Chapter Nineteen E xports and imports Chapter objective This chapter discusses the microstructure of international trade
INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 19 Chapter Nineteen Exports and Imports Chapter Objective: This chapter discusses the microstructure of international trade
Chapter Outline A Typical Foreign Exchange Transaction ° forfaiting Government Assistance in Exporting a The Export-Import Bank and Affiliated Organizations ● Countertrade forms of countertrade generalizations about Countertrade McGraw-Hilylrwoin 19-1 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 19-1 Chapter Outline ⚫ A Typical Foreign Exchange Transaction ⚫ Forfaiting ⚫ Government Assistance in Exporting ◼ The Export-Import Bank and Affiliated Organizations ⚫ Countertrade ◼ Forms of Countertrade ◼ Generalizations about Countertrade
A Typical Foreign exchange Transaction Over the years,(centuries, really) an elaborate process has evolved for handling exports and Imports Figure 19. 1 illustrates this process McGraw-Hilylrwoin 19-2 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 19-2 A Typical Foreign Exchange Transaction ⚫ Over the years, (centuries, really) an elaborate process has evolved for handling exports and imports. ⚫ Figure 19.1 illustrates this process
Process of a Typical Foreign Trade Transaction Purc hase order Importer Shipment of goods Exporter 吧 Eei9B/A Money Market s≌巨 Investor 三 PVB/A 5月39o Face value of b/a >四 Letter of credit Shipping documents and time draft accepted Importers Bank Exporters Bank Payment-discounted value of b/A McGraw-Hilylrwoin 19-3 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 19-3 Process of a Typical Foreign Trade Transaction Importer’s Bank Exporter’s Bank Importer Exporter Purchase order Shipment of goods Letter of Credit Shipping Documents and time draft accepted Payment-discounted value of B/A Money Market Investor B/A Face value of B/A PV B/A
Forfaiting o Forfaiting is a type of medium-term financing used to finance the sale of capital goods It involves the sale of promissory notes signed by the importer in favor of the exporter The forfait, usually a bank, buys the notes at a discount from face value from the exporter o The exporter gets paid and does not have to carry the financing McGraw-Hilylrwoin 194 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 19-4 Forfaiting ⚫ Forfaiting is a type of medium-term financing used to finance the sale of capital goods. ⚫ It involves the sale of promissory notes signed by the importer in favor of the exporter. ⚫ The forfait, usually a bank, buys the notes at a discount from face value from the exporter. ⚫ The exporter gets paid and does not have to carry the financing
Government Assistance in Exporting o For political reasons(having to do with mercantilism ), most developed countries offer competitive assistance to domestic exporters This assistance often takes the form of subsidized credit that can be extended to exporters o Also credit insurance programs that guarantee financing extended by private financial Institutions are common McGraw-Hilylrwoin 19-5 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 19-5 Government Assistance in Exporting ⚫ For political reasons (having to do with mercantilism), most developed countries offer competitive assistance to domestic exporters. ⚫ This assistance often takes the form of subsidized credit that can be extended to exporters. ⚫ Also credit insurance programs that guarantee financing extended by private financial institutions are common
The Export-Import Bank and Affiliated Organizations In 1934 the eximbank of the united states was founded as an independent government agency to facilitate and finance U.S. export trade Eximbank's purpose is to provide financing in situations where private financial institutions are unable or unwilling to because The loan maturity is too long The amount of the loan is too large 3. The loan risk is too great 4. The importing firm has difficulty in obtaining hard currency McGraw-Hilylrwoin 19-6 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 19-6 The Export-Import Bank and Affiliated Organizations ⚫ In 1934 the Eximbank of the United States was founded as an independent government agency to facilitate and finance U.S. export trade. ⚫ Eximbank’s purpose is to provide financing in situations where private financial institutions are unable or unwilling to because: 1. The loan maturity is too long. 2. The amount of the loan is too large. 3. The loan risk is too great. 4. The importing firm has difficulty in obtaining hard currency
Countertrade o Countertrade is an umbrella term used to describe many different types of transactions each in which the seller provides a buyer with goods or services and promises in return to purchase goods or services from the buyer Countertrade may or may not involve the use of currency as in barter McGraw-Hilylrwoin 19-7 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 19-7 Countertrade ⚫ Countertrade is an umbrella term used to describe many different types of transactions each in “which the seller provides a buyer with goods or services and promises in return to purchase goods or services from the buyer”. ⚫ Countertrade may or may not involve the use of currency, as in barter
Forms of countertrade Barter The direct exchange of goods between traders. Barter requires a double coincidence of wants o a clearinghouse arrangement is a form of barter in which the traders agree to buy a certain amount of goods from each other They set up accounts with each other that are debited and credited as needed. At the maturity of the arrangement, the parties settle up in cash or merchandise a switch trade is the purchase by a third party of one country's clearing agreement balance for hard currency McGraw-Hilylrwoin 19-8 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 19-8 Forms of Countertrade ⚫ Barter ◼ The direct exchange of goods between traders. Barter requires a double coincidence of wants. ⚫ A clearinghouse arrangement is a form of barter in which the traders agree to buy a certain amount of goods from each other. ◼ They set up accounts with each other that are debited and credited as needed. At the maturity of the arrangement, the parties settle up in cash or merchandise. ⚫ A switch trade is the purchase by a third party of one country’s clearing agreement balance for hard currency
Forms of countertrade a buy-back transaction involves a technology transfer via the sale of a manufacturing plant The seller of the plant agrees to buy back some of the output of the plant once it is constructed a counterpurchase trade agreement is similar to a buy back transaction. but differs in that a The output that the seller of the plant agrees to buy is unrelated to the plant An offset transaction can be viewed as a counterpurchase trade agreement involving the aerospace/defense industry McGraw-Hilylrwoin 19-9 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 19-9 Forms of Countertrade ⚫ A buy-back transaction involves a technology transfer via the sale of a manufacturing plant. ◼ The seller of the plant agrees to buy back some of the output of the plant once it is constructed. ⚫ A counterpurchase trade agreement is similar to a buyback transaction, but differs in that ◼ The output that the seller of the plant agrees to buy is unrelated to the plant. ⚫ An offset transaction can be viewed as a counterpurchase trade agreement involving the aerospace/defense industry
