week 9 - financing foreign trade

Question 1

what are the types of financing

Answer 1

• financing imported (payment period
• financing exports distinguished between
  1) pre-financing: the period from order to shipment
  2) financing: exporters that need to postpone payment to their buyers

Question 2

what are the pre-financing instruments

Answer 2

• loan
• credit facility
• letter of credit with anticipatory credit

Question 3

what is credit facility

Answer 3

the bank opens a credit account and the exporter may use it for several transactions, exporter will cancel the credit when it gets payments from its importers

Question 4

what are some financing instruments

Answer 4

• bank overdraft
• anticipation of remittance
• anticipatory payment using the documents as a warranty
• factoring and forfeiting

Question 5

what happens when you get charged in euros

Answer 5

the interest charged by the bank is based on the EURIBOR, as well as some bank fees

Question 6

what happens when you get financed in a currency

Answer 6

the interest charged is based on that currency interest rate LIBOR, as well as some bank fees

Question 7

how to calculate the interest rate

Answer 7

interest = (capital x period x EURIBOR)/(base x 100)

Question 8

advantages and disadvantages of invoicing in any currency and financing in euro without coverage of the exchange rate risk

Answer 8

• the exporter can take advantage of an eventual appreciation of the dollar
• if the dollar depreciated, the losses can be quite significant
• the exporter will not know the financial cost of the transaction until the due date of the operation

Question 9

advantages of invoicing in any currency and financing in euro with coverage of the exchange rate risk

Answer 9

• financial cost of the operation is known in advance
• exporter is protected against the exchange rate risk