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. In some cases, a state Export Credit Agency from the exporter’s country may pay a subsidy to the banks so that an attractive funding cost can be offered to the importer. Another aspect is the Line of Credit. Lines of Credit are like Continue reading
International Business Finance
The Bretton Woods System – Background, Design and Reasons for Collapse
Since the beginning of the 19th century, globalization, international trade and free trade between countries became the new economic order and several attempts have been made since then to develop policies and schemes to ensure the stability of the international monetary system. It is safe to say that in truth, the world economy has never been in a state of utopia, but nevertheless, we have never stopped trying to attain such. The Bretton Woods era of 1944 to 1977, one of the few fairly successful schemes the world powers created in trying to achieve economic utopia, though existed for a short period, has been accredited as being one of the most successful international monetary systems, so impressive was the economic stability and growth of the era that there have been ongoing talks for a comeback of the system. Background of the Bretton Woods System At the end of the World Continue reading
Emerging Trends in International Capital Markets
Three interrelated developments in global capital markets are: The sustained rise in gross capital flows relative to net flows; The increasing importance of securitized forms of capital flows; and The growing concentration of financial institutions and financial markets. Taken together these trends may signal what some others have referred to as a ‘quiet opening’ of the capital account of the balance of payments, which is resulting in the development, strengthening and growing integration of domestic financial systems within the international financial system. Finance is being rationalized across national borders, resulting in a breakdown in many countries in the distinction between onshore and offshore finance. It is particularly evident and most advanced in the wholesale side of the financial industry, and is becoming increasingly apparent in the retail side as well. Taken together these three effects have contributed to a sharp rise in volatility — in both capital flows and asset Continue reading
Benefits of Securitization
Securitization, also known as asset-backed securitization or structured financing, has been defined as a financing instrument whereby a company transfers rights in current or future receivables or other financial assets to an entity that serves as a “special purpose vehicle” (SPV), which in turn issues securities to capital market investors and uses the proceeds from the issue to pay for the financial assets. The source of the receivables could be any right of payment or asset that generates an income with a stable cash flow. The existing or future receivables could be the income generated, among others things by residential or commercial loans, credit card receivables, automobile loans, student loans, royalties on intellectual property, tax receivables or any other income source that is regular and predictable. Read More: The Concept of Securitization Securitization can also be considered a form of arbitrage between a less-efficient traditional debt market and a more-efficient Continue reading
Forex Operational Risk Management through Marketing Management
Operating risk in foreign exchange operations can be negotiated ably through marketing management strategies as well. These are: market selection, product strategy, pricing strategy and promotion strategy. Market Selection: Impact of exchange rate fluctuations on operating profit can be dealt through right mix of markets. Major strategic operations for an exporter are the markets in which to sell and the relative marketing support to devote to each market. Marketing management must take into account its economic risk and selectivity, adjust the marketing support, on a nation-by-nation basis, to maximize long-term profit. From the perspective of non-US companies, the strong U.S. dollar is a golden opportunity to gain market share at the expense of their U.S rivals. It is also necessary-to consider the issue of market segmentation within individual countries. A firm that sells differentiated products to more affluent customers may not be harmed as much by foreign currency devaluation. On Continue reading
Indian Depository Receipts (IDRs)
Indian Depository Receipts (IDRs) are transferable securities to be listed on Indian stock exchanges in the form of depository receipts created by a Domestic Depository in India against the underlying equity shares of the issuing company which is incorporated outside India. As per the definition given in the Companies (Issue of Indian Depository Receipts) Rules, 2004, Indian Depository Receipt is an instrument in the form of a Depository Receipt created by the Indian depository in India against the underlying equity shares of the issuing company. In an IDR, foreign companies would issue shares, to an Indian Depository (say National Security Depository Limited — NSDL), which would in turn issue depository receipts to investors in India. The actual shares underlying the IDRs would be held by an Overseas Custodian, which shall authorize the Indian Depository to issue the IDRs. The Indian Depository Receipts would have following features: Overseas Custodian: Foreign bank Continue reading