International Payments

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Slide 1: Tekstslide
ILMBOStudiejaar 4

In deze les zitten 36 slides, met interactieve quizzen, tekstslides en 4 videos.

Onderdelen in deze les

Slide 1 - Tekstslide

Agenda
- valuta risks
- payment methods

Slide 2 - Tekstslide

What are 'valuta risks'?

Slide 3 - Woordweb

Casus
You make a sale of  € 85.000. Your USA client receives an invoice for USD 97.750, -  (  1 € = $ 1,15). 
Payment term: 30 days after shipping (± 45 days from today) 

Q:  how many € will we receive for this sale? 

Slide 4 - Tekstslide

Is exchange rate early august (still)  € = $ 1,15, or $ 1,20 of $ 1,10??
$ 97.750 / 1,20 = € 81.458  ( € 3.542)
$ 97.750 / 1,15  = € 85.000 
$ 97.750 / 1,10   =  € 88.863 ( € 3.863)

Slide 5 - Tekstslide

Risk reducing / covering
1.  Currency forward contract 
2. Currency option contract
3. Currency clause contract

Slide 6 - Tekstslide

Slide 7 - Video

Valuta forward 
Fix exchange rate for a date over 1 month, 
5 months or e.g. 1 year. 
Today's rate  € = 1,15
Value forward rate  € = 1,165 (20/12) 
$ 97.750 / 1,165 = € 83.905
No matter exchange rate on 20/12.. higher, lower, same: 
you receive 'just' € 83.905 

Slide 8 - Tekstslide

Costs....
Today's rate € = $ 1,15 -> € 85.000 
Forward (fixed) rate -> € 83.905
Already an 'insurance fee' of € 1.085
+
0,25 promille / per month
(85.000/1.000 x 0,25 x 6 = € 127,50) 

Slide 9 - Tekstslide

Invoice $ 250.000
Cash exchange's rate (20/6) € = $ 1,15
Forward exchange rate 3 months € = $ 1,17
Cash exchange's rate 20/9 € = $ 1,13
How many € you will receive on 20/9?
A
€ 217.391,-
B
€ 213.675,-
C
€ 221.238,-
D

Slide 10 - Quizvraag

Valuta forward contract
-> Obligation 

if forward fixed rate is worse that current 
rate at expiration date: bad luck 

Slide 11 - Tekstslide

Risk reducing / covering
1.  Currency forward contract 
2. Currency option contract
3. Currency clause contract

Slide 12 - Tekstslide

Slide 13 - Video

Valuta option 
Buy the right to can buy/sell a certain amount of valuta
at a certain exchange rate, at a certain date in the future. 
For example: you buy the right to sell USD 250.000 for a rate of € 1,14 for 09/22.

If the cash rate in september '22 is 1,145 , 1,15 , 1,16 etc you receive more euros thanks to you option contract 


Slide 14 - Tekstslide

Valuta option 

If the cash rate in september '22 is 1,10 , 1,11  (under 1,14)  you do not execute your 'option' and sell you USD 250.000 for the more favorable current rate in september '22.  


Slide 15 - Tekstslide

Costs....
Today's rate € = $ 1,15 -> € 217.391 
Option rate -> $ 1,165  € 214.592
€ 0,75 / $ 100
(250.000 /100 x 0,75 = € 1.875) 

Slide 16 - Tekstslide

Valuta option contract
-> Right

if option rate is worse that current 
rate at expiration date you do not 'use' your right so you can benefit of current 'good' rate. You only lose your paid option fee.  

Slide 17 - Tekstslide

Risk reducing / covering
1.  Currency forward contract 
2. Currency option contract
3. Currency clause contract

Slide 18 - Tekstslide

Valuta clausule in contract
-> Agreement

Exchange rate at moment of invoice has a difference of more than e.g. 3% (+ or -) at the agreed date of payment the amount of USD will be recalculated  
.  

Slide 19 - Tekstslide

Agenda
- valuta risks
- payment methods

Slide 20 - Tekstslide

'Risk' on $683.490 <-> on $ 64.840??

Slide 21 - Tekstslide

'Risk' on $683.490 <-> on $ 64.840??
E.g. 1.15 -> 1.17
 $ 683.490 /  1.15 =  € 594.339 
$ 683.490 / 1.17 =    € 584.179
€ 10.000 LOSS

$ 64.840 (56.382 - 55.418) =  € 964 loss

Slide 22 - Tekstslide

Which payment methods
do you know?

Slide 23 - Woordweb

Most used methods
Payment in advance
Open account
Cash against Documents
Escrow account
Letter of Credit (L/C) 

Slide 24 - Tekstslide

CAD 
In this case, the supplier retains a certain amount of security as he knows that he will receive his funds before the buyers is able to clear the goods through customs. That is because once the shipment has been given to the shipping firm and a “shipped on board” bill of lading has been issued the seller can present his documents to his bank who will send them (acting only as a glorified post office) to the buyer’s bank for settlement.
  The buyer's bank will not release the documents to the buyer until payment has been made.

Slide 25 - Tekstslide

Major disadvantage of CAD?

Slide 26 - Tekstslide

Slide 27 - Video

Example Escrow
'tackling CAD's disadvantage'

Slide 28 - Tekstslide

Letter of Credit

Slide 29 - Tekstslide

Slide 30 - Video

Letter of Credit
* banks boths sides involved
* minimum level of risk
* expensive
* 'slut' risk -> time

Slide 31 - Tekstslide

Example L/C

Slide 32 - Tekstslide

Slide 33 - Tekstslide

Example L/C

Slide 34 - Tekstslide

Slide 35 - Tekstslide

Slide 36 - Tekstslide