arts management finance case study
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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: International painting purchase
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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.
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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
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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.
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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
1)People Art Gallery (SG, buyer) prefers to pay the 2 paintings on an
open account basis.
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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
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B People Art Gallery (SG, buyer) would agree to make advance payment forthe 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
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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)
2) On second thoughts, Venus Mona Ltd. (UK, seller) requests People Art
Gallery to make advance payment for the 2 paintings
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The main difference between in transaction flow between Clean Collection andDocumentary 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
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3) As a compromise payment will be made on a collection basis
Clean Collection Documentary Collection
Importer and exporter sign contract
Exporter ships goods and bill of lading to importer
Exporter gives the bill of exchange and collectionorder to his bank (remitting bank)
The remitting bank delivers documents andinstructions to the collecting bank in the importerscountry
Collecting bank informs and presents bill of exchangeto importerfor payment or acceptanceinaccordance with collection order
Importer makes payment to collecting bank
Collecting bank pays remitting bank
Remitting bank pays or credits exporters account
Importer and exporter sign contract
Exporter ships goods to importer. Bill of ladingis not shipped to the importer.
Exporter givesbill of lading, bill of exchangeand collection orderto his bank (remitting bank)
The remitting bank delivers documents andinstructions to the collecting bank in theimporters country
Collecting bank informs and presents bill ofexchange to importer. Documents of title arereleased to importer upon payment oracceptance of the bill of exchangeinaccordance with collection order
Importer makes payment to collecting bank
Collecting bank pays remitting bank
Remitting bank pays or credits exporters account
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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)
4) Applicable buying and selling rates
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
Buying British Pounds from United Overseas Bank Singapore on October 24th2011, 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).
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!ank Y"!
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