1. Finance and Payments

2. Key Considerations WHEN will payment take place? -exporter: advance payment -importer: delay paying HOW will payment take place? -Four basic methods

3. Factors to Consider Credit standing of importer Relationship between importer and exporter Economic and Political stability of importer’s country Competitive issues Costs involved

4. FUNDING - Pre-Shipment Finance - Post-Shipment Finance C F C ACCOUNTS FORFAITING WITH/ WITHOUT RECOURSE

5. DOMESTIC FINANCE - Call Loans (Pre+Post) - Overdraft (Pre+Post) - Bankers Acceptances (Post) - Promissory Notes (Post) - Project/Structured Finance FUNDING METHODS

6. Pre- and Post Shipment Export Finance (ETF) Post- Shipment Import Finance (ITF) OFFSHORE FINANCE

7. OFFSHORE FINANCE (Pre+ Post) An offshore loan is -short term loan -foreign currency - Capital and Interest

8. (ETF) - Short term loans - Financing period 6 months (min 1 month) - LIBOR+ -Repayable in foreign currency Exchange control issues

9. EXPORT TRADE FINANCE Benefits: - finance goods prior and after shipment until payment - Financing costs - Exchange risk eliminated - Selection of loan financing periods

10. IMPORT TRADE FINANCE (ITF) -Facility for Importers to finance imports on a post-shipment basis -Maximum period of 6 months - minimum 1 month (can be extended to 12 months) -Currency generated used to pay supplier -Capital plus interest due + payable in foreign currency -Interest rate based on LIBOR +

11. WHAT IS THE TRUE COST OF FINANCE?

12. COMPARING THE COST OF FOREIGN FINANCE WITH THE COST OF RAND FINANCE ZAR Finance:18,25% P.A. For One Year $ Finance:12% P.A. For One Year F/margin:5,879% P.A. For One Year Needs To Determine A Common Basis For Comparison EG. Common Year Length Rand 365 Versus $ 360 (EG ZAR 18%x 365/360 = 18,25% Or $ 17,75% Calculate Interest Differential From Forward Margin (Points) EG: Spot US$ 6,1240 & F/ward Points Of 910 For 91 Days 910 Points In Exchange Rate Form = 0,0910 Therefore: F/ward Points / Spot X 360 / 91 X 100 0,0910 / 6,1240 X 360 / 91 X 100 =5,879%

13. COMPARING COST OF ….. Remember: ZAR Finance:18,25% P.A. For One Year $ Finance:12% P.A. For One Year F/margin:5,879% P.A. For One Year ZARUS$ Interest:18,25%12,0% Forward Margin:5,879% 18,2517,88% It Seems Considerably Cheaper In $ Finance Than ZAR Finance But …...

14. COMPARING COST OF ….. To ascertaintrue cost one must also add to the US$ the cost of covering the interest forward by… Multiplying the f/ward margin by the interest rate 12% X 5,879% = 0,7055 % p.a. ZARUS$ Interest:18,25%12,0% Forward Margin:5,879% Margin on interest:0,7055% 18,2518,58%

15. COMPARING COST OF FINANCE…….. The Exporter Would Cover Forward ($ Commitment), Therefore Earn Forward Points The Importer Would also Cover Forward ($ Commitment), But pay For The Forward Points The True Comparitive Cost Therefore Is Not ZAR 18,25% Versus $ 12,% But …..

16. COMPARING COST OF FINANCE…….. FOR THE EXPORTER : ZAR 18,25% Minus Forward Margin 5,45% = ZAR 12,8% VERSUS $ 12,65% FOR THE IMPORTER :US$ INTEREST12,0% Forward Margin:5,879% Margin on interest:0,7055% = 18,58% VERSUS ZAR 18,25% THE DOLLAR FINANCE IS THEREFORE MARGINALLY MORE EXPENSIVE FOR THE IMPORTER THE DOLLAR FINANCE IS THEREFORE MARGINALLY MORE EXPENSIVE

17. - Similar to Overdraft - Most Major Currencies - No Fixed Terms (Amount, Period, Interest) - Exchange Control First in First Out 180 Day

18. Benefits Set-off Funds Bridging Finance Freight Payments and Agents Commission Forex Exposure Management

19. Fluctuation of Interest Rates Availability of Foreign Currency Normal Bank Credit Formalities Considerations

20. Purchase of Financial Obligations Usually Bank Guaranteed or Avalised Minimum Amount Varies Fixed Interest Rate usually 3 to 5 years minimum 180 days Without Recourse

21. FORFAITING Foreign Buyer S.A. Exporter Forfaiter Guaranteeing Bank 3. Shipment of Goods 4. Delivery of Bills/Notes 5. Delivery of Bills/Notes 1. Commitment to acquire Bills/Notes 6. Delivery of Bills/Notes 7. Payment less discount 10. Repayment at maturity 8. Presentation for payment at maturity 2. Commercial Contract 9. Presentation for payment at maturity 11. Repayment at maturity

22. ADVANTAGES Competitive Advantage Improved Cash Flow Unencumbered Credit Facilities Exchange Risk Largely Eliminated Attractive Interest Rates Simple Documentation Speed

23. Instruments Without Recourse Documentary Credits - By Deferred Payment/Acceptance - Confirmation - Compliance Of Documents Promissory Notes and Bill of Exchange - Term Basis - Avalised - Separately Guaranteed - Accepted/guaranteed - Endorsed

24. 7.) All Major Currencies. 1.) Maintains Competitiveness. 2.) Without Recourse. 3.) No Banking Facility Required. 4.) Improves Cash Flow. 5.) Reduced Risk. 6.) Fixed Interest Rate. Benefits of Non-Recourse Discounting

25. WITH RECOURSE Credit Facility Required Importer Defaults Exporter’s Responsibility

26. Instruments Export Order Open Account Bill For Collection Unconfirmed Letter Of Credit - Prior To Acceptance Of Documents