1. International Business, 8th Edition
Griffin & Pustay
Copyright © 2015 Pearson Education, Inc.

2. Copyright © 2015 Pearson Education, Inc.
Learning Objectives
Analyze the advantages and disadvantages of the major forms of payment in international trade
Identify the primary types of foreign- exchange risk faced by international businesses
Describe the techniques used by firms to manage their working capital
Evaluate the various capital budgeting techniques used for international investments
Discuss the primary sources of investment capital available to international businesses
Copyright © 2015 Pearson Education, Inc.

3. Financial Issues in International Trade
Choice of Currency: Which currency to use
Credit Checking: When and how to check credit
Method of Payment: Which form of payment to use
Financing Trade: How to arrange financing
Copyright © 2015 Pearson Education, Inc.

4. Copyright © 2015 Pearson Education, Inc.
Methods of Payment
Payment in Advance
Open Accounts
Documentary Collection
Letters of Credit
Credit Cards
Countertrade
Copyright © 2015 Pearson Education, Inc.

5. Method of Payment: Open Account
Importer’s Perspective
Exporter’s Perspective
Expedites the Receipt of Goods
Offers Short-Term Financing
Eliminates Fees for Bank Services
Requires Less Paperwork
Increases Risk of Non-Payment
Waives Expertise of Bankers
Lacks Supporting Documentation
Requires Use of Working Capital
Copyright © 2015 Pearson Education, Inc.

6. Method of Payment: Documentary Collection
Commercial banks serve as agents to facilitate the payment process
A Draft/Bill of Exchange
Payment is demanded from the buyer at a specified time
Bills of Lading
A Contract for Transportation
A Title to the Goods
Copyright © 2015 Pearson Education, Inc.

7. Method of Payment: Documentary Collection
Copyright © 2015 Pearson Education, Inc.

8. Method of Payment: Documentary Collection
Sight Draft
Time Draft
Date Draft
Trade Acceptance
Banker’s Acceptance
Sold without Recourse
Sold with Recourse
Copyright © 2015 Pearson Education, Inc.

9. Method of Payment: Letters of Credit
Letter of Credit
Issued by a bank
Contains promise to pay the exporter
Required Documentations
Application
Invoice
Customs Documents
Bill of Lading
Packing List
Proof of Insurance
Export Licenses
Certificates of Product Origin
Inspection Certificates
Copyright © 2015 Pearson Education, Inc.

10. Method of Payment: Letters of Credit
Advised Letter of Credit
Confirmed Letter of Credit
Irrevocable Letter of Credit
Revocable Letter of Credit
Copyright © 2015 Pearson Education, Inc.

11. Method of Payment: Countertrade
Barter
Counterpurchase
Buy-back
Offset Purchase
Copyright © 2015 Pearson Education, Inc.

12. Copyright © 2015 Pearson Education, Inc.
Financing Trade
Exporting Firms
Banks and Lenders
Government Sponsors
In most industries standard financing arrangements exist, and an international firm must be ready to offer those terms to its foreign customers.
In many emerging markets, capital markets are often not well developed, and local lenders may charge extremely high interest rates, especially to smaller borrowers. Thus, exporters with access to low-cost capital can gain a competitive advantage by offering financing to foreign customers who lack access to cheaper financing. Of course, before deciding to extend credit, the exporter must examine the trade-off between the benefits of increased sales and the higher risks of default.
Banks and other commercial lenders often are willing to finance accounts receivable of exporters by purchasing letters of credit and time drafts, or factoring open accounts at a discount from face value. Many developed countries supplement the services of these commercial lenders with government-supported financing programs to promote exports.
Copyright © 2015 Pearson Education, Inc.

13. Managing Foreign Exchange Risk
Foreign-Exchange Exposure
Transaction
Translation
Economic
Copyright © 2015 Pearson Education, Inc.

14. Copyright © 2015 Pearson Education, Inc.
Transaction Exposure
Copyright © 2015 Pearson Education, Inc.

15. Management of Working Capital
Corporate Financial Goals
Minimizing Working Capital Balances
Minimizing Currency Conversion Costs
Minimizing Foreign-Exchange Risk
Copyright © 2015 Pearson Education, Inc.

16. International Capital Budgeting
Net Present Value
Risk Adjustment
Currency Selection
Choice of Perspective
Internal Rate of Return
Payback Period
Copyright © 2015 Pearson Education, Inc.

17. Sources of International Investment Capital
External Sources of Investment Capital
Investment Banks
Stock Markets
Borrowed Funds
Swap Market
Copyright © 2015 Pearson Education, Inc.

18. Internal Sources of Investment Capital
Copyright © 2015 Pearson Education, Inc.

19. Copyright © 2015 Pearson Education, Inc.
Tax Havens
Minimal Corporate Income Tax
Stable Political and Business Climate
Efficient Court System
Sophisticated Banking and Communications Industries
Copyright © 2015 Pearson Education, Inc.

20. Copyright © 2015 Pearson Education, Inc.
Tax Haven (Cont.)
Government Response
Arm’s Length Testing
Advance Pricing Agreement
Copyright © 2015 Pearson Education, Inc.