arts management finance case study

7/24/2019 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


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


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)




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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)




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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"!