What is the Structure of Balance and trade?

Balance of payments consists of (i) Current Account, and (ii) Capital Account.

Current Account contains receipts and payments on account of exports and imports of goods and services.

It includes items such as merchandise (goods) travel, transportation, invest­ment income, donations and gifts, insurance, government revenue and expenses, and miscella­neous items like loyalties, fees, etc.

Capital Account consists of financial flows in the form of borrowings and lending both private and official. It also includes movement in banking capital, amortization, and changes in foreign exchange and gold reserves.

Types of Price Quotations Used in Foreign Trade

The various price quotations and terms of shipment used in foreign trade are given below:

1. Loco Price:

It includes the cost of goods plus a normal profit margin. The buyer has to pay the expenses of lifting the goods from the factory or warehouse and all other charges. It is also called ‘Ex-factory’ or Ex-works’ price.

2. F.O.R. (Free on rail):

This price includes the cost of goods, expenses of carrying them to the railway station and loading them in the wagon. All other charges (including freight) are payable by the importer.

3. F.A.S. (Free Alongside Ship):

This quotation includes the cost of goods and all expenses for carrying them to the side of the ship. It includes railway freight but does not include the charges of loading the goods on board the ship.

4. F.O.B. (Free on Board):

This price includes the F.A.S. price plus the expenses of load­ing the goods on board the ship. Freight and other charges are payable by the importer.

5. C. & F. (Cost and Freight):

This price consists of the F.O.B. price plus the freight charges. The cost of insurance is payable by the importer.

6. C.I.F. (Cost, Insurance and Freight):

This quotation includes the cost of goods, freight charges and insurance charges. Usually the port of destination is also stated while quot­ing this price e.g. ‘C.I.F. London’.

7. In Bond Price:

This price includes all the expenses till goods are carried to the bonded warehouse at the port of destination. The importer can take delivery of the goods from the bonded house on payment of necessary custom duties.

8. Landed Price:

It means all expenses upto the goods discharged at the port of destination are payable by the exporter.

9. Duty Paid Price:

It implies the in-bond price plus import duties.

10. Franco or Rendu:

This price includes all charges and expenses for carrying the goods to the importer’s warehouse or shop. 19.12 Modes of Payment in Foreign Trade

The terms and conditions agreed upon between the importer and exporter includes the manner in which payment is to be made by the importer. Anyone of the following mode of payment can be used in foreign trade.

1. Open account:

Under this method the importer makes payment at periodical intervals directly to the exporter in settlement of account. The exporter sends periodically statement of account to the importer.

There exists risk for exporter in this method due to absence of an inter­mediary (i.e., Bank) between importer and exporter. This method is, therefore, rarely used.

2. Direct remittance:

In this method, the exporter sends both the goods and documents of ownership to the importer. The importer directly sends the payment to the exporter by means of international money order, mail/telegraphic transfer or foreign bank draft.