Course summary (International Finance):
Objectives:
- To familiarize the student with various methods of finance both for exports
and imports.
- To analyze the fundamentals of foreign exchange markets, understand their
functioning and examine some of the agents operating in these markets.
- To learn about different types of international bonds and guarantees and how they operate.
- We will also look at different methods of managing exchange risk. Forward
exchange contracts and currency options will be examined in greater detail.
- Gain a good understanding of Forfeiting, Factoring and Invoice Discounting.
There are two basic forms of finance of International trade transactions:
import
finance and export finance. Both can be performed in the currency of the exporter (for example, Euros) or in any other fully convertible currency agreed
by both parties. In the 2th case the company assumes certain risks as to the difference in exchange rates, however, it can also profit from trading in another currency if there is a rise in the value of the foreign currency.
Financial transactions in foreign trade can be performed in the currency
of the exporter, in the currency of the importer or in
a third currency.
In many cases export companies must facilitate finance for their clients mainly
due to the requirements of the market. In a foreign exchange market dealers Trade in currencies. Exports of products and services, Foreign direct investment (FDI), foreign loans, etc. form currency supply whereas currency demand is formed by imports,
Foreign direct investment (FDI) abroad and other factors. These operations stimulate the buying and
selling of currencies in a market governed by supply and demand. If
payment for a service provided or
products delivered to a
foreign client is in a currency other than in which the exporter usually
operates, the exporter is exposed to the risk of exchange rate fluctuation.
In any exporting or importing transaction there is a range of risks to be
considered including:
- Payment Risk
- Performance Risk
- Foreign Exchange Risk
- Interest Rate Risk
- Counterparty/bank Risk
- Country Risk
- Delivery Risk
The underlying commercial contract should clearly state
the description of the products, delivery terms, when and by
what means payment is to be made, the documents required
which will allow the importer to obtain delivery of the products and to arrange
clearance through customs, the currency in which
settlement is to be effected and any specific requirements attaching to the shipment.
Example of the course International Finance:
Country risk is caused by political (unwillingness to repay) or
economic (inability to repay) events in a particular country. Normally, country risk is measured as transfer risk or cross border risk, which are
other terminology used to describe country risk. The central element of transfer risk is the possibility that the borrower may not be able to secure
foreign exchange to service its external debt due to economic or political
risks of a country, despite accessibility of local currency.
Sovereign risk is the risk of the government or government related entity making payment. Country risk embodies both govern and commercial risk.
The Corruption perceptions index (CPI) measures the perceived level of public-sector corruption in 180 countries
economies..
FOREX - International bonds and guarantees
