INTERNATIONAL TRADE FINANCE II

Oscar Melo-Vega Angeles Lecture 1. Intro

Antonio Esquivel 2024-2
 Plagiarism according to:
Reglamento general de estudios
Universidad de Lima

Art. 62 ° Constituyen faltas graves:

d) Cometer o permitir el plagio, o cualquier otro análogo, durante las evaluaciones académicas o
en la elaboración de trabajos.

Art. 65 ° Las sanciones disciplinarias aplicables son:

a) Amonestación escrita.
b) Suspensión académica.
c) Separación definitiva.

Todas las evaluaciones de este curso serán pasador por 3 diferentes detectores de plagio, en
caso que este sea mayor al 10% tendrán automáticamente “cero” en toda la Tarea Académica y
serán enviados al tribunal de disciplina por lo que podrían ser separados (expulsados)

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Professor Presentation

• Name
• Profession
• Work
• Studies
• Professional Experience
• Experience Teaching

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A few rules
On a virtual Class: “Camera on” is mandatory.
Active participation counts.
When homerwork is assigned: Groups of 4 Max.
Class in English and not an English class

Contact:
Oscar Melo-Vega
omelo@ ulima.edu.pe
Antonio Esquivel
[email protected]

Punctuality Tolerance: 10 minutes

¿End of session?
Absences
Representative
Blackboard

NO CELLULAR
Not an English Class but a Class in English
A recommendation to be taken into account

Pay attention to the boiled frog

syndrome…

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 A recommendation to be taken into account
"If you catch a toad, you put it in a pot of water and
you take that pot to the fire, you will observe
something interesting: the toad adapts to water
temperature, remains within, and continues to
adapt to the increase in temperature.
But when the water reaches the boiling point, the
toad that would like to jump out of the pot, cannot
because he is too weak and tired due to the efforts
he has made to adapt to the temperature.
Some would say that what killed the toad was the
water boiling... Actually, what killed the toad was
his inability to decide WHEN to jump.
So, stop "adapting" to situations, misguided
relationships, abusive relationships, parasitic
friends, and many other things that "turn you on".
If you continue adapting, you run the risk of "dying"
inside.
Jump as soon as you can!
Author: Peter Senge
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 International Trade Finance Evaluation

EC
1 Quiz 10%

Quizzes 20% 2 Quiz 10%

Presentation 15%
Continuous activities 20%
Class participation 5%
Exam 1 20%

Exam 2 20%

Final work 10%

Final work 20%
Work defense 10%

Total EC 100%
 Course Schedule
Presentations

Week Week Week Week Week Week Week Week

1 2 3 4 5 6 7 8

Presentations 1 Quiz Exam 1

Week Week Week Week Week Week Week Week Week

9 10 11 12 13 14 15 16 17

2 Quiz Class Exam 2 Final Grades

participation work
defense
Workgroups Section 874 (Max. 4 participants)
Team 1 Team 2 Team 3 Team 4 Team 5
Government Support: SUNAT: • International Factoring • Leasing, Import Leasing • FOGAPI
• Fondo CRECER (CRECER fund). • Anticipated Guarantee (Incl. confirming) & Lease Back • Environmental Line of
• FAE-Mype and System • Forfaiting • Warrants & mercantile Credit and other Green
• PAI (Prog apoyo a la
Internacionalización)
• Bail Bonds & Guarantees • URF 800 pledges Finance programs
(Internationalization support to cover Customs • Supply Chain Finance
program) Regimes
• Finance with ECAs

Team 6 Team 7 Team 8 Team 9

• Export Credit Insurance • Other fintech • Cryptocurrencies • Multilateral, Structured
• Fintech Intro. Fintech for • Peruvian fintech • The Great Depression & Commodities
financing, payment / 1929 Finance
digital wallets and money • 2007-2008 Crisis
transfer (Subprime Crisis/Great
Recession)
• SVB collapse
 Objectives and Structure for the Course

• Supplement the knowledge and skills acquired by our

students during International Trade Finance I with an
ampler and deeper vision of the financial process in
International Business.

• General subjects to be covered: LCs & Collections in

Depth, Risk Considerations when using LCs & Collections,
Financing tools, Interest Rates, Trade Finance Lines of
Credit, guarantees, Goods as Collateral, Export insurance,
other banking and financial instruments.

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Map of Contents: International Trade Finance I & II
Int’l Trade Fin I Int’l Trade Fin II
Risks financing Sales with:
Peruvian Fin. Sist. • LCs
Int’l Fin. Sist. • Collections
Purch/Sale Agreem. • Open Account
Transport General Risks Financing Purchases
Insurance Frame
Incoterms Advance Account:
• Pre & Post Shipment
• Imports
ST Forfaiting
Int’l Factoring
Reverse Factoring
Means of Trade Financing Funding for Short Term:
Payment Finance ❑Funds from Correspondent Banks
❑Funds from Deposits
COFIDE
ECAs
LCs Multilaterals
Collections
MT Commodities Finance
Int’l Transfers Other Fondo CRECER BID Finance
FAE - MYPE Structured Financ.
Instruments
PAI - Prog. Apoyo a la Int.

Funding for Medium Term:

SBLCs / Demand Guarantees
Anticipated Gtees (Carta Fianza) ❑Progr. COFIDE –Multilateral Organiz.
Gtees from ECAS & ❑Progr. COFIDE – Foreign Gov.
Multilaterals + LCA ❑Progr. from Correspondent Banks
Guarantees Warrants ❑Progr. from ECAs
Seg. Cred a la Exp
Bail Bonds (Pólizas de Caución)
FOGAPI
❑Supply Chain Finance
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Role of Banks

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Let’s Review…..

…. A few concepts from

International Trade Finance I
leveraged into
International Trade Finance II

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Module: Principles of Trade Finance
Principles
All businesses who engage in International Trade must address two sets
of issues:

• how will the importer or exporter finance the transaction?

Most businesses have timing gaps between the 1) outlay of money to acquire materials and fulfill the order,
and 2) the receipt of money when the customer makes payment. (see next page graph)
These cash flow issues can be especially pressing for cross-border transactions.

• how will the Importer or exporter manage risk?

These Risks in international trade include:
• exporters run the risk of not getting paid because of:
• BUYER RISK (Commercial Risk) or
• BANK RISK or
• SOVEREIGN AND COUNTRY RISK
• importers run the risk of not being supplied with satisfactory goods
• SUPPLIER PERFORMANCE RISK
• both importers and exporters may incur loss through exchange-rate
movements
• FOREIGN EXCHANGE RISK
• where cash movements are deferred, there may be
• INTEREST-RATE RISK
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Cash Conversion Cycle – Example
Timing Gaps
A Company usually purchases all their Raw Materials at term and also sells their merchandise at
term. The suppliers provide facilities to pay at 30 days while they grant credit of 60 days to their
customers.
When making the calculations the company found out that they need 35 days to pay the Accounts
Payable and 70 days to collect from customers. They also realized that their inventory rotates every 85
days (Inventory Average Age).
The company uses approximately $12,000,000 per year in working capital.
If the cost of opportunity is 10% what would be the finance cost for the company? What measurements
can take place to improve the liquidity situation?
Purchase of Sale of
Raw Material Finished
DIO (85 days) Goods. ADC (70 days)

0
35 85 155
ADP(35 days)

Payment of
Accounts Payable
to suppliers

Cash Outlay (1) Cash Conversion Cycle Cash In (2)

120 days (155-35)
Average days for payment ADP
0 Time (days) Average days for collection ADC
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Module: Principles of Trade Finance
Working capital

working capital is defined as …….

– we will describe some of the specific working
capital issues facing importers and exporters
– we will outline the types of lending facility that
may be available to match a customer's working
capital needs
– we will show a simple method for estimating
working capital requirements

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 Comprehensive scheme of an international business
Financing Working Capital
Porter's Force:
• Negotiation force with suppliers Average days for collection
Average days for Payment Terms
• Strength of negotiation with clients
Terms Credit History
• Entry strength of new competitors
Credit History
• Competitors strength Internet
• Force towards substitute & new products Wholesaler

Internal
Service Warehouse 1
Contractors Retailer
warehouse
Projects finished products
Technology Plant - Production Own Store
(market attributes)
Raw Materials Internal
Warehouse
Raw Materials Warehouse 2
Supplies Foreign Market
Price-risk
Foreign Market Wholesaler
Export Retailer
*Service
Contractors
Price-risk Import Port of
*Projects Manufacturer Brand Import Finance
Shipping Collection assurance Own Store
Letter of Credit from
Technology Type Quality Importer
*Raw materials
*Supplies

International Trade Finance

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Module: Principles of Trade Finance
The nature of trade finance
We will:
1. identify the characteristics of trade finance (Import Finance or
Pre or Post Shipment Finance) that distinguish it from general
commercial lending (Working Capital)
2. introduce the principles of trade finance (plain vanilla working
capital versus lending against inventory or receivables)
3. outline the methods commonly used by banks to structure
trade finance facilities
4. explain recourse - the right, in a financing situation, to obtain
repayment from a party other than the ultimate buyer or
obligor

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Module: Documents
Documents
The following types of document are important in trade finance:
• the financial document - usually :
• a Bill of Exchange or
• a promissory note obligation
Both are documents where the acceptant, with their signature,
recognize that they owe. It also has an important role where credit is
given, and when a trade debt is transferred from one party to another.

• transport documents - which can serve as documents of title to goods in

which a lender has an interest.
• bills of lading and other transport documents that can serve as quasi-
negotiable documents of title to the goods
• transport documents that do not evidence title
• other documents which can be used to control goods or evidence an
interest in or lien over goods
• documents (such as the warehouse warrant), that provide control of
goods when in storage
• documents (such as the trust receipt), that evidence a lender's
interest in or lien over goods
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Module: Documents
• the financial document - usually :
• a Bill of Exchange or

• a: Place and date of issue.

• b: Amount to be paid.
• c: Period for payment.
• d: Amount in words.
• e: Acceptant /buyer (Drawee) who
will pay
• f : Acceptant’s address.
• g: Name of the person to be paid
(drawer).
• h: Issuer’s Signature .

C:
• Days at sight
• Days from B/L
• Days from Invoice
• Other: fixed date

Example of endorsement
(not related to the previous
image)

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Module: Documents
• the financial document - usually :
• a promissory note obligation (first half)

(top part)

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Module: Documents
• the financial document - usually :
• a promissory note obligation (second half)

(bottom part)

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Module: Documents
Financial documents in practice

• negotiation of bills - the transfer of a payment obligation from one party to another
• advances against bills - an alternative to the negotiation of a Bill of Exchange
• discounting - the giving of immediate value for a financial instrument that becomes
due at a future date
• acceptance credits - finance via the issue to a customer of a bank's own Bills of
Exchange
• avalising of bills - a bank enhances the credit rating of a bill by adding its own
payment undertaking

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