FIN 6303, International Finance 1 Course Learning Outcomes for Unit VIII Upon completion of this unit, students should be able to: 6. Prescribe international short-term cash management investments that maximize firm value. 6.1 Examine methods for financing international trade. 6.2 Evaluate short-term financing options available to multinational companies. Course/Unit Learning Outcomes Learning Activity 6.1 Unit Lesson Chapter 19 Video: The Big Ideas of Trade Unit VIII Project 6.2 Unit Lesson Chapter 20 Article: "Corporate Financing and Macroeconomic Volatility in the European Union" Unit VIII Project Required Unit Resources Chapter 19: Financing International Trade Chapter 20: Short-Term Financing In order to access the following resources, click the links below. Marginal Revolution University. (2015, February 25). The big ideas of trade [Video]. Cielo24. https://c24.page/p9szkkqcuaurgtm4rtrzavxqtr Mullineux, A., Murinde, V., & Sensarma, R. (2011). Corporate financing and macroeconomic volatility in the European Union. International Economics and Economic Policy, 8(1), 79–92. https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc t=true&db=bsu&AN=59929554&site=ehost-live&scope=site Unit Lesson Methods of Payment Increased world economic globalization has also increased the importance of global trade activities. It is important that financial managers understand the methods available to ensure international trade product delivery and payment. This is because of the risk of nonpayment or lack of product shipment involved in transactions that involve importers and exporters. There are several payment methods available to help facilitate international trade. These include prepayment, letters of credit, drafts, consignment, and open accounts. Using the prepayment method, the exporter does not ship the product until payment is received. This is typically done using a wire transfer from bank to bank. Companies involved in international trade can use the international electronic payment system to make electronic payments using an intermediary bank. This method protects the exporter and is generally used for first-time transactions when trust is being established. UNIT VIII STUDY GUIDE Short-Term Asset and Liability Management FIN 6303, International Finance 2 UNIT x STUDY GUIDE Title This is not ideal; however, for importers that may fear the exporter will not ship the product, this may be preferred. The letter of credit provides assurance that the importer will make payment once they have proof that the product has been shipped. The letter comes from the importer’s bank, which provides the exporter reassurance because they feel they can trust the bank. Shipping documents are sent from the exporter’s bank, which authenticates the product has been shipped. The importer pays the exporter once the.

1. FIN 6303, International Finance 1
Course Learning Outcomes for Unit VIII
Upon completion of this unit, students should be able to:
6. Prescribe international short-term cash management
investments that maximize firm value.
6.1 Examine methods for financing international trade.
6.2 Evaluate short-term financing options available to
multinational companies.
Course/Unit
Learning Outcomes
Learning Activity
6.1
Unit Lesson
Chapter 19
Video: The Big Ideas of Trade
Unit VIII Project
6.2
Unit Lesson

2. Chapter 20
Article: "Corporate Financing and Macroeconomic Volatility in
the European
Union"
Unit VIII Project
Required Unit Resources
Chapter 19: Financing International Trade
Chapter 20: Short-Term Financing
In order to access the following resources, click the links
below.
Marginal Revolution University. (2015, February 25). The big
ideas of trade [Video]. Cielo24.
https://c24.page/p9szkkqcuaurgtm4rtrzavxqtr
Mullineux, A., Murinde, V., & Sensarma, R. (2011). Corporate
financing and macroeconomic volatility in the
European Union. International Economics and Economic Policy,
8(1), 79–92.
https://libraryresources.columbiasouthern.edu/login?url=http://s
earch.ebscohost.com/login.aspx?direc
t=true&db=bsu&AN=59929554&site=ehost-live&scope=site
Unit Lesson

3. Methods of Payment
Increased world economic globalization has also increased the
importance of global trade activities. It is
important that financial managers understand the methods
available to ensure international trade product
delivery and payment. This is because of the risk of nonpayment
or lack of product shipment involved in
transactions that involve importers and exporters. There are
several payment methods available to help
facilitate international trade. These include prepayment, letters
of credit, drafts, consignment, and open
accounts.
Using the prepayment method, the exporter does not ship the
product until payment is received. This is
typically done using a wire transfer from bank to bank.
Companies involved in international trade can use the
international electronic payment system to make electronic
payments using an intermediary bank. This
method protects the exporter and is generally used for first-time
transactions when trust is being established.
UNIT VIII STUDY GUIDE
Short-Term Asset and
Liability Management
FIN 6303, International Finance 2
UNIT x STUDY GUIDE

4. Title
This is not ideal; however, for importers that may fear the
exporter will not ship the product, this may be
preferred.
The letter of credit provides assurance that the importer will
make payment once they have proof that the
product has been shipped. The letter comes from the importer’s
bank, which provides the exporter
reassurance because they feel they can trust the bank. Shipping
documents are sent from the exporter’s
bank, which authenticates the product has been shipped. The
importer pays the exporter once they know the
products are en route. Like the exporter, the importer often feels
they can trust the bank to confirm shipment.
Despite the reputation of the bank, the exporter may still be
concerned about foreign government interference
and may request its own bank to assure the importer’s bank will
meet their obligation. Letters of credit are
also used as a source of financing.
A bill of exchange or draft with or without a letter of credit is
an order written and provided by the exporter that
provides directions for the importer to pay the amount on the
face of the order at a specified time. A draft
without a letter of credit does not provide as much protection to
the exporter because it means the bank is not
obligated to make payment on the importer’s behalf. Draft based
transactions use banks as intermediaries to
process the shipping documents and collect payment. Once the
products are shipped, the draft is given to the
exporter for payment. This is called documents against payment
(Madura, 2021). The exporter has some
production under this method because the bank only releases

5. shipping documents according to the
instructions of the exporter. The shipping documents are
required for the importer to pick up the product.
Two other payment methods worth mentioning are consignment
and open account. Consignment is a high-
risk method where the exporter retains the title to the
merchandise while the product is being shipped. There
is trust between the exporter and importer that payment will be
made when the products are sold. There is
limited recourse for the exporter if the importer does not pay
because there is no draft or letter of credit. Once
the products have been sold to a third-party, the importer is
required to make payment. Open account
transactions require the exporter to rely completely on the
importer’s financial solvency and honesty. In these
transactions, the exporter ships the product, and the importer
pays according to pre-specified terms.
Methods of Trade Finance
International trade transactions are financed by either the
exporter, importer, a financial institution, or some
combination of these. If the exporter can finance the transaction
completely, this is known as supplier credit. If
the exporter cannot completely fund the lifecycle of the
product, then some combination of finance methods
will be used. Commonly used methods of international trade
finance include accounts receivable financing,
factoring, letters of credit, banker’s acceptances, medium-term
capital goods financing, and counter trade
(Madura, 2021).
Accounts receivable financing is a method by which the bank
loans the exporter the payment secured by

6. accounts receivable. This type of loan relies on the
creditworthiness of the exporter. If the importer does not
pay, the exporter will still be required to repay the loan. There
are other risks involved with international
accounts receivable financing. There is a risk of government
interference and exchange controls that may
block payment from the importer. As a result of this added risk,
the interest rate for international accounts
receivable is often higher compared to domestic accounts
receivable. These arrangements are typically short-
term in nature. Export credit insurance is sometimes required by
exporters and banks to mitigate the risk
involved with international accounts receivable financing.
Factoring occurs when an exporter sells the accounts receivable
to a third-party. This third-party is referred to
as a factor. They charge a fee and purchase the accounts
receivable at a discount. It is the factor that takes
on the credit risk and must collect payment. Factors work
together across borders to assess credit risk and
trustworthiness of both the exporter and importer. The exporter
enjoys many benefits from using factoring as
a finance method. They receive immediate payment without the
hassle and expense of managing accounts
receivable, and they do not have to worry about the solvency of
the importer. In cases where long-term
financing may be required, forfaiting is an option. With
forfaiting, or medium-term capital goods financing, the
importer provides a promissory note or bill of exchange to the
exporter. The exporter sells the note without
recourse to the forfaiting bank. Forfaiting is like factoring in
that the forfaiter takes on the responsibility for
payment collection and all risk involved.

7. FIN 6303, International Finance 3
UNIT x STUDY GUIDE
Title
Letters of credit can be used both as a payment method and as a
financing method. A time draft is a bill of
exchange known as a banker’s acceptance. If held to maturity,
the banker’s acceptance acts similarly to
accounts receivable financing, in that it provides financing to
the importer.
The main difference is that the banker’s acceptance provides a
guarantee of payment to the exporter from the
importer’s bank. If the exporter does not want to hold the
banker’s acceptance, they have the option to sell it
at a discount reflective of the time value of money. This type of
financing is advantageous to the exporter,
importer, and the bank of the importer.
Counter trade involves different types of foreign trade
transactions where the sale of products in one country
is tied to the purchase or exchange of goods from that same
country. Most often, these types of transactions
are barter, compensation, and counterpurchase. Barter occurs
when two parties exchange products without
the use of currency. Compensation or clearing account
arrangements require the exporter to repurchase a
specified amount of the product from the importer. This is also
known as an industrial cooperation agreement
and often involves the construction of large projects. For

8. example, a country might help construct a power
plant in one country and then buy back the power produced. A
counterpurchase is represented by two
separate contracts to purchase goods, which is expressed in
monetary terms.
Facilitating Agencies
The Export-Import Bank—also known as the Ex-Im Bank of the
United States, the Private Export Funding
Corporation (PEFCO), and the Overseas Private Investment
Corporation (OPIC) are the main agencies that
facilitate international trade using loan programs or export
insurance. The Ex-Im Bank was originally
established to help facilitate trade between the United States
and the Soviet Union. Today, it assumes some
of the credit risk and provides direct financing by providing
guarantees, loans, bank insurance, and export
credit insurance to encourage private sector financing of export
trade. PEFCO works with the Ex-Im Bank to
provide fixed-rate financing to importers. OPIC is a federal
agency of the United States that insures against
political risks such as inconvertibility issues with currency and
expropriation.
Foreign Sources of Financing
If a multinational corporation (MNC) needs short-term
financing, they have the option to use internal fund
sources such as subsidiaries with excess cash. They also use
external sources like short-term notes,
commercial paper, or bank loans. Internal sources of funds are
the first place than the MNC should look when
they need short-term financing. Short-term notes with a

9. maturity of 1, 3, or 6 months with an interest rate
based on the London Interbank Offer Rate (LIBOR) are often
used for external financing. Commercial paper
is also used in addition to short-term notes. These are issued
without being backed by an underwriter, so they
do not come with a guaranteed selling price, but maturities can
be customized according to the issuer’s
preference and are available for purchase in the secondary
market. One final option is bank loans directly
from banks.
Foreign and Portfolio Currency Financing
Foreign currency financing is sometimes used by MNCs to keep
financing costs low. They can use estimates
of the effective financing rate of the foreign currency over the
time period of the financing. This rate is
dependent on the foreign currency interest rate and the forecast
of the change in percentage of the currency’s
value over the time period of the financing. This method is
particularly attractive when interest rates of the
foreign currency are low. The savings that can come from
financing with a foreign currency motivates the
MNC to evaluate different currencies to save money in interest
payments. With varying degrees of interest
rates and risks, the MNC must consider the potential cost
savings weighed against the associated risks. The
probability of relatively low financing rates can be achieved if
the MNC borrows a portfolio of currencies with
low interest rates if the values of the currencies are not tightly
correlated. The portfolio method of financing
can help to reduce risk.

10. FIN 6303, International Finance 4
UNIT x STUDY GUIDE
Title
Reference
Madura, J. (2021). International financial management (14th
ed.). Cengage Learning.
https://bookshelf.vitalsource.com/#/books/9780357130667
Suggested Unit Resources
In order to access the following resource, click the link below.
This study examines the impact on financial dependence during
the 2007–2009 financial credit on exports
from the United Kingdom.
Akram, M., & Rashid, A. (2018). Financial turmoil, external
finance and UK exports. Journal of Economics and
Finance, 42(4), 651–681.
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