Presentation Transcript

1. International Trade Finance
2. International Trade Finance It is normal practice for a seller in one country to invoice their exported products in their home currency or a major currency such as the US dollar. Both importers and exporters need to have an understanding of foreign currency.
3. International Trade Finance The exchange rate, is the amount of a currency that one unit of a different currency will buy. A direct exchange rate is the term used to describe the rate where one unit of the foreign currency is compared to the value of the home currency. An indirect exchange rate is where we compare the value of one unit of the home currency to the foreign currency. The practice in Australia is to quote rates using the indirect method.
4. International Trade Finance The relative values of all of the major currencies are not fixed, and they constantly fluctuate.
5. International Trade Finance Financial institutions provide foreign currency conversion services for their customers make a profit by buying a currency at one rate and selling it at a different rate. A buy rate is the rate at which the bank or dealer will buy one unit of the foreign currency from their customer. A sell rate is the rate at which the bank or dealer will sell one unit of the foreign currency to their customer.
6. International Trade Finance A spot transaction is one where two currencies are exchanged simultaneously and the exchange rate used is the one that applies at the time of the agreement (on the spot). A forward transaction is a risk management tool used to avoid risks associated with foreign currency value fluctuations. The parties (the bank and the importer) agree to exchange currencies at a specific time in the future, but the exchange rate is actually agreed upon on the date of the agreement. A forward exchange contract is an agreement between the seller and the buyer of the currency that enables forward exchange transactions to take place.
7. International Trade Finance International payment modes include: Credit Cards International Cheque (Bank Draft) Telegraphic Transfer (TT) International payment methods include: pre-payment or clean payment in advance; open account; documentary collections documentary letters of credit
8. International Trade Finance With prepayment or clean payment in advance, the importer pays the exporter for the goods before the goods are shipped. With open account payments the exporter agrees to extend credit to the importer who will not have to pay for the goods until some time after they are received.
9. International Trade Finance With documentary collections the bank facilitates the payment process by collecting the payment or the promise of a payment and in return hands over the documents required by the importer to take delivery of the goods. A documentary credit is a payment method that requires a bank to make an undertaking to pay the beneficiary (usually the exporter) once the terms and conditions stipulated on the Letter of credit have been fulfilled.
10. International Trade Finance Payment risk assessment