International Payment Instruments
Essay Preview: International Payment Instruments
Report this essay
International Payment Instruments
International trade is a regulation of payments of some monetary liabilities emerging between entities(states,organizations) and citizens from different countries,based on their economic,political and cultural relations.

Payments are proceeded predominantly by cashless transfers of funds.In order to proceed international payments,they are disclosed 2 types of correspondent accounts:

“Vostro” accounts-local currency accounts,mantained by a local bank for a foreign correspondent bank;
“Nostro” accounts-bank accounts held in a foreign country by a domestic bank, denominated in the currency of that country.
International payment instruments facilitate international trade and exchange among firms and consumers, representing all foreign currency commercial documents that replace traditional payment means.

In the case of international transactions, the merchandise and the services that make the objects of the international commercial contract may be paid immediately (shipment for payment), before the shipment of the requisites (advance payment) or on a certain date after the shipment day (postponed payment)¹.

The international payments are affected by the transfer from a banking account in the debtors country to the credit of a banking account in the creditors country. The important dealers the foreign exchange market are banks, brokers, acceptance houses, central bank and treasury authorities. The main devices which have been adopted for making international payments by these agencies are as follows²:

The Bill of Exchange
Promissory Note
The Cheque
Letter of Credit
The Payment Order
¹) Biblioteca digitala ASE – “International business”, Lect.univ.dr. Dorel PARASCHIV
The bill of exchange
The bill of exchange also referred to as a draft. is one of the oldest financial instruments, being used by the arabian merchants in the 10th century. The development of the bill of exchange led to the appearance of the paper money in the 16th century.

What is a bill of exchange?
In our country, the bill of exchange is known as “Cambia”, “Trata” or “Polita” and it is considered the most frequently used credit instrument in the international economic transactions and may be defined as a complete and formal cheque comprising an abstract and unconditioned commercial and autonomous payment obligation¹.

The bill of exchange has three main roles:
It can be used as a payment mean by the drawer to the beneficiary;
It has a high guarantee degree so it represents an important guarantee mean and it can be used when we have to make an insecure or an unsafe payment;
It also has a creditability role because its involving a creditability relation, for a smaller or greater period of time, which appears in the moment when a payment obligation is issued until the time of cashing in by the creditor of the equivalent value.

The main elements of a bill of exchange are:
1) an unconditional order to pay a certain sum of money;
2) the name of the person who has to pay, the name of the beneficiary or of the person who orders the payment ;
3) the payment term (the maturity);
4) the date of the drawing of the bill of exchange;
5) the place of the drawing of the bill of exchange
6) the signature of the drawer
¹) Biblioteca digitala ASE – “International business”, Lect.univ.dr. Dorel PARASCHIV
The billing relation:
With the help of the bill of exchange, you, the drawer, (the person who ordered the payment) can pay a debt to the beneficiary (the individual to whom the payment has to be done, also known as the drawers creditor) through a drawn person (the person who has the obligation to pay).

1. The drawn and the drawer make a credit contract.
2. The drawn and the beneficiary also sign a contract on credit.
3. The drawn draws a draft on the drawer for the beneficiary
4. The drawn delivers to the beneficiary the draft drawn on the drawer.
5. The drawer pays the sum of money for the draft to beneficiary.
6. The debt of the drawer to the beneficiary is erased.
7. Paying off the draft, the debt of the drawn to the beneficiary is also erased¹.
¹) Biblioteca digitala ASE – “International business”, Lect.univ.dr. Dorel PARASCHIV
The Acceptance of the draft
The drawn takes the responsibility to pay the draft at a certain payment term (the maturity). The acceptance needs to be:
Written on the bill along with the signature of the drawn;
Unconditioned
Endorsement on a bill
Is the formality by which the payment of a draft may be guaranteed by an endorsement on a bill for the whole amount or only a part of it. A third party or even the signatory of the draft may offer this guarantee. The endorsement on a bill is the outcome of the endorsers signature on the bill¹.

The endorsement:
It represents the process in which all the rights (given by the bill) of the initial beneficiary are transmitted to the endorser.
Discounting

Get Your Essay

Cite this page

International Payment Instruments And Bill Of Exchange. (July 4, 2021). Retrieved from https://www.freeessays.education/international-payment-instruments-and-bill-of-exchange-essay/