Finance of international trade. Financing imports exports. Country risk

Course summary (International Finance):

Foreign trade finance: export and import transactions. Pre and pre-shipment. Credit ratings. Sovereign risk. Corruption index ...

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 second 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 international 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 goods and services, foreign investments, foreign loans, etc. form currency supply whereas currency demand is formed by imports, investment 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 goods 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 goods, delivery terms, when and by what means payment is to be made, the documents required which will allow the buyer to obtain delivery of the goods 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 availability 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 and territories around the world. The CPI is a "survey of surveys", based on 13 different expert and business surveys.

FOREX - International bonds and guarantees

Finance, International, Trade, Financing, Imports, Exports, Country, risk, foreign trade, export, import, transactions, Pre, Pre-shipment, Credit, ratings, Sovereign risk, Corruption, index