Finance: Methods of International Payments and Derivatives (1 Viewer)

[JFX]

What are the differences between the different international payments? I seem to be missing some notes on it =/.

Also, can someone explain derivatives, I have no idea what it is.

 

[rednellav]

From memory:

- Bill of exchange
- Letter of credit
- Clean payment
- Payment in advance (highest risk for importer)

Derivatives are a type of hedging. They are used to minimise the financial risk associated with international trades of currency. It's simply a financial document that specify the conditions of the trade (the time, place, obligations of each party, final values, etc).

There are three types of derivatives. Forward exchange contracts where an exchange is agreed upon at a static price to be made in the future. Option contracts give the buyer the option, but does not obligate them to undergo the exchange (protecting them from unfavourable fluctuations). Swap exchanges are where currency is swapped in the spot market and the two parties agree to reverse the exchange after a period of time.

 

[JFX]

Hmmm, why is payment in advance high risk?

 

[rednellav]

Hmmm, why is payment in advance high risk?

In layman's terms, the exporter could run away with the money.

 

[bartbob13]

heres a table from the Excel study guide that should help

 

[JFX]

View attachment 29010 heres a table from the Excel study guide that should help

awesome, thanks heaps =)