How to transfer fund from one country to another?

Posted on 25 April 2023 Category : For Beginners

5 methods of doing International Payments:

How can a fund from one country to another be transferred? How does sale of goods against Export/Import remit to the seller? What are the methods of transfer of fund from one country to another?

There are five important methods to effect international payments. What are they?

Telegraphic Transfer: By this method, a sum can be transferred from a bank in one country to a bank in another part of the world by cable or telex. It is, thus, the quickest method of transmitting funds from one centre to another.

Mail Transfer: Just as it is possible to transfer funds from a bank account in one centre to an account in another centre within the country by mail, international transfers of funds can be accomplished by Mail Transfer. These are usually made by air mail.

Cheques and Bank Drafts: International payments may be made by means of cheques and bank drafts. The latter is widely used. A bank draft is a cheque drawn on a bank instead of a customer's personal account. It is an acceptable means of payment when the person tendering is not known, since its value is dependent on the standing of a bank which is widely known, and not on the creditworthiness of a firm or individual known only to a limited number of people.

Foreign Bill of Exchange: A bill of exchange is an unconditional order in writing, addressed by one person to another, requiring the person to whom it is addressed to pay a certain sum on demand or on a specified future date.

There are two important differences between inland and foreign bills. The date on which an inland bill is due for payment is calculated from the date on which it was drawn, but the period of a foreign bill runs from the date on which the bill was accepted. The reason for this is that the interval between a foreign bill being drawn and its acceptance may be considerable, since it may depend on the time taken for the bill to pass from the drawer's country to that of the acceptor. The second important difference between the two types of bill is that the foreign bill is generally drawn in sets of three, although only one of them bears a stamp, and of course, one of them is paid.

Nowadays, it is mostly the documentary bill that is employed in international trade. is is nothing more than a bill of exchange with the various shipping documents — the bill of lading, the insurance certificate and the consular invoice - attached to it. By using this, the exporter can make the release of the documents conditional upon either: (a) payment of the bill, if it has been drawn at sight, or (b) its acceptance by the importer if it has been drawn , for a period.

Documentary for Reimbursement) Credit: Under this method, a bill of exchange is necessarily employed, but the distinctive feature of the documentary credit is the opening by the importer of a credit in favour of the exporter, at a bank in the exporter's country.

To illustrate the use of the documentary credit, let us assume each Cochin intends to purchase goods from Ronald of New York and that the terms the deal have been agreed upon by them. Then the transaction would be carried through the following stages:

(a) Menon, the importer, instructs his bank, say the State Bank of India (SBI), to open a credit in favour of Ronald, the exporter, at the New York branch of the SB' (if the SBI has no branch in New York, it will appoint some other bank to act as its agent there). The SBI will then inform Mr. Ronald by a letter of credit that it will pay him a specified sum in exchange for the bill of exchange and the shipping documents.

(b) Ronald may now despatch the goods to Menon at Cochin, draw a bill of exchange on the SBI and then present the documentary bill to the New York branch of the SBI. If all the documents are in order, the bank will pay Ronald. The bank will charge for its services, and will also charge interest if the bill is not payable at sight.

(c) The New York branch of the SBI then sends the documentary bill to its Cochin office for payment or acceptance, as the case may be, by Menon. When the bill is paid, Menon's account will be debited by that amount. Everything being in order, the banker will release the bill of lading from the bill to enable Menon to claim the goods on their arrival at the Cochin port.

The above post explains about different 5 methods of fund transfer from one country to another.

Comment below your views about methods of transferring fund from one country to another.

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