myforexeye70

[myforexeye70]

Buyers Credit Interest Rates

( This Article was First Published by Myforexeye Fintech Pvt Ltd )

Buyer’s Credit Interest Rate- How Is It Determined?

Buyer’s Credit is a short term credit available to an importer from overseas lenders such as banks and other financial institutions for goods they are importing. on the basis of an Standby Letter of Credit (SBLC)  issued by the importer’s bank, the overseas banks lends the funds to an importer by crediting the nostro account of the Issuing bank. The funds received are used to make payment to exporter’s bank against import bill on the due date. These funds are charged close to LIBOR rates, this is less expensive than the local source of funds. They are calculated as LIBOR + Margin rates.

LIBOR (London interbank offered rate) is a benchmark rate that represents the interest rate at which banks offer to lend funds to one another in the international interbank market for short-term loans. LIBOR is an average value of the interest-rate which is calculated from estimates submitted by the leading 11 to 18 global banks on a daily basis..Libor is calculated for five currencies and seven maturities which leads to a total of 35 different LIBOR rates calculated and reported each business day at 11:45 am IST.

The cost involved in buyer’s credit includes Interest cost. This is charged by overseas bank as a financing cost. LIBOR + Spread (maximum 250 bps)& Swift& Negotiation Charges (Charged voluntary by bank) and Withholding Taxes (in case availing trade credit from foreign Banks). Normally it is quoted as say “3M L + 250bps”, where 3M is 3months, L is LIBOR, and bps is Basis Points (A unit that is equal to 1/100th of 1%). To put it simpler: 3M L + 3.50%. One should also check the tenure which is used for LIBOR, as depending on tenure LIBOR will change.

You must fulfill the following conditions in order to avail Buyers credit:

Maximum duration of Buyers credit facility for capital goods is 3 years.

Maximum duration of Buyers credit for Non Capital goods is 1 year.

Maximum credit limit per Buyers credit transaction is $150 Million.

Maximum Maturity in case of import of capital goods for companies classified as Infrastructure sector is up to 5 years from the date of shipment.

No financing is allowed for advance imports.

Ceiling cost of Buyers credit is LIBOR +250BPS (L+250BPS).

Buyers Credit Process:

In order to avail credit to finance import payments the customers should be an existing current account holder in a bank. Buyer’s credit can be availed on a transaction basis. The RBI, in its circular on external commercial borrowing and trade credit has laid down some parameters on the process flow for importers to access Buyer’s Credit.

Read Full Article Detail:  Buyers Credit

[myforexeye70]

[myforexeye70]

[myforexeye70]

Foreign Exchange Risk Management is Decisive

(This Article was First Published by Myforexeye Fintech Pvt Ltd)

Forex trading is highly profitable if it is done in a calculative way. Corporate tend to face bottom line issues only when they are unable to adopt logical steps to avoid devastating effects of the negative foreign exchange exposure. By logical steps here it is implied, corporate into international trading must plan out simple risk management strategy which helps them tackle foreign exchange risks.

Foreign exchange rates fluctuate and are unpredictable due to a number of factors such like- economic fundamental, monetary policy, fiscal policy, global economy, speculation, domestic and foreign political issues and many more. So how do you strategically manage forex risk management? Let’s understand it level by level.

Rationalizing FX Risk Management

Foreign Exchange exposure refers to the responsiveness to a firm’s cash flows to the changes in exchange rates. So in order to plan out Foreign Exchange & Risk Management strategy, it is first important to understand the various types of foreign exchange exposure that are :

Transaction Exposure

Economic Exposure

Translation Exposure

Transaction exposure component of foreign exchange rates is referred to as a short term economic exposure. Transaction risk is the risk of an exchange rate changing between the transaction date and final settlement date. It can result to either a gain or loss at the conversion stage.

Economic exposure refers to a long-term effect of the transaction exposure. It occurs when firms are continuously affected by an unavoidable exposure to forex over the long term.

Translational risk is a major threat if one’s organisation is conducting business in foreign markets. It occurs when your company has any assets and liabilities denominated in a foreign currency which may shift in value due to changes in exchange rate.

Operating exposure is caused by unexpected changes in exchange rates on an individual company’s future cash flows from foreign operations.  

Factors to Consider

In order to plan FX risk management, it is imperative to carefully assess FX exposure to foreign exchange rate risk. This assessment can be done in the following ways-

Figure out proportion of business relating to imports or exports or both

Identify the currencies involved

Analyze the timing of payments

Evaluate impacts of adverse rate movement on profitability

Understand if the level of overseas business is likely to change

Check if the payment and receipt of currency is made on the same foreign currency

Check if there is any possibility to mitigate exchange risk by using a foreign currency bank account.   Read more Detail: Foreign Exchange

[myforexeye70]

[myforexeye70]

Forex Money Management Tips You Must Consider

Forex Money Management Tips

(This article was first published by Myforexeye Fintech Pvt Ltd)

Managing forex money is important to increase profits and reduces losses which can arise if not monitored. In the highly fluctuating forex market, the movement of one currency against the other creates opportunities which traders take advantage of Many a times, the risks are overlooked by the amateur traders and they land up losing all their capital. The problem deepens when the invested capital is used as margin and larger sums of money is traded in the currency market looking at possible profits without analyzing the pitfalls. For a beginner in the Currency Market, it’s important to understand the basics and stick to them to avoid such scenarios.

Some of the key points to know while managing Forex Money Management are – Wait for right opportunity and do not chase the market – often the new traders in the forex market, are excited seeing the fluctuation in the market and tend to trade more than required. It may leave one with a bitter experience and heavy losses. Trading is not meant to be done every day. Rather studying the market to determine the direction gives clarity. Thus one should not chase the market for opportunities but study the trend and then invest or trade.

Determine risk per trade – the amount one is ready to risk in a single trade is the risk per trade. One should not go more than two-three percent of the account on one trade in order to have a cushion when the markets go against the investment.

Losses should be booked before they accumulate – not all market calls will prove to be fruitful and lead to profit. Not often do we hear of all trading calls being right. To be on the safer side, one should cut the losses short and the profit making investments can be continued. Entering a trade position is just as important as exiting the same. Unless timely action isn’t taken, one losing trade call can erase the profits made from many previous calls. Pinning the hope on a trend reversal may encourage the traders to book profits early and also hold on to losing trades.

Be cautious while leveraging – while leveraging is a good tool for increasing your profits manifolds, it also equally enhances the chances multiplying your losses. Every time a trade is entered into, before looking at the possible profits, one must understand the losses which may have to be booked. Protecting one’s capital should be the main principle than seeing soaring profits.

Always use stop loss orders – in order to improve the profitability while managing the risk, the market order ideally should be with stop losses. This helps to understand the possible gains and losses even before they occur. Pre-determined stop losses ensure that the loss making open positions are squared before they get in deep red.

Trailing stops to lock-in profits – to maximize the benefit of profits, a combination of different stop loss orders should be used. A trailing stop loss is used to book profits when the market trend is strong. This automatically keeps locking the profits while the trend is a friend and the trailing stop loss level will move the stop loss levels.

Greed and fear – problem with trading are the biggest emotions - greed and fear which take the front seat and drive the trader to take hasty decisions. These emotions should not get the trader to take any decisions and thus a trader should not get afflicted towards any currency pair(s). Unrealistic profit targets (read greed) don’t encourage profit booking at the right time which is similar to fear when the profits are booked too early in the trade.

 Read more detail Source Reference : https://bit.ly/2WUNCU8

[myforexeye70]

[myforexeye70]

[myforexeye70]

[myforexeye70]

Pre-shipment Trade Finance- How is it Beneficial for Corporate?

(This article was originally published on Myforexeye Fintech Pvt Ltd)

All businesses require finance to support activities. It is here that trade finance works as the lifeblood of cross-border transactions. It helps them in keeping the flow of working capital in tune. Talking about export trade finance, it can be availed in the pre-shipment and the post-shipment stage by Corporate in international trade business.

Pre-shipment trade finance is a credit solution that enables exporters to avail credit finance before the shipment of goods. It is offered by banks on a “with recourse basis” generally against either a confirmed export order from the buyer or against a Letter of Credit. Once the packing credit is sanctioned, exporters can channelize this amount to purchase- goods, raw materials for subsequent manufacturing of final goods, warehousing and the transportation of goods.

After shipping the goods, exporters can opt for Post-Shipment Credit to advance the payment. This helps them override liquidity crunch between the shipment of goods and receipt of the payment. In case of post-shipment credit, the following products are available for managing working capital needs-

1.    Invoice factoring or receivable discounting (by selling receivables document or invoice bills)

2.    Letter of Credit Bill Discounting or

3.    Trade loan via an accounts receivables document

Modes of Pre-shipment Finance

Pre-shipment packing credit can be extended in two forms:-

1) Packing Credit in Indian Rupee (PCINR). This is also known as Export Packing Credit (EPC)

2) Packing Credit in Foreign Currency (PCFC)

Apart from the difference in the currency of the pre-shipment credit, there is large difference in interest rate between the two modes. PCFC is usually granted in the currency of exports (which are generally low interest rate currencies such as USD/EURO/JPY). In PCFC, foreign currency loan is disbursed upfront in preference of future export receivable in foreign currency. Therefore, the export receivables cannot be hedged. PCINR on the other hand is denominated at higher interest rate (given that INR interest rates are higher) but the future receivable is still due in foreign currency. This allows exporters to retain the option of hedging and receiving premium on exports in the case of PCINR.

In other words, the difference in the rates between these two modes is predominantly accounted by a difference in interest rates in the two currencies which manifest itself to some extent in the exchange premium. It is usually seen that PCFC is more cost effective than PCINR on an apple-to-apple comparison basis.

Interest Rate & Maturity Period

Banks extend Pre-shipment Credit in Foreign Currency (PCFC) to the exporters linked to the London Interbank Offered Rate (LIBOR). In case of PCINR, the credit is priced against the MCLR rates of the banks.

In the case of PCFC, Export companies get the freedom to avail Pre-shipment finance in convertible currencies like USD, Pound, Sterling, Euro, YEN, etc. However, in case the currency of the financing is different from the currency of the exports, then the exporter is exposed to one leg of the foreign exchange risk. In case of PCINR, exporters are subject to risks associated with forex fluctuations as credit is disbursed in INR and receivables are in FCY. The forward premium is the interest rate differential between two country’s risk free rate of interest.

Read More Detail Source Reference: Click Here

[myforexeye70]

[myforexeye70]

[myforexeye70]

Forex Money Management Tips You Must Consider

Foreign Exchange implies exchange of native currency with that of a currency of the other nation. The foreign exchange market is not a complicated market and the entire working of trade is very similar to those of other financial markets so if you have any experience in trading, one should be able to pick it up pretty quickly.

Currency trading successfully requires a lot of patience, a proper education, quick adaptation towards market updates and a number of other qualities. Forex is traded across the globe and as the currency market is open round the clock, the fluctuation and volatility is on the higher side. The forex money management is only achieved only when there is a trading plan than just trading arbitrarily. The ideal trading plan advises on which asset to buy, when to buy or sell and how one has to strictly stick to stop losses to avoid huge losses

To trade in forex, one has to have required tools so that the quantity of capital which one is ready to take risk on is decided before the trading starts. This also means that the forex trading policy contains one from trading aggressively. The more volatile a currency pair is, lower the position should be. If you exit when the stop loss is triggered, you are using the Forex Money Management policy else if you over-rule and don’t cut your losses, you call for trouble. It’s important to be realistic and not trade aggressively to make the quick buck. The golden rule of trading is to run your profits and cut your losses. So if a bad trade call is made, it is important to rectify it by exiting quickly. It’s important to understand and respect leverage. The opportunity to magnify profits is offered by leveraging your position but it also magnifies the potential risk. This Article was First Published by Myforexeye Fintech Pvt.Ltd for more details Referance: https://bit.ly/2P9RtNW

[myforexeye70]

Capitalize on trade with the help of export and import finance. Trade finance offers clients with an efficient and effective structure to support domestic and international trade business. This kind of finance offers importers and exporters with efficient and effective structures that help in supporting domestic as well as international trade businesses. Visit: https://www.myforexeye.com/how-export-import-finance-is-going-to-change-your-business-strategies/

[myforexeye70]

A forward contract is widely used by importers and exporters to hedge risk related to currency volatility. It is also a popular tool because the contract is customized private agreement. It is however important to consider how much of an amount should be hedged and will going for an early forward be beneficial for the business? This is exactly what the forex advisors analyse and thereafter suggest hedging solutions such like booking of forward contract to the clients. In order to avail experienced risk advisory service, contact Myforexeye Fintech Pvt Limited. Visit: https://www.myforexeye.com/forward-contract/