financial market and export financing

7/29/2019 financial market and export financing

1/31

FINANCIAL MARKETS AND

EXPORT FINANCINGSUBJECT: INTERNATIONAL BUSSINESS

PROFFESSOR: SEHER RAJANI


2/31

GROUP MEMBERS

ANKIT PREMANI 26

BHAKTI THAKKER 43

JAINY SHAH 33

NIYATI SHAH 34

PALLAKH SAWHNEY 32

ZISHAN SIDDIQUI 37


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


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)


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.


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)


7/31

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/Economics


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_exchange


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_buyback


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)


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.


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


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.


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.asp


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.asp


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.asp


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.asp


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.asp


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.asp


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.


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.


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.


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.


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/


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


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.


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.


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).


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.


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_market


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.