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DOCUMENTATION
UNIT-2
Dr.D.Sathishkumar
Export Finance
Export finance refers to any form of financial
export transactions. To make sales to foreign
customers, traders need export financing.
Export financing generally includes loans,
loan guarantees, and export credit insurance.
Export financing provides exporters who
have orders from customers abroad with the
necessary financial banking to provide their
overseas customers with the most favorable
and competitive international trade finance
credit terms.
Methods of Export Finance
1. Pre-shipment finance
2. Post-shipment finance
Competition:
Under conditions approximating pure competition price is set in
the market place.
Under conditions of monopolistic the seller has some discretion to
vary the product quality promotional efforts and channel
policies in order to adapt the price of the total product.
Legal/Political influence:
The manager charges with determining prices must consider the
legal and political situations as they exist and as they differ
from country to country. Legal and political factors act primarily
to restrict the freedom of a company to set prices strictly on the
basis of economic considerations.
Company policies and Marketing Mix:
Export pricing is influenced by past and current
corporate philosophy, organization and
managerial policies. All long run and short run
decisions should be recognized as interrelated
and interdependent, but some decisions must
be made first and must serve as a basic for
making subsequent decisions.
Export Pricing Approaches
Cost-Based Pricing
Market Oriented Pricing
Competitive Pricing
Marginal cost pricing
Other Pricing Approaches
Cost-Based Pricing:
It is known as cost plus pricing, it includes a certain
percentage of profit margins on the sum total of
full cost of production. Marketing cost and an
allocation of the overheads.
{Price= (Fixed cost + Variable cost + Overheads +
Marketing cost) + Specified percentage of the Total
cost}
Market Oriented Pricing:
The pricing concept is flexible policy in the sense
that it allows the prices to be changed in
accordance with the changes in market
conditions. The product may be priced high
when demand conditions are very good and
price may be lowered when the market is
sluggish if that helps in increasing sales.
Competitive pricing:
Important ways of following competitors are
1. Setting the price at the same level as that of
the competitors.
2. Setting the price below that of the
competitors.
3. Pricing high than that of the competitors.
Marginal Cost Pricing:
To evaluate the profitability of new orders in the
firms with excess capacity. The relevant cost
considered for pricing is the variable cost, the
fixed cost is excluded from the calculation of the
cost of the product.
Other Pricing Approaches:
1. Negotiated pricing
2. Customer determined Price
3. Break-Even Price
4. Creative Pricing
Forms of Export Pricing
Sliding-Down the Demand curve
Skimming the market
Penetration Pricing
Pre-emptive pricing
Extinction Pricing
Probe Pricing
Differential Trade Margins Pricing
Market Pricing
Transfer Pricing
Trial Pricing
Flexible Pricing
INCO Terms
International Commercial Terms(INCO Terms) is
a universally recognized set of differentiations of
international trade terms such as free on board,
cost and freight and cost insurance and freight
developed by the International chamber of
Commerce (ICC).
It Defines the trade responsibilities and liabilities
between the buyer and the seller. It is
invaluable and cost saving tool.
Types if INCO terms
EX-Works
Free on Board (FOB)
FCA (Free Carrier)
Free Alongside ship (FAS)
Cost And Freight (CFR)
Cost, Insurance and Freight (CIF)
Carriage Paid to (CPT)
Carriage and Insurance paid to (CIP)
Delivered at frontier (DAF)
Delivered Ex Ship (DES)
Deliver Ex Quay(DEQ)
Delivered Duty Paid (DDP)
Delivered Duty Unpaid (DDU)