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Forms of Export Financing and Major Currencies

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1. What are the primary forms of export financing?
What steps are involved in each form of international financing?
What are the advantages and disadvantages of each form?

3. Select two major currencies of the past year. What are the similarities and differences between your selected currencies?
What have been the drivers of each currency's performance?
How do interest rate movements affect the overall value of currencies?

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Solution Summary

The solution examines the dollar and the Euro, including drivers, and lists ways to finance exportation with pros and cons for each. 744 words.

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1. What are the primary forms of export financing?
What steps are involved in each form of international financing?
What are the advantages and disadvantages of each form?
Invoice Factoring:
Steps:
1. Sell the goods to the importer
2. Invoice the importer.
3. The factoring company provides advance up to 85% of the invoice value.
4. When the transaction is settled, the remaining 15% is paid by the factoring company.
Pros:
1. Immediate payment (usually within two days of invoicing)
2. The exporter gets funds to operate its business.
Cons:
1. The charges for factoring are higher than the interest charges.
2. The factoring is available only for reputed importers.

Pre-Shipment Credit:
The export order along with the details is submitted for pre-shipment credit approval:
Between 90 days to 180 days credit is obtained before the export is made.
After the exports have been made the invoices are sent through the lending bank.
Pros:
The credit is obtained prior to shipment, so that the exporter can use it to finance his exports.
The credit is obtained at a concession so that low cost finance ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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