Marina 300 words

ABC is an Australian exporter. It recently made an agreement with DEF, a Chinese importer, to export to them $500,000 worth of products to be delivered within two months. ABC successfully completed a trial deal with DEF last year through an export order worth $5,000 utilising the prepayment method. DEF is considered to be a relatively new customer to ABC as this will only be the second time that both companies are dealing with each other. As part of the current negotiation process, a suitable payment method has to be agreed by both companies.

a) Identify the spectrum of payment options available and discuss the potential risks of each payment option to both ABC and DEF.

b) Both companies have decided that they would use either ‘Letter of Credit’ or ‘Documentary Collection’. From the perspectives of both ABC and DEF, discuss the benefits of both payment methods.

c) To benefit their trading partner, ABC has been pricing all its exports to DEF in Chinese RMB rather than in Australian dollar. Recently, the Australian dollar has been strengthening in value against the Chinese RMB. If the Australian dollar continues to strengthen against the Chinese RMB, what are the implications for both ABC and DEF in relation to their future export transactions? What strategies can ABC use to manage potential transaction risks?