Financing International Trade” Please respond to the following:
Compare two (2) methods that a company can use in order to finance international trade. Examine the advantages and disadvantages of financing with a portfolio of currencies. Provide two (2) examples of how companies or MNCs finance international transactions by using their own “bank” or by keeping currencies on hand (marketable securities).
Two methods of how a company can finance international transactions is by using their own funds and/ormaintaining currencies on hand through the current assets and current liabilities available in capital. With working capital, it is the distinction between current assets and current liabilities. Current assets are cash, counterpartsin cash, wanted securities, account receivables and inventories.
Analyze Interest Rate Parity (IRP) and two (2) methods for forecasting exchange rates. Determine the primary manner in which they all affect a company’s short-term financing decision. Support your response with one (1) example of the manner in which IRP and forecasting exchange rates methods affect a company’s short-term financing decision.
The central differences between short-term and long-term financing is the control of cash flows. Normally the short-termchoices are distinct as those that involve cash flows within the next year or so. An example how IRP and predicting exchange rates methods affect a company’s short-term financing choice is through the government cost of appropriating. Also, when deciding onthe currency to borrow, a company could decide the predictable rate of appreciation or devaluation as well as the estimated interest rates of foreign currencies.