1 What are international payment & settlement?
(1) It arising from and facilitating international trades initially has a part of the latter.
(2) International payment & settlement because an independent course when international trade developed by bounds with the subsequence of a dramatic fall in trade barriers and the globalization of markets.
(3) International payments and settlements are financial activities conducted among different countries in which payments are effected or funds are transferred from one country to another in order to settle accounts, debts, claims, etc. emerged in the course of political, economic or cultural contacts among them.
(4) The purpose of international payment & settlement means to carry out liquidating claims and debts with the currency expressional in valid way.
(5) As everybody knows, most international payments originate from transactions in the world trade. They are money transfers as a result of international clearing, such as:
5.1 Visible Trade: The main weight of international money transfer is importing / exporting of commodities and goods between the buyers and the sellers. Importers in one country must make payment to exporters in another country for their imported goods.
5.2 Invisible Trade: It covers not only service trade, but also technology transfer, patent, copyright contracts, etc. Services include all receipts and payments between the residents and foreigners on transportation, insurance, travel, communications, postage and bank service, etc.
5.3 Financial Transaction: International financial transaction covers foreign exchange market transactions, government supported export credits, syndicated loans, international bond issues, etc.
5.4 Payments between governments: The government of one country may make payment to that of another country for political, military, or economic reasons, such as giving aids and grants, providing disaster relief, etc.
5.5 Others: Other international payments such as overseas remittances, educational expenses, inheritances, etc. should also be settled among countries.
（6）sorts
6.1. International Trade Settlement:
With the expansion of global trade amongst countries, the role of banks in international trade finance is becoming more important. Most transactions must be settled through banks. Without the bank's participation, international trade would not have been developed to the stage we have reached today.
6.2. International Non-Trade Settlement:
There are many ways by which funds can be transferred from one country to another under trade service. When the tourists, merchants, delegations or other people go abroad, they need money to spend, to buy something, or to pay for various expenses and charges there. The most common means for them to carry funds are cash, traveler's check, traveler's letter of credit and credit card.
2 What is the most commonly used method of payment & settlement? Why?
（1）A documentary letter of credit is the most widely used form of a settlement in the current international trade. A documentary letter of credit is a bank’s promise to pay a seller on behalf of the buyer so long as the seller complies with precisely defined terms and conditions specified in the credit. A documentary letter of credit provides almost equal security to both the buyer and the seller and is second only to cash in advance in terms of security to the seller.
(2) The beneficiary is entitled to payment as long as he can provide the documentary evidence required by the letter of credit. The letter of credit is a distinct and separate transaction from the contract on which it is based. All parties deal in documents and not in goods. The issuing bank is not liable for performance of the underlying contract between the customers and beneficiary. The issuing bank's obligation to the buyer is to examine all documents to insure that they meet all the terms and conditions of the credit. Upon requesting demand for payment the beneficiary warrants that all conditions of the agreement have been complied with. If the beneficiary (seller) conforms to the letter of credit, the seller must be paid by the bank.
（3）The main feature of L/C is originally from importers fulfilling the "Cash Against payment" transfer of the responsibility borne by the banks. For example, banks will undertake to assume the risk of currency fluctuations under foreign currency letters of credit, they do charge fees for their service (which can be hefty, especially if a company conducts many smaller foreign trade transactions).That is to say: "The bank credit replaced the commercial credit." This is because bank credit is more reliable, more robust and the capital of banks is also more powerful. Both buyer and seller increase their sense of security, thereby L/C greatly promote the development of international trade.
As a result, the use of the letters of credit as a tool to reduce risk has grown substantially over the past decade. Letters of credit accomplish their purpose by substituting the credit of the bank for that of the customer, for the purpose of facilitating trade. A documentary letter of credit becomes the most commonly used method of payment & settlement。
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