Task C: International painting purchase

LINDA SIM KERNMAIER

Student ID: 12988
Date: 1st November 2011
Module: AM M103 Business Strategies for the Arts Entrepreneur: Financing International Business (Lawrence Bong)
Course: Master of Arts & Cultural Management

Task C
People Art Gallery in Singapore intends to buy 2 prestigious and
valuable paintings from a famous artist in Spain, through the art
dealer Venus Mona Ltd, based in England.
The cost of the 2 paintings is GBP 250,000.00.
I am advising People Art Gallery on the terms of payment in
international trade financing.

1)
People Art Gallery (SG, buyer) prefers to pay the 2 paintings on an
open account basis
A
Transactions flow of an open account:
1.
Creation and signing of contact, inc. pre-determined payment date
2.
Seller sends goods and documents
3.
Buyer receives good
4.
Buyer makes payment before/on due date

1)
People Art Gallery (SG, buyer) prefers to pay the 2 paintings on an
open account basis.
B
Venus Mona Limited (UK, seller) allows People Art Gallery (buyer)


to pay on an open account because.
a.
they have an established trust relationship or are related companies
b.
Venus Mona Ltd urgently needs to sell,


and hence People Art Gallery has bargaining power
c.
there is currently a strong selling trend in the art market


(other dealers selling similar paintings at possibly lower cost)
d.
it is customary practice

1)
People Art Gallery (SG, buyer) prefers to pay the 2 paintings on an
open account basis.
C
Advantages enjoyed by the importer on an open account basis:
1.
Receives goods before payment (inspection; possible refusal)
2.
If the importer changes his mind/revokes the deal whilst goods are in

transit, there will be less financial outlay on his side
3.
Has control over the timing of payment

(retains interest on payment sum for longer)
4.
If he pays promptly and reliably, good business relations can be formed

(chance for becoming a favoured client enjoying special deals)
5.
Less written documentation
6.
Less commission and handling cost

2)
On second thoughts,Venus Mona Ltd. (UK, seller) requests People Art
Gallery to make advance payment for the 2 paintings
A
Transaction flow for advance payment:
1.
Creation and signing of contact, in pre-determined shipping time
2.
Buyer makes payment
3.
Seller sends goods and documents
4.
Buyer receives goods

2)
On second thoughts,Venus Mona Ltd. (UK, seller) requests People Art
Gallery to make advance payment for the 2 paintings
B
People Art Gallery (SG, buyer) would agree to make advance payment for

the 2 paintings because
they have an established trust relationship or are related companies
they desperately need the paintings
there is currently a strong buying trend in the art market (other buyers

may be willing to pay more for similar paintings)
it is customary practice
( in other cases, the paintings may be small/not too valuable, hence the risk is small)

2)
On second thoughts,Venus Mona Ltd. (UK, seller) requests People Art
Gallery to make advance payment for the 2 paintings
C
Advantages to the exporter under advance payment from the importer:
1.
Exporter receives payment before the goods are dispatched

(starts earning interest on payment sum earlier)
2.
No risk of non-payment
3.
If he ships the goods promptly and reliably, good business relations can be

formed (chance for becoming a favoured dealer reaping ongoing business)

3)
As a compromise payment will be made on a collection basis

The main difference between in transaction flow between Clean Collection and
Documentary Collection are:
Clean Collection



Exporter sends bill of lading to importer
Favours importer, since with the BOL, he can receive the goods before paying
Documentary Collection

Exporter sends bill of lading to remitting bank
Favours exporter, since importer has to pay bank before receiving BOL=goods

3)
As a compromise payment will be made on a collection basis
Clean Collection

Documentary Collection

Importer and exporter sign contract

Importer and exporter sign contract

Exporter ships goods and bill of lading to importer

Exporter ships goods to importer. Bill of lading

is not shipped to the importer.

Exporter gives the bill of exchange and collection

order to his bank (remitting bank)

Exporter gives bill of lading, bill of exchange

and collection order to his bank (remitting bank)

The remitting bank delivers documents and

instructions to the collecting bank in the importers
country

The remitting bank delivers documents and

instructions to the collecting bank in the
importers country

Collecting bank informs and presents bill of exchange

to importer for payment or acceptance in
accordance with collection order

Collecting bank informs and presents bill of

exchange to importer. Documents of title are
released to importer upon payment or
acceptance of the bill of exchange in
accordance with collection order

Importer makes payment to collecting bank

Importer makes payment to collecting bank

Collecting bank pays remitting bank

Collecting bank pays remitting bank

Remitting bank pays or credits exporters account

Remitting bank pays or credits exporters account

4)
Applicable buying and selling rates
Buying and selling rate of GBP to SGD on October 24th 2011
GBP 1

=

SGD 2.0289




Monetary Authority of Singapore (1)
GBP 1

=

SGD 2.0250 2.0265

Oanda Currency Exchange (2)
Buying British Pounds from United Overseas Bank Singapore on October 24th
2011, People Arts Gallery has to use the following rate to pay Venus Mona Ltd:
GBP 1

SGD 2.0084 2.0484

UOB Bank Singapore (3)

For the total painting sum of GBP 250,000.00 transferred through UOB,
People Arts Gallery would have to pay SGD 512,100.00 (2.0484 x 250,000).
Sources:
(1) https://secure.mas.gov.sg/msb/ExchangeRates.aspx
(2) http://www.oanda.com/currency/converter/
(3) https://uniservices1.uobgroup.com/secure/redirect.jsp?direct=/mproxy?Action=MER

!ank Y"!