Foreign exchange market

Method Goods Available to Buyer Usual Time of Payment Risk to Exporter Risk to Importer Cash in Advance After Payment Before shipment Very low Maximum Relies on exporter to ship goods as ordered Open Account Before Payment As agreed Relies on importer to pay account as agreed takes complete risk Very low Consignment Before payment,exporter retains title until goods are sold or used After use ; inventory and warehousing cost to exporter Substantial risk unless through foreign branch of subsidiary Very low Documentary Collection/ sight Draft/.

Documents against Payment After payment On presentation or draft to importer If draft unpaid,goods must be returned or disposed of, usually at loss Assured of quantity, also quality, if goods are inspected before shipment Documentary Collection/ Time Draft/ Documents against Acceptance Before payment On maturity of draft Relies as importer to pay draft Minimal can check shipment for quantity and quality before payment Letter of credit Confirmed Unconfirmed After payment When documents are available at shipment Very low Assured of quantity and also quality at shipment if inspection report is required ?

THE RANGE OF AVAILABLE FINANCING OPTIONS. ?THE USUAL CONTRACT TERMS ADOPTED IN THE EXPORTERS / MANUFACTURER’S COUNTRY ?HOW QUICKLY PAYMENT IS REQUIRED (TIMESCALE) ?THE POLITICAL SITUATION IN THE IMPORTER’S / BUYER’S COUNTRY ?THE AVAILABILITY AND COST OF FOREIGN CURRENCY TO THE IMPORTER / BUYER Question 2: Banking section plays important role in international business. Today almost all major banks have offices in major cities around the world.

Many banks have formed collaboration with banks in other countries to beter serve their internatioanal business community. Banks from a bond of trust between buying an selling transactions in international market. For individual baks offer services like foreign exchange , traveler’s check , electronics transfer. For business bank plays a role of trustly agenty by offering services like “Documentary Collection” and “Letter of Credit”. One of the problem international businesses encountering doing business internationally is lack of trust.

With the help financial devices commercial banksa re able for a bond of trust between international buyers and sellers. In commercial methods like “Commercial Collection” and “ Letter of Credit” banks act as agents to handle payments as well as relevant documents. Letter of Credit is most wide acceptable and used method of doing international transaction. Some banks and goverment agencies offer export credit insurance to businesses. In some cases , exporter has to forgo a letterof credit , in such cases banks offer export credit insurance. Foreign exchange market is another area where international commercial banks play vital role.

Foreign exchange market serves two main functions , convert the currency of one country into the currency of another and provide some insurance against foreign exchange risk. Multinational corporations constantly need various currencies for their operations and to hedge against foreign exchange risk. Internatioanal banks provide foreign exchange services to their commercial business clients to complete their business transactions.

These banks act as a broker between commercial customer and foreign exchanges around the world. International businesses receive payments in foreign currencies for their export , the income it receives from foreign investments and income received from licensing agreements with foreign firms. Internations business use foreign exchange market to pay foreign firms for its products and services and when it makes direct invesment in foreign country. International banks play major roles in these transactions. Many commercial banks offers short as well as long term loan financing to international businesses.

Many countries have from banks backed by goverment fundings to provide fundings for exporters and importers. In United states , Export – Import bank , an independent agency of the US goverment , provides financial aid to faciliate export an import of goods. Eximbank also guarantees repayment of loans US commercial banks maket o foreign borrowers for purchasing US exports. Banking sector plays vital role of catalsts in international market. Due to technology advances in banking sector , communciation gap and delays in international business have really narrow down a lot.