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International Trade Finance Archives - Page 2 of 12 - MBA Knowledge Base

Buyers Credit and Suppliers Credit

Buyer’s Credit

Buyer’s Credits are a form of Eurocurrency loans designed to finance a  specific transaction involving import of goods and services. Under this arrangement,  lending bank(s) pay the exporter on presentation of shipping documents. The  importer works out a deferred payment arrangement with the lending bank, which the  bank treats as a loan. Large loans are club loans or syndicated loans. Many  provisions in the loan agreement are quite similar to a general purpose syndicated  credit. However, a number of formalities have to be completed before the exporter  can draw funds. The interest rate of the loan is linked to a market index such as  LIBOR.… Read the rest

International Payments Using Drafts

Commonly used in international trade, a draft is an unconditional order in writing –  usually signed by the exporter (seller) and addressed to the importer (buyer) or the importer’s  agent – ordering the importer to pay on demand, or at a fixed or determinable future date, the  amount specified on its face. Such an instrument, also known as a bill of exchange, serves three  important functions:

  1. To provide written evidence, in clear and simple terms, of financial obligation.
  2. To enable both parties to potentially reduce their costs of financing.
  3. To provide a negotiable and unconditional instrument (that is, payment must be made  to any holder in due course despite any disputes over the underlying commercial  transaction.)
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Short-Term Financing of Multinational Corporations

Financing the working capital requirements of  a multinational companies foreign affiliates poses a complex decision problem.  This complexity stems from the large number of financing options available to the  subsidiary of an MNC. Subsidiaries have access to funds from sister affiliates and  the parent, as well as external sources. This article focuses on developing  policies for borrowing from either within or without the companies when the risk  of exchange rate changes is present and different tax rates and regulations are in  effect.

There are four aspects of short-term overseas financing strategy namely;

  1. Identifying the key factors,
  2. Formulating and evaluating objectives,
  3. Describing available short-term borrowing options and
  4. Developing a methodology for calculating and comparing the effective after-tax  dollar costs of these alternatives.
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Syndicated Euro Credits

History of  Syndicated  Euro Credits

Syndicated Euro Credits are in existence  since the late 1960s. The first syndicate was  organized by Bankers Trust in an effort to  arrange a large credit for Austria. During  the early seventies, Euromarkets saw the  demand for Euro credits increasing from  non-traditional and hitherto untested  borrowers. The period after first oil crisis  was marked by a boom phase. To cope with  the increasing demand for funds, lenders  expanded their business without  undertaking due credit appraisal of their  clients or the countries thus financed.  Further, the European banks had short-term  deposits while bulk of borrowers required  long-term deposits.… Read the rest

International Money Market

A money market is a market for instruments and a means of lending (or investing) and  borrowing funds for relatively short periods, typically regards as from one day to one year.  Such means and instruments include short term bank loans. Treasury bills, bank certificates  of deposit, commercial paper, banker’s acceptances and repurchase agreements and other  short term asset backed claims.

As a key elements of the financial system of a country, the money market plays a  crucial economic role that if reconciling the cash needs of so called deficit units (such as  farmers needing to borrow in anticipation of their later harvest revenues), with the investment  needs of surplus units (such as insurance companies wanting to invest cash productively prior  to making long term investment choices).… Read the rest

History of Exchange Rate System

The world exchange rate systems of the world have it own history shows that the world community has in fact change from the fixed exchange rates system to floating exchange rate system. There are different combinations of fixed exchange rate systems as well as floating exchange rates exist currently, the created for exchange rate regulating together with specific some economical instruments also.

Commodity money is a system that the most early existing in this world. This system happened when the development of production as well as a number of labor divisions. When appeared coins having an intrinsic value but not linked with commodity, until the 17th century there was no other monetary system exist.… Read the rest