Chapter 18: International Financial Management

1. Financial Issues in International Trade

- Which currency to use for the transaction

- When and how to check credit

- Which form of payment to use

- How to arrange financing

2. Method of Payment

- Payment in advance

- Open account

- Documentary collection

- Letters of credit

- Credit cards

- Countertrade

3. Forms of Drafts

Sight draft: requires payment upon transfer of title to the goods from the exporter to the importer

Time draft: extends credit to the importer by requiring payment at some specified time

1. Date draft: specifies particular date

4. Documentation for Letters of Credit

- Export licenses

- Certificates of product origin

- Inspection certificates

5. Types of Letters of Credit

- Advised letter of credit

- Confirmed letter of credit

- Irrevocable letter of credit

- Revocable letter of credit

6. Foreign-Exchange Exposure

- Transaction exposure

- Translation exposure

- Economic exposure

7. Management of Working Capital

Corporate Financial Goals

1. Minimizing working-capital balances
2. Minimizing currency conversion costs
3. Minimizing foreign-exchange risk

8. Evaluating Investment Projects

- Net Present Value

- Internal Rate of Return

- Payback period