiest payment method,
IBAN and SWIFT or BIC (Bank Identifier Code is the SWIFT address assigned to a bank in order to send automated payments quickly and accurately to the banks
concerned) are needed.
BEN SHA OUR payment options
When making an international direct payment, the sending bank (the payer’s bank) may charge a fee for the service it provides and the receiving bank (the payee’s bank) may also charge a fee for incoming payments.
BEN payment option
BEN (beneficiary) means the payer doesn’t pay any charge (the receiving bank receives payment minus all transfer charges).
SHA payment option
SHA (shared) means the payer only pays the sending bank’s outgoing transfer charge
(the receiving bank receives payment minus the correspondent bank charges).
OUR payment option
OUR (payer) instruction means the payer pays all transfer charges (the receiving bank receives all payment).
Scheme when the payer’s bank and the payee’s bank have a direct connection
- the payer submits a payment order to the bank,
- the payer’s bank asks the payee’s bank to count in the money to the payee’s
bank account, - the payee’s bank counts in the money to the payee’s bank account,
- the payer’s bank counts out the money from the payer’s bank account,
- interbank settlement.
Scheme when the payer’s bank and the payee’s bank don’t have a direct connection
- the payer submits a payment order to the bank,
- the payer’s bank asks the correspondent bank to count in the money to the payee’s bank account,
- the correspondent bank counts in the money to the payee’s bank account,
- the interbank settlement,
- the payer’s bank counts out the money from the payer’s bank account.
What is SEPA
Since 1 February 2014, a SEPA payment (SEPA Credit Transfer) can also be considered as a direct payment. The aim of the SEPA (Single Euro Payments Area) is to remove differences upon the execution of domestic payments and international payments in EUR within the territory of the European Union and the European Economic Area (EEA).
Euro currency countries in the EU (SEPA)
Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, Malta, Netherlands, Portugal, Slovenia, Slovakia, Spain, Croatia
Non-euro currency countries in the EU (SEPA)
Bulgaria, Czech Republic, Denmark, Hungary, Lithuania, Latvia, Poland, Romania, Sweden
The EEA countries outside the EU (SEPA)
Iceland, Lichtenstein, Norway
Countries outside the EEA (SEPA)
Monaco, San Marino, Switzerland, UK
Bill in international payment system
A bill is a written unconditional order by the payer to pay a certain sum on a certain date and at a certain place to the payee. A bill is a negotiable credit and payment instrument.
Laws regulating bill
the Geneva Accords - signed by European countries, Asian countries, North African countries and Central American countries (the Geneva Accords serve as a basis for the Slovak Bill of Exchange and Cheque Act),
the Anglo-Saxon law - signed by the United Kingdom, USA, Northern Ireland, Canada, Australia, New Zealand and South African Countries.
Main functions of a bill
credit function, payment function, monetary function, guarantee function
credit function
a bill serves to obtain a commercial or bank loan,
payment function
a bill serves as security which can be used as a payment mean,
monetary function
a bill can be sold and converted into money,
guarantee function
a bill serves as a guarantee when providing a loan.
Main subjects of a bill
maker of the bill, taker of the bill, drawee, guarantor
Maker of the bill
a person who draws a bill:
promissor (debtor) - a person who draws a promissory note,
obligator - a person who draws a bill of exchange,
creditor- a person who draws a bill of exchange to own advice (the maker of
a bill is also the taker),
Taker of the bill
taker of a bill (remitter) - a person who gets paid (payee)
Drawee
drawee (payer) - a person who pays for the bill after acceptance
Guarantor
guarantor - a person who guarantees the payer
Main bill operations
acceptance
aval
endorsment
discount
protest
settlement
Acceptance
the drawee must accept a bill of exchange by filling an acceptance clause (I accept/I will pay) and signing it on the front
Aval
the guarantor must guarantee the payment for a bill of exchange by filling an aval clause (per aval) and signing it on the front (when the drawee doesn’t pay for a bill of exchange, the guarantor takes over his/her obligation and must pay for a bill of exchange
Endorsment
a bill is a negotiable credit and payment instrument which can be endorsed from the endorser to the endorsee by filling an endorsement clause (giro) on the back (when there isn’t enough space on the back, an appendix is enclosed to a bill), cession is an agreement of endorsing (transfering) a receivable
Discount
a bill can be sold before the maturity date of payment (usually to a bank) at a reduced value
Protest
if the drawee doesn’t accept a bill or does not pay it on time, a public officer
submits a notice of protest, and the remitter claims his/her entitlements
Settlement
when the remitter receives the payment for a bill, it is settled (the date of receipt of the payment is indicated on a bill)
What is promissory note
A promissory note is a financial instrument that contains a written promise by the promissor to pay the remitter a definite sum of money at a specified future date.
Obligatory features of promissory note
identification of a promissory note in title or text,
expression of an unconditional promise to pay,
expression of the amount (in words and numbers), currency, maturity date of payment and place of payment (domicile),
identification of the date and place of drawing,
name of the taker of a bill (the remitter),
name and signature of the maker of a bill (the promissor)
The procedure of a promissory note
1.the buyer draws a promissory note and sends it to the seller,
2.the seller submits a promissory note,
3.the seller receives a promissory note and delivers the goods,
4.the buyer pays for a promissory note.
What is bill of exchange
A bill of exchange is a financial instrument in which the obligator orders the drawee to pay the remitter a definite sum of money at a specified future date.
Obligatory features of bill of exchange
identification of a bill of exchange in title or text,
expression of an unconditional order to pay,
expression of the amount (in words and numbers), currency, maturity date of payment and place of payment (domicile),
identification of the date and place of drawing,
name of the taker of a bill (the remitter),
name of the drawee (the payer),
name and signature of the maker of a bill (the obligator)
The procedure of bill of exchange
1.the importer accepts a bill of exchange and returns it to the exporter
2.the exporter draws a bill of exchange and sends it to the importer,
3.the exporter sends an accepted bill of exchange to the remitter,
4.the remitter submits a bill of exchange to the importer,
5. the importer pays for a bill of exchange to the remitter.
The bill of exchange according to the maturity of payment
sight bill of exchange
usance bill of exchange
after date usance bill of exchange
fixed date bill of exchange
sight bill of exchange
(demand bill of exchange) - the drawee has to make the payment on presentation (immediately)
usance bill of exchange
(after sight bill of exchange) - payment is to be made on the maturity date after presentation (e.g. within 14 days after presentation)
after date usance bill of exchange
the maturity date is calculated concerning the date of the bill of exchange drawing (e.g. within 30 days after bill of exchange drawing)
fixed date bill of exchange
fixed date bill of exchange - the maturity date is set for a specific date (e.g. October 18, 2018)
A bill of exchange according to the delivery of relative shipping documents
Clean bill of exchange
Documentary bill of exchange
clean bill of exchange
the relative shipping documents are delivered apart of a bill of exchange
documentary bill of exchange
the relative shipping documents are delivered along with a bill of exchange (this is the common form in foreign trade)
What is a cheque
It is a negotiable financial instrument instructing a bank to pay a specific amount of a specific currency from the payer’s bank account to the payee’s bank account.
Obligatory features of a cheque
identification of a cheque in title or text,
expression of an unconditional order to pay,
expression of the amount, currency and place of payment,
identification of the date and place of drawing,
name of the payer’s bank (the drawee),
name and signature of the maker of a cheque (the drawer).
Main subjects of cheque
maker of a cheque (payer) - a person who draws a cheque and owns a bank account (drawer)
taker of a cheque (remitter) - a person who gets paid (payee),
drawee (bank) - the payer’s bank,
submitter - a person who owns a cheque.
Deadlines for submisson of a cheque
the Geneva Accords:
within 8 days after cheque drawing - applicable to cheques drawn and submitted in the same country,
within 20 days after cheque drawing - applicable to cheques drawn in one country and submitted in another country,
within 70 days after cheque drawing - applicable to cheques drawn on one continent and submitted on another continent,
the Anglo-Saxon law - within 90 days after cheque drawing
Types of cheques according to the maker of the cheque
self cheque - the drawer makes a cheque
bank cheque - the drawee makes a cheque
Types of cheques according to the remitter
cheque to bearer - a cheque contains the name of the remitter,
cheque to submitter - a cheque doesn’t contain the name of the remitter (submitter = remitter),
order cheque - a cheque is negotiable (transferable to another person),
non-order cheque - a cheque is not negotiable;
Types of cheques according to the payment method
cash cheque - a cheque is paid in cash,
clearance cheque - a cheque can’t be paid in cash
Special cheques
о traveller’s cheque - a cheque is used for tourism purposes,
euro cheque (EC) - a cheque is used for the cash withdrawing in selected
European banks.
Main cheque operations
cheque crossing
cheque endorsement
Cheque crossing
serves as a protection against misuse of a check
General cheque crossing
marking a check with two parallel lines on the front without any text between them or with text “& Co.” (a crossed cheque can be paid only in favour of the drawee’s client)
Special cheque crossing
marking a check with two parallel lines on the front with the name of a financial institution between them (a crossed cheque can be paid only in favour of such financial institution)
Clearance cheque crossing
marking a check with two parallel lines on the front with text “for clearance only” between them (a crossed cheque can’t be paid in cash),
Cheque endorsment
a cheque is a negotiable financial instrument which can be endorsed from the endorser to the endorsee by filling an endorsement clause on the back.
Self cheque procedure scheme of payment
- the buyer draws a cheque and sends it to the seller,
- the seller submits a cheque to his/her bank,
- the seller’s bank submits a cheque to the buyer’s bank,
- the interbank settlement,
- the seller’s bank counts in the money to the seller’s bank account and the buyer’s bank counts out the money from the buyer’s bank account
Bank cheque scheme and procedure of payment
1.an existing bill of sale between the exporter (payee) the importer (payer),
2.the importer asks his/her bank to co-draw a cheque,
3.the importer’s bank sends a cheque to the importer,
4.the importer sends a cheque to the exporter,
5. the exporter submits a cheque to his/her bank,
6.the interbank settlement.
