Explain the following means of payment in international trade: Bill of exchange; International bank draft; Travelers’ cheque; Electronic transfer.

Answer Details

Means of payment in international trade

• Bill of exchange: a written, unconditional order drawn by the exporter (drawer) on the importer (drawee) requiring him to pay a stated sum of money on demand or on a fixed future date to the exporter or to a named person. Once the importer accepts it by signing, it becomes a binding promise and can be discounted at a bank before maturity.
• International bank draft: a cheque drawn by one bank on another bank abroad, bought by the importer and sent to the exporter. Because it is guaranteed by a bank, the exporter is assured of payment; the exporter presents it to the foreign bank to collect the amount.
• Travellers' cheque: a printed cheque of fixed denomination issued by a bank to a traveller who pays for it in advance. It is signed once when bought and again in the presence of the payee, and can be cashed at banks and hotels abroad. It is a safe way of carrying money because a lost cheque can be refunded.
• Electronic transfer: the movement of money between banks in different countries through electronic means such as SWIFT, telegraphic transfer or online banking. The importer instructs his bank to credit the exporter's account directly. It is fast, safe and convenient for settling foreign debts.