Date post: | 04-Apr-2018 |
Category: |
Documents |
Upload: | zishan-siddiqui |
View: | 219 times |
Download: | 0 times |
of 31
7/29/2019 financial market and export financing
1/31
FINANCIAL MARKETS AND
EXPORT FINANCINGSUBJECT: INTERNATIONAL BUSSINESS
PROFFESSOR: SEHER RAJANI
7/29/2019 financial market and export financing
2/31
GROUP MEMBERS
ANKIT PREMANI 26
BHAKTI THAKKER 43
JAINY SHAH 33
NIYATI SHAH 34
PALLAKH SAWHNEY 32
ZISHAN SIDDIQUI 37
7/29/2019 financial market and export financing
3/31
INDEX
5. TYPES OF FM 14-19
6. EXPORT FINANCE 20-22
7. GENERAL CONSIDERATION 23-24
8. TYPES OF TRADE FINANCE 25-26
9. Export financing enables
businesses to all over the world
27
10. EXPORT FINANCE EXAMPLE 28-29
11. BIBLOGRAPHY 30
12. ACKNOWLEDGMENT 31
SR
NO
TITLE PAGE NO
1. INTRODUCTION 4-5
2. FINANCIAL MARKET 6-10
3. ROLE OF FM 11
4. FUNCTIONS OF FM 12-13
7/29/2019 financial market and export financing
4/31
INTRODUCTION
A financial market is a market in which people and entities
can trade financial securities, commodities, and other fungible items of val
at low transaction costs and at prices that reflect supply and demand.
Securities include stocks and bonds, and commodities include precious
metals or agricultural goods.
There are both general markets (where many commodities are traded) and
specialized markets (where only one commodity is traded). Markets work b
placing many interested buyers and sellers, including households, firms, an
government agencies, in one "place", thus making it easier for them to find
each other. An economy which relies primarily on interactions between
buyers and sellers to allocate resources is known as a market economy in
contrast either to a command economy or to a non-market economy such
a gift economy.
Export Financing
A range offinancing products (loans. guarantees, letters of credit, insuranc
etc.) in support of a variety of activities which help Canadian firms expand
into new export markets.
Trade Finance is a specific topic within the financial services industry. It's
much different, for example, than commercial lending, mortgage lending o
insurance. A product is sold and shipped overseas, therefore, it takes longe
to get paid. Extra time and energy is required to make sure that buyers are
reliable and creditworthy. Also, foreign buyers - just like domestic buyers -
prefer to delay payment until they receive and resell the goods. Duediligence and careful financial management can mean the difference
between profit and loss on each transaction.
http://en.wikipedia.org/wiki/Trade_(financial_instrument)http://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Fungiblehttp://en.wikipedia.org/wiki/Transaction_costhttp://en.wikipedia.org/wiki/Supply_and_demandhttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Command_economyhttp://en.wikipedia.org/wiki/Market_economicshttp://en.wikipedia.org/wiki/Gift_economyhttp://en.wikipedia.org/wiki/Gift_economyhttp://en.wikipedia.org/wiki/Market_economicshttp://en.wikipedia.org/wiki/Command_economyhttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Supply_and_demandhttp://en.wikipedia.org/wiki/Transaction_costhttp://en.wikipedia.org/wiki/Fungiblehttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Trade_(financial_instrument)7/29/2019 financial market and export financing
5/31
This project is intended as an introduction to the different types of trade
finance and the different funding sources available. Understanding these
alternatives will help borrowers avoid common mistakes like securing the
wrong type of financing, miscalculating the amount required or
underestimating the cost of borrowing the money.
7/29/2019 financial market and export financing
6/31
FINANCIAL MARKETS
A financial market is a market in which people and entities can trade
financial securities, commodities, and other fungible items of value at low
transaction costs and at prices that reflect supply and demand. Securities
include stocks and bonds, and commodities include precious metals oragricultural goods.
There are both general markets (where many commodities are traded) and
specialized markets (where only one commodity is traded). Markets work b
placing many interested buyers and sellers, including households, firms, an
government agencies, in one "place", thus making it easier for them to find
each other. An economy which relies primarily on interactions between
buyers and sellers to allocate resources is known as a market economy in
contrast either to a command economy or to a non-market economy such
a gift economy.
In finance, financial markets facilitate:
The raising ofcapital (in the capital markets)The transfer ofrisk (in the derivatives markets)Price discoveryGlobal transactions with integration of financial marketsThe transfer ofliquidity (in the money markets)International trade (in the currency markets) and are used to match those who want capital to those who have it.
Typically a borrower issues a receipt to the lender promising to pay back th
capital. These receipts are securities which may be freely bought or sold. Inreturn for lending money to the borrower, the lender will expect some
compensation in the form ofinterest or dividends. This return on investme
is a necessary part of markets to ensure that funds are supplied to them.
http://en.wikipedia.org/wiki/Trade_(financial_instrument)http://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Fungiblehttp://en.wikipedia.org/wiki/Transaction_costhttp://en.wikipedia.org/wiki/Supply_and_demandhttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Command_economyhttp://en.wikipedia.org/wiki/Market_economicshttp://en.wikipedia.org/wiki/Gift_economyhttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Risk#Risk_in_financehttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Currency_markethttp://en.wikipedia.org/wiki/Receipthttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Receipthttp://en.wikipedia.org/wiki/Currency_markethttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Risk#Risk_in_financehttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Gift_economyhttp://en.wikipedia.org/wiki/Market_economicshttp://en.wikipedia.org/wiki/Command_economyhttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Supply_and_demandhttp://en.wikipedia.org/wiki/Transaction_costhttp://en.wikipedia.org/wiki/Fungiblehttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Trade_(financial_instrument)7/29/2019 financial market and export financing
7/31
In economics, typically, the term marketmeans the aggregate of possible
buyers and sellers of a certain good or service and the transactions betwee
them.
The term "market" is sometimes used for what are more strictly exchangesorganizations that facilitate the trade in financial securities, e.g., a stock
exchange or commodity exchange. This may be a physical location (like the
NYSE, BSE, NSE) or an electronic system (like NASDAQ). Much trading of
stocks takes place on an exchange; still, corporate actions (merger, spinoff)
are outside an exchange, while any two companies or people, for whatever
reason, may agree to sell stock from the one to the other without using an
exchange.
Trading ofcurrencies and bonds is largely on a bilateral basis, although som
bonds trade on a stock exchange, and people are building electronic system
for these as well, similar to stock exchanges.
Financial markets can be domestic or they can be international.
Raising capital :
Financial markets attract funds from investors and channel them to
corporationsthey thus allow corporations to finance their operations and
achieve growth. Money markets allow firms to borrow funds on a short ter
basis, while capital markets allow corporations to gain long-term funding to
support expansion.
Without financial markets, borrowers would have difficulty finding lenders
themselves. Intermediaries such as banks, Investment Banks, and Boutique
Investment Banks and help in this process. Banks take deposits from those
who have money to save. They can then lend money from this pool of
deposited money to those who seek to borrow. Banks popularly lend mone
in the form ofloans and mortgages.
http://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Commodity_exchangehttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/NASDAQhttp://en.wikipedia.org/wiki/Corporate_actionhttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Boutique_investment_bankhttp://en.wikipedia.org/wiki/Boutique_investment_bankhttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Boutique_investment_bankhttp://en.wikipedia.org/wiki/Boutique_investment_bankhttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Corporate_actionhttp://en.wikipedia.org/wiki/NASDAQhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/Commodity_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Economics7/29/2019 financial market and export financing
8/31
More complex transactions than a simple bank deposit require markets
where lenders and their agents can meet borrowers and their agents, and
where existing borrowing or lending commitments can be sold on to other
parties. A good example of a financial market is a stock exchange. A compa
can raise money by selling shares to investors and its existing shares can bebought or sold.
The following illustration where financial markets fit in the relationship
between lenders and borrowers:
Lenders
Who have enough money to lend or to give someone money from ownpocket at the condition of getting back the principal amount or with some
interest or charge, is the Lender.
Individuals & Doubles
Many individuals are not aware that they are lenders, but almost everybod
does lend money in many ways. A person lends money when he or she:puts money in a savings account at a bank;contributes to a pension plan;pays premiums to an insurance company;invests in government bonds; orInvests in company shares.Companies
Companiestend to be borrowers of capital. When companies have surplus
cash that is not needed for a short period of time, they may seek to make
money from their cash surplus by lending it via short term markets called
money markets.
http://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Investorshttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Investorshttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Stock_exchange7/29/2019 financial market and export financing
9/31
There are a few companies that have very strong cash flows. These
companies tend to be lenders rather than borrowers. Such companies may
decide to return cash to surplus (e.g. via a share buyback.) Alternatively, th
may seek to make more money on their cash by lending it (e.g. investing in
bonds and stocks).
BorrowersIndividuals borrow money via bankers' loans for short term needs or long
term mortgages to help finance a house purchase.
Companies borrow money to aid short term or long term cash flows. Theyalso borrow to fund modernization or future business expansion.
Governmentsoften find their spending requirements exceed their taxrevenues. To make up this difference, they need to borrow.
Governments also borrow on behalf of nationalized industries,municipalities, local authorities and other public sector bodies. In the
UK, the total borrowing requirement is often referred to as the Public
sector net cash requirement (PSNCR).
Governments borrow by issuing bonds. In the UK, the government also
borrows from individuals by offering bank accounts and Premium Bonds.
Government debt seems to be permanent. Indeed the debt seemingly
expands rather than being paid off. One strategy used by governments to
reduce thevalueof the debt is to influenceinflation.
Municipalities andlocal authoritiesmay borrow in their own name as well a
receiving funding from national governments. In the UK, this would cover a
authority like Hampshire County Council.
Public Corporationstypically include nationalized industries. These mayinclude the postal services, railway companies and utility companies.
Many borrowers have difficulty raising money locally. They need to borrow
internationally with the aid ofForeign exchange markets.
http://en.wikipedia.org/wiki/Share_buybackhttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Tax_revenuehttp://en.wikipedia.org/wiki/Tax_revenuehttp://en.wikipedia.org/wiki/Public_sector_net_cash_requirementhttp://en.wikipedia.org/wiki/Public_sector_net_cash_requirementhttp://en.wikipedia.org/wiki/Government_bondhttp://en.wikipedia.org/wiki/Premium_Bondhttp://en.wikipedia.org/wiki/Value_(economics)http://en.wikipedia.org/wiki/Value_(economics)http://en.wikipedia.org/wiki/Value_(economics)http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Municipalityhttp://en.wikipedia.org/wiki/Local_governmenthttp://en.wikipedia.org/wiki/Local_governmenthttp://en.wikipedia.org/wiki/Government-owned_corporationhttp://en.wikipedia.org/wiki/Government-owned_corporationhttp://en.wikipedia.org/wiki/Nationalizationhttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Nationalizationhttp://en.wikipedia.org/wiki/Government-owned_corporationhttp://en.wikipedia.org/wiki/Local_governmenthttp://en.wikipedia.org/wiki/Municipalityhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Value_(economics)http://en.wikipedia.org/wiki/Premium_Bondhttp://en.wikipedia.org/wiki/Government_bondhttp://en.wikipedia.org/wiki/Public_sector_net_cash_requirementhttp://en.wikipedia.org/wiki/Public_sector_net_cash_requirementhttp://en.wikipedia.org/wiki/Tax_revenuehttp://en.wikipedia.org/wiki/Tax_revenuehttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Share_buyback7/29/2019 financial market and export financing
10/31
Borrowers having similar needs can form into a group of borrowers. They c
also take an organizational form like Mutual Funds. They can provide
mortgage on weight basis. The main advantage is that this lowers the cost o
their borrowings.
Derivative products
During the 1980s and 1990s, a major growth sector in financial markets is t
trade in so called derivative products, orderivativesfor short.
In the financial markets, stock prices, bond prices, currency rates, interest
rates and dividends go up and down, creatingrisk. Derivative products are
financial products which are used to controlrisk or paradoxically exploitrisIt is also called financial economics.
Derivative products or instruments help the issuers to gain an unusual prof
from issuing the instruments. For using the help of these products a contra
has to be made. Derivative contracts are mainly 3 types: 1. Future Contract
2. Forward Contracts 3. Option Contracts.
http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Risk#Risk_in_financehttp://en.wikipedia.org/wiki/Risk#Risk_in_financehttp://en.wikipedia.org/wiki/Risk#Risk_in_financehttp://en.wikipedia.org/wiki/Risk#Risk_in_financehttp://en.wikipedia.org/wiki/Derivative_(finance)7/29/2019 financial market and export financing
11/31
Role (Financial system and the economy)
One of the important requisite for the accelerated development of an
economy is the existence of a dynamic financial market. A financial market
helps the economy in the following manner.Saving mobilization:
Obtaining funds from the savers or surplus units such as household
individuals, business firms, public sector units, central government,
state governments etc. is an important role played by financial market
Investment:Financial markets play a crucial role in arranging to invest funds thus
collected in those units which are in need of the same.
National Growth:An important role played by financial market is that, they contributed
to a nations growth by ensuring unfettered flow of surplus funds to
deficit units. Flow of funds for productive purposes is also madepossible.
Entrepreneurship growth:Financial market contribute to the development of the entrepreneuri
claw by making available the necessary financial resources.
Industrial development:The different components of financial markets help an accelerated
growth of industrial and economic development of a country, thus
contributing to raising the standard of living and the society of well-
being.
7/29/2019 financial market and export financing
12/31
Functions of Financial Markets
Intermediary Functions: The intermediary functions of a financial marketinclude the following:
1. Transfer of Resources: Financial markets facilitate the transfer ofreal economic resources from lenders to ultimate borrowers.
2. Enhancing income: Financial markets allow lenders to earn interes
or dividend on their surplus invisible funds, thus contributing to t
enhancement of the individual and the national income.
3. Productive usage: Financial markets allow for the productive use o
the funds borrowed. The enhancing the income and the gross
national production.4. Capital Formation: Financial markets provide a channel through
which new savings flow to aid capital formation of a country.
5. Price determination: Financial markets allow for the determinatio
of price of the traded financial assets through the interaction of
buyers and sellers. They provide a sign for the allocation of funds
the economy based on the demand and supply through the
mechanism called price discovery process.6. Sale Mechanism: Financial markets provide a mechanism for sellin
of a financial asset by an investor so as to offer the benefit of
marketability and liquidity of such assets.
7. Information: The activities of the participants in the financial mark
result in the generation and the consequent dissemination of
information to the various segments of the market. So as to redu
the cost of transaction of financial assets
7/29/2019 financial market and export financing
13/31
Financial Functions
1.Providing the borrower with funds so as to enable them tocarry out their investment plans.
2.Providing the lenders with earning assets so as to enable theto earn wealth by deploying the assets in production
debentures.
3.Providing liquidity in the market so as to facilitate trading offunds.
7/29/2019 financial market and export financing
14/31
TYPES OF FINANCIAL MARKETS
Capital Markets
A capital market is one in which individuals and institutions trade financial
securities. Organizations and institutions in the public and private sectors
also often sell securities on the capital markets in order to raise funds. Thus
this type of market is composed of both the primary and secondary market
Any government or corporation requires capital (funds) to finance its
operations and to engage in its own long-term investments. To do this, a
company raises money through the sale of securities - stocks and bonds inthe company's name. These are bought and sold in the capital markets.
Stock Markets
Stock markets allow investors to buy and sell shares in publicly traded
companies. They are one of the most vital areas of a market economy as th
provide companies with access to capital and investors with a slice of
ownership in the company and the potential of gains based on the
company's future performance.
This market can be split into two main sections: the primary market and th
secondary market. The primary market is where new issues are first offered
with any subsequent trading going on in the secondary market.
Bond Markets
Abondis a debt investment in which an investor loans money to an entity
(corporate or governmental), which borrows the funds for a defined period
of time at a fixed interest rate. Bonds are used by companies, municipalitie
http://www.investopedia.com/terms/b/bond.asphttp://www.investopedia.com/terms/b/bond.asphttp://www.investopedia.com/terms/b/bond.asphttp://www.investopedia.com/terms/b/bond.asp7/29/2019 financial market and export financing
15/31
states and U.S. and foreign governments to finance a variety of projects an
activities. Bonds can be bought and sold by investors on credit markets
around the world. This market is alternatively referred to as the debt, credi
or fixed-income market. It is much larger in nominal terms that the world's
stock markets. The main categories of bonds are corporate bonds, municip
bonds, and U.S. Treasury bonds, notes and bills, which are collectivelyreferred to as simply "Treasuries."
Money Market
The money market is a segment of the financial market in which financial
instruments with high liquidity and very short maturities are traded. The
money market is used by participants as a means for borrowing and lendingin the short term, from several days to just under a year. Money market
securities consist of negotiablecertificates of deposit(CDs), banker's
acceptances, U.S. Treasury bills, commercial paper, municipal notes,
eurodollars, federal funds and repurchase agreements (repos). Money
market investments are also called cash investments because of their short
maturities.
The money market is used by a wide array of participants, from a company
raising money by selling commercial paper into the market to an investor
purchasing CDs as a safe place to park money in the short term. The money
market is typically seen as a safe place to put money due the highly liquid
nature of the securities and short maturities. Because they are extremely
conservative, money market securities offer significantly lower returns than
most other securities. However, there are risks in the money market that a
investor needs to be aware of, including the risk of default on securities suc
as commercial paper.
http://www.investopedia.com/terms/c/certificateofdeposit.asphttp://www.investopedia.com/terms/c/certificateofdeposit.asphttp://www.investopedia.com/terms/c/certificateofdeposit.asphttp://www.investopedia.com/terms/c/certificateofdeposit.asp7/29/2019 financial market and export financing
16/31
Cash or Spot Market
Investing in the cash or "spot" market is highly sophisticated, with
opportunities for both big losses and big gains. In the cash market, goods a
sold for cash and are delivered immediately. By the same token, contracts
bought and sold on the spot market are immediately effective. Prices are
settled in cash "on the spot" at current market prices. This is notably
different from other markets, in which trades are determined at forward
prices.
The cash market is complex and delicate, and generally not suitable for
inexperienced traders. The cash markets tend to be dominated by so-called
institutional market players such as hedge funds, limited partnerships andcorporate investors. The very nature of the products traded requires access
to far-reaching, detailed information and a high level of macroeconomic
analysis and trading skills.
Derivatives Markets
Thederivativeis named so for a reason: its value is derived from its
underlying asset or assets. A derivative is a contract, but in this case the
contract price is determined by the market price of the core asset. If that
sounds complicated, it's because it is. The derivatives market adds yet
another layer of complexity and is therefore not ideal for inexperienced
traders looking tospeculate. However, it can be used quite effectively as pa
of a risk management program.
Examples of common derivatives areforwards,futures,options,swapsand
contracts-for-difference(CFDs). Not only are these instruments complex bu
so too are the strategies deployed by this market's participants. There are
also many derivatives,structured productsand collateralized obligations
http://www.investopedia.com/terms/s/spotmarket.asphttp://www.investopedia.com/terms/d/derivative.asphttp://www.investopedia.com/terms/d/derivative.asphttp://www.investopedia.com/terms/d/derivative.asphttp://www.investopedia.com/terms/s/speculation.asphttp://www.investopedia.com/terms/s/speculation.asphttp://www.investopedia.com/terms/s/speculation.asphttp://www.investopedia.com/terms/f/forwardcontract.asphttp://www.investopedia.com/terms/f/forwardcontract.asphttp://www.investopedia.com/terms/f/futurescontract.asphttp://www.investopedia.com/terms/f/futurescontract.asphttp://www.investopedia.com/terms/f/futurescontract.asphttp://www.investopedia.com/terms/o/option.asphttp://www.investopedia.com/terms/o/option.asphttp://www.investopedia.com/terms/o/option.asphttp://www.investopedia.com/terms/s/swap.asphttp://www.investopedia.com/terms/s/swap.asphttp://www.investopedia.com/terms/s/swap.asphttp://www.investopedia.com/terms/c/contractfordifferences.asphttp://www.investopedia.com/terms/c/contractfordifferences.asphttp://www.investopedia.com/terms/s/structuredfinance.asphttp://www.investopedia.com/terms/s/structuredfinance.asphttp://www.investopedia.com/terms/s/structuredfinance.asphttp://www.investopedia.com/terms/s/structuredfinance.asphttp://www.investopedia.com/terms/c/contractfordifferences.asphttp://www.investopedia.com/terms/s/swap.asphttp://www.investopedia.com/terms/o/option.asphttp://www.investopedia.com/terms/f/futurescontract.asphttp://www.investopedia.com/terms/f/forwardcontract.asphttp://www.investopedia.com/terms/s/speculation.asphttp://www.investopedia.com/terms/d/derivative.asphttp://www.investopedia.com/terms/s/spotmarket.asp7/29/2019 financial market and export financing
17/31
available, mainly in theover-the-counter(non-exchange) market, that
professional investors, institutions and hedge fund managers use to varying
degrees but that play an insignificant role in private investing.
Forex and the Interbank Market
The interbank market is the financial system and trading of currencies amobanks and financial institutions, excluding retail investors and smaller tradi
parties. While some interbank trading is performed by banks on behalf of
large customers, most interbank trading takes place from the banks' own
accounts.
The forex market is where currencies are traded. The forex market is the
largest, most liquid market in the world with an average traded value that
exceeds $1.9 trillion per day and includes all of the currencies in the world.
The forex is the largest market in the world in terms of the total cash value
traded, and any person, firm or country may participate in this market.
There is no central marketplace for currency exchange; trade is conducted
over the counter. The forex market is open 24 hours a day, five days a wee
and currencies are traded worldwide among the major financial centers of
London, New York, Tokyo, Zrich, Frankfurt, Hong Kong, Singapore, Paris an
Sydney.
Until recently, forex trading in the currency market had largely been the
domain of large financial institutions, corporations,central banks, hedge
funds and extremely wealthy individuals. The emergence of the internet hachanged all of this, and now it is possible for average investors to buy and s
currencieseasily with the click of a mouse through online brokerage
accounts
http://www.investopedia.com/terms/o/otc.asphttp://www.investopedia.com/terms/o/otc.asphttp://www.investopedia.com/terms/o/otc.asphttp://www.investopedia.com/terms/c/centralbank.asphttp://www.investopedia.com/terms/c/centralbank.asphttp://www.investopedia.com/terms/c/currency.asphttp://www.investopedia.com/terms/c/currency.asphttp://www.investopedia.com/terms/c/currency.asphttp://www.investopedia.com/terms/c/centralbank.asphttp://www.investopedia.com/terms/o/otc.asp7/29/2019 financial market and export financing
18/31
Primary Markets vs. Secondary Markets
A primary market issues new securities on an exchange. Companies,
governments and other groups obtain financing through debt or equity
based securities. Primary markets, also known as "new issue markets," are
facilitated by underwriting groups, which consist of investment banks that
will set a beginning price range for a given security and then oversee its sal
directly to investors.
The primary markets are where investors have their first chance to
participate in a new security issuance. The issuing company or group receiv
cash proceeds from the sale, which is then used to fund operations or
expand the business.
The secondary market is where investors purchase securities or assets from
other investors, rather than from issuing companies themselves. The
Securities and Exchange Commission (SEC) registers securities prior to their
primary issuance, then they start trading in thesecondary marketon the
New York Stock Exchange, Nasdaq or other venue where the securities hav
been accepted for listing and trading.
The secondary market is where the bulk of exchange trading occurs each da
Primary markets can see increased volatility over secondary markets becau
it is difficult to accurately gauge investor demand for a new security until
several days of trading have occurred. In the primary market, prices are oftset beforehand, whereas in the secondary market only basic forces like
supply and demand determine the price of the security.
Secondary markets exist for other securities as well, such as when funds,
http://www.investopedia.com/terms/s/secondarymarket.asphttp://www.investopedia.com/terms/s/secondarymarket.asphttp://www.investopedia.com/terms/s/secondarymarket.asphttp://www.investopedia.com/terms/s/secondarymarket.asp7/29/2019 financial market and export financing
19/31
investment banks or entities such as Fannie Mae purchase mortgages from
issuing lenders. In any secondary market trade, the cash proceeds go to an
investor rather than to the underlying company/entity directly
The OTC Market
Theover-the-counter(OTC) market is a type of secondary market alsoreferred to as a dealer market. The term "over-the-counter" refers to stock
that are not trading on a stock exchange such as the Nasdaq, NYSE or
American Stock Exchange(AMEX). This generally means that the stock trad
either on theover-the-counter bulletin board(OTCBB) or thepink sheets.
Neither of these networks is an exchange; in fact, they describe themselves
as providers of pricing information for securities. OTCBB and pink sheetcompanies have far fewer regulations to comply with than those that trade
shares on a stock exchange. Most securities that trade this way arepenny
stocksor are from verysmall companies.
Third and Fourth Markets
You might also hear the terms "third" and "fourth markets." These don't
concern individual investors because they involve significant volumes of
shares to be transacted per trade. These markets deal with transactions
betweenbroker-dealersand large institutions through over-the-counter
electronic networks. Thethird marketcomprises OTC transactions between
broker-dealers and large institutions. Thefourth marketis made up of
transactions that take place between large institutions. The main reason
these third and fourth market transactions occur is to avoid placing these
orders through the main exchange, which could greatly affect the price of t
security. Because access to the third and fourth markets is limited, their
activities have little effect on the average investor.
http://www.investopedia.com/terms/o/over-the-countermarket.asphttp://www.investopedia.com/terms/o/over-the-countermarket.asphttp://www.investopedia.com/terms/o/over-the-countermarket.asphttp://www.investopedia.com/articles/02/101102.asphttp://www.investopedia.com/articles/02/101102.asphttp://www.investopedia.com/terms/o/otcbb.asphttp://www.investopedia.com/terms/o/otcbb.asphttp://www.investopedia.com/terms/o/otcbb.asphttp://www.investopedia.com/terms/p/pinksheets.asphttp://www.investopedia.com/terms/p/pinksheets.asphttp://www.investopedia.com/terms/p/pinksheets.asphttp://www.investopedia.com/terms/p/pennystock.asphttp://www.investopedia.com/terms/p/pennystock.asphttp://www.investopedia.com/terms/p/pennystock.asphttp://www.investopedia.com/terms/p/pennystock.asphttp://www.investopedia.com/articles/02/101102.asphttp://www.investopedia.com/articles/02/101102.asphttp://www.investopedia.com/articles/02/101102.asphttp://www.investopedia.com/terms/b/broker-dealer.asphttp://www.investopedia.com/terms/b/broker-dealer.asphttp://www.investopedia.com/terms/b/broker-dealer.asphttp://www.investopedia.com/terms/t/thirdmarket.asphttp://www.investopedia.com/terms/t/thirdmarket.asphttp://www.investopedia.com/terms/t/thirdmarket.asphttp://www.investopedia.com/terms/f/fourthmarket.asphttp://www.investopedia.com/terms/f/fourthmarket.asphttp://www.investopedia.com/terms/f/fourthmarket.asphttp://www.investopedia.com/terms/f/fourthmarket.asphttp://www.investopedia.com/terms/t/thirdmarket.asphttp://www.investopedia.com/terms/b/broker-dealer.asphttp://www.investopedia.com/articles/02/101102.asphttp://www.investopedia.com/terms/p/pennystock.asphttp://www.investopedia.com/terms/p/pennystock.asphttp://www.investopedia.com/terms/p/pinksheets.asphttp://www.investopedia.com/terms/o/otcbb.asphttp://www.investopedia.com/articles/02/101102.asphttp://www.investopedia.com/terms/o/over-the-countermarket.asp7/29/2019 financial market and export financing
20/31
Export Financing
A range offinancing products (loans. guarantees, letters of credit, insuranc
etc.) in support of a variety of activities which help Canadian firms expandinto new export markets.
Trade Finance is a specific topic within the financial services industry. It's
much different, for example, than commercial lending, mortgage lending o
insurance. A product is sold and shipped overseas, therefore, it takes longe
to get paid. Extra time and energy is required to make sure that buyers are
reliable and creditworthy. Also, foreign buyers - just like domestic buyers -
prefer to delay payment until they receive and resell the goods. Due
diligence and careful financial management can mean the difference
between profit and loss on each transaction.
Export or perish
Our imports are more than exports. Hence there is a necessity to encourag
exports. Govt. and RBI extend various concessions to boost exports.
Some of the concessions include:
1.Cheap credit to exporters.2.
Minimum of 12% of net credit should go to exports.
3.Refinance to Banks on eligible portion of export credit outstanding.4.ECGC guarantee for export credits5.No margin requirements for advance against export receivables.
7/29/2019 financial market and export financing
21/31
6.Flexible approach to export lending and norms of lending.7.Time norms for disposal of application for export credit.8.Rejection with the concurrence of next higher authority9.Bifurcation of WC limits into loan and cc component after excluding
export limits.
10. Issue of Gold Card to exporters with good track record.All sellers want to get paid as quickly as possible, while buyers usually prefe
to delay payment, at least until they have received and resold the goods. Th
is true in domestic as well as international markets.
Increasing globalization has created intense competition for export market
Importers and exporters are looking for any competitive advantage that
would help them to increase their sales. Flexible payment terms has becom
a fundamental part of any sales package.
Selling on open account, which may be best from a marketing and sales
standpoint, places all of the risk with the seller. The seller ships and turns
over title of the product on a promise to pay from the buyer.
Cash-in-advance terms place all of the risk with the buyer as they send
payment on a promise that the product will be shipped on time and it will
work as advertised.
Today, open account terms with extended dating are becoming more
common despite the dangers.Trade finance provides alternative solutions
that balance risk and payment.
7/29/2019 financial market and export financing
22/31
Export credit can be broadly classified into
Pre-shipment finance and
Post shipment finance.
Pre-shipment finance refers to finance extended to purchase, processing
packing of goods meant for exports.
Financial assistance extended after the shipment of exports falls within th
scope of post shipment finance.
7/29/2019 financial market and export financing
23/31
General Considerations
The following factors and considerations apply to financing in general.
Financing can make the sale
Favorable payment terms make a product more competitive. If the
competition offers better terms and has a similar product, a sale can be los
In other cases, the exporter may need financing to produce the goods or to
finance other aspects of a sale, such as promotion and selling costs,
engineering modifications and shipping costs. Various financing sources are
available to exporters, depending on the specifics of the transaction and th
exporter's overall financing needs.
Financing Costs
The costs of borrowing, including interest rates, insurance and fees will var
The total cost and its effect on the price of the product and profit from the
transaction should be well understood before a pro forma invoice is
submitted to the buyer.
Financing Terms
Costs increase with the length of terms. Different methods of financing are
available for short, medium, and long terms. Exporters need to be fully awa
of financing limitations so that they secure the right solution with the most
favorable terms for seller and buyer.
Risk Management
The greater the risks associated with the transaction, the greater the cost.The creditworthiness of the buyer directly affects the probability of paymen
to an exporter, but it is not the only factor of concern to a potential lender.
The political and economic stability of the buyer's country are taken into
consideration.
7/29/2019 financial market and export financing
24/31
Lenders are generally concerned with two questions:
Can the exporter perform? They want to know that the exporter canproduce and ship the product on time, and that the product will be
accepted by the buyer.
Can the buyer pay? They want to know that the buyer is reliable with good credit history. They will evaluate any commercial or political risk
If a lender is uncertain about the exporter's ability to perform, or if addition
credit capacity is needed, government guarantee programs are availalbe th
may enable the lender to provide additional financing.
Export Intermediaries
Many times, small business owners may not have the time or resources to
pursue international sales. If there is a demand for the company's product,use of export intermediaries may prove beneficial.
Export Trading Companies (ETCs) and Export Management Companies
(EMCs) can help with international sales and marketing efforts. In some
instances, EMCs can help finance export sales. Some of these companies m
provide short-term financing or may simply purchase the goods to be
exported directly from the manufacturer. This eliminates any risks associatwith the export transaction as well as the need for financing.
Larger enterprises involved in online commerce can expand the way they d
business and trading with dependableonline payment processing services.
http://www.braintreepaymentsolutions.com/http://www.braintreepaymentsolutions.com/http://www.braintreepaymentsolutions.com/7/29/2019 financial market and export financing
25/31
Types of Trade Finance
Trade Finance, Working Capital Loans and Foreign Buyer Financing
Trade finance generally refers to the financing of individual transactions or
series of revolving transactions. Also, trade finance loans are often self-
liquidatingthat is, the lending bank stipulates that all sales proceeds are t
be collected, and then applied to payoff the loan. The remainder is creditedto the exporter's account.
The self-liquidating feature of trade finance is critical to many small,
undercapitalized businesses. Lenders who may otherwise have reached the
lending limits for such businesses may nevertheless finance individual expo
sales, if the lenders are assured that the loan proceeds will be used solely f
pre-export production; and any export sale proceeds will first be collected
them before the balance is passed on to the exporter.
Given the extent of control lenders can exercise over such transactions and
the existence of guaranteed payment mechanisms unique to or established
for international trade, trade finance can be less risky for lenders than
general working capital loans.
Working Capital Loans
For exporters, working capital loan programs are normally associated with
pre-shipment financing. Many small businesses need pre-export financing t
cover the operating costs related to a sales order or contract. Loan proceed
are commonly used to finance three different areas:
Labor: The people needed to build or buy the export product.
Materials: The raw materials needed to produce the export product. Inventory: The costs associated with buying the export product.
Term Financing for Foreign Buyers
Frequently, foreign buyers don't have the cash on hand to pay for major
purchases. So the buyers ask for extended credit terms and/or financing. Fe
7/29/2019 financial market and export financing
26/31
exporters can manage the cash flow dilemma or commercial and political
risks caused by these long-term contracts.
Buyer Credit Programs are often an effective solution that benefits the
exporter, their buyer and commercial lenders providing the loans. Program
typically provide loan guarantees to commercial lenders. These kinds of
programs benefit all the parties involved. The exporter benefits because
theyre paid cash on delivery and acceptance of the product or service. The
foreign buyer benefits because they get extended credit terms at markets
rates or better. The lender benefits because guarantees, many backed by th
U.S. Government, mean full repayment of the loan and a reasonable return
on funds loaned.
7/29/2019 financial market and export financing
27/31
Export financing enables businesses to bring their product
all over the world.
Export financing enables businesses to bring their products all over the
world. There are a lot of benefits to a business selling overseas, but there c
also be a lot of financial risk involved as well. It is important to fully
understand the risks and the government regulations before selling oversea
If done right though it can be a very profitable venture, and can sometimes
bring a business more profit than selling in the United States.
Export financing is loans made for the shipping of products outside a count
or region. If you have a good product that has is appealing to another
country, and has great potential to sell off you could also consider a ventur
capitalist to help bring your business where it needs to be.
There are also some creative methods for export financing. One such meth
is utilizing a factoring house overseas. Basically a factoring house will
purchase the exported products at a discount below invoice value. This
discount is typically 2 to 7 percent below invoice. The factors will turn arou
and sell the products off to good companies that want the products at a
higher mark-up. This ensures that the exporter receives their money up
front, and it reduces the risk to a point.
7/29/2019 financial market and export financing
28/31
Export Finance EXAMPLE
Bank of barodas branches in Hong Kong provide all types of services to me
your requirements of export finance. If you are an exporter, we can help y
with advising of your export Letter of Credit, confirming the L/C and
negotiation. We also provide financing solutions to meet your requiremen
of export finance.
Advising or Confirming Export L/Cs
For your export business, we offer range of services on documentary cred
like advising or confirming your export Letter of Credits. We also open ba
to back L/Cs under Master L/C issued by buyer of our customers.
Trust Receipt LoansTR loans are provided to bridge the gap between payment for goo
imported under L/C or documentary collection bills and receipt of fun
through subsequent sales, thus giving our customers greater flexibility a
liquidity. The goods are released to customers under trust receipts.
Negotiation of Export L/Cs
We provide immediate payment to customers on presentation of documenunder L/C of branches of Bank of Baroda in India/abroad; and all maj
Indian Banks and Banks located in other countries at attractive prices.
Purchase of Export Documents
We purchase/discount export documents in both kinds of export documen
viz. Documents against Payment (D/P) and Documents against Acceptan
(D/A).
7/29/2019 financial market and export financing
29/31
Export Invoice Financing
To tide over any cash flow problems arising from the credit terms to t
buyers, the exporter can avail invoice financing pending payment by th
buyers.
Export Bills for Collection
We offer efficient handling of commercial and financial documents f
exports at competitive prices. We have network of correspondent banki
arrangements to facilitate the same.
Credit facilities against LOU/Standby L/C
Firms in Hong Kong which are a branch/ subsidiary/ associate of an Indian
Company can be granted credit facilities for meeting their export/importrequirements, under LOU/SBLC given by bankers of their parent company.
7/29/2019 financial market and export financing
30/31
BIBLOGRAPHY
1.http://en.wikipedia.org/wiki/Financial_market2.
http://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&ie=UTF-
8#hl=en&tbo=d&q=export+finance+meaning&revid=2785
1098&sa=
3.http://www.finance-lib.com/financial-term-export-financing.html
4.http://finance.indiamart.com/exports_imports/export_fiancing/index.html
http://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Financial_markethttp://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&ie=UTF-8#hl=en&tbo=d&q=export+finance+meaning&revid=278531098&sahttp://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&ie=UTF-8#hl=en&tbo=d&q=export+finance+meaning&revid=278531098&sahttp://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&ie=UTF-8#hl=en&tbo=d&q=export+finance+meaning&revid=278531098&sahttp://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&ie=UTF-8#hl=en&tbo=d&q=export+finance+meaning&revid=278531098&sahttp://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&ie=UTF-8#hl=en&tbo=d&q=export+finance+meaning&revid=278531098&sahttp://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&ie=UTF-8#hl=en&tbo=d&q=export+finance+meaning&revid=278531098&sahttp://www.finance-lib.com/financial-term-export-financing.htmlhttp://www.finance-lib.com/financial-term-export-financing.htmlhttp://www.finance-lib.com/financial-term-export-financing.htmlhttp://www.finance-lib.com/financial-term-export-financing.htmlhttp://www.finance-lib.com/financial-term-export-financing.htmlhttp://finance.indiamart.com/exports_imports/export_financing/index.htmlhttp://finance.indiamart.com/exports_imports/export_financing/index.htmlhttp://finance.indiamart.com/exports_imports/export_financing/index.htmlhttp://finance.indiamart.com/exports_imports/export_financing/index.htmlhttp://finance.indiamart.com/exports_imports/export_financing/index.htmlhttp://finance.indiamart.com/exports_imports/export_financing/index.htmlhttp://www.finance-lib.com/financial-term-export-financing.htmlhttp://www.finance-lib.com/financial-term-export-financing.htmlhttp://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&ie=UTF-8#hl=en&tbo=d&q=export+finance+meaning&revid=278531098&sahttp://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&ie=UTF-8#hl=en&tbo=d&q=export+finance+meaning&revid=278531098&sahttp://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&ie=UTF-8#hl=en&tbo=d&q=export+finance+meaning&revid=278531098&sahttp://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&ie=UTF-8#hl=en&tbo=d&q=export+finance+meaning&revid=278531098&sahttp://en.wikipedia.org/wiki/Financial_market7/29/2019 financial market and export financing
31/31
ACKNOWLEDGMENT
We, would like to thank our professor SEHER RAJANI
for giving us such an interesting topic which got us mo
close to the subject INTERNATIONAL BUSSINESS.