International Money Issues

Inside of these folders, we will compile information about the world wide market for money flows, both in FDI (permanent money), and in portfolios (fast money).

• ADR - American Depository Receipt
• Currency
• Carry Trade
• Eurobonds
• Eurocurrency, Eurodollars
• Foreign bonds
• FDI - Foreign Direct Investment
• foreign currency trading - FX market
• global macro hedge funds
• interest rates

• International Finance Decision

• International Finance markets
• LIBOR - London Interbank Offered Rate
• macro economics - national & international level (fiscal & monetary policy)
• Microfinance
• offshore banking
• Private Banking

Currency - related risks

There are three types of risks associated with currencies

1. Accounting risk - the risk that foreign operations will look less profitable on paper due to currency movements
2. Operational risk - risk that currency depreciation in some part of world will cause disruption to your business
3. Competitive risk - risk that a foreign company will suddenly be more competitive because their currency devalued.

For a discussion about how to deal with these risks, you should study currency hedging

Risk Management

 When dealing with foreign exchange risk, you have a few choices as a business manager

1. Operationally hedge - balance your assets and liabilities so that currency is generated in revenues in the same country where liabilities are owed.   Another way to operationally hedge is to have operations in multiple countries, so that if one currency goes down, another will go up, etc.
2. Avoid - you can try to avoid currency risk by passing along the risk premium to your customers.  You can charge a risk premium, say for example 7% extra to all clients, and keep a fund ready for incase the currencies change, and then, that way...you will have money ready.  Its not a very good method, but some companies do it.
3. Protect yourself - hedge - transfer the risk to someone else that is more willing / able to take on that risk... if there is someone that is willing to take on risk for a fee, then sell them that risk, and take the money now.  This is the essence of currency hedging . 

• The four main choices for currency hedging are
  • (a) forward contracts  (see forward exchange rate)
  • (b) futures contracts  (see Futures market)
  • (c) options (see Options)
  • (d) use the money market to hedge
  • (d) sell your A/R to someone else  ....companies that buy your receivables at a discount.
    1. Bankers Acceptance -
       • is an agreement between an importer and exporter,
       • with payment in 30 days
       • cover goods in transit
       • irrevocable letter of credit (L/C) = confirmation + insurance + Bill of Lading (BL)
       • Then, if you have the irrevocable L/C...then you can get the "Bankers Acceptance
       • you sell the package of contracts
       • go to bank
       • sell those receivables at a discount...to get money today.
    2. factoring
       • might buy next 15 shipments
       • multiple shipments
       • but, because there is no guarantee, then the banks charge a higher commission
       • get money today
    3. forefeiting
       • committment by a country (government)
       • host country guarantee
       • popular in older times, and in Middle east.