1.What is the Balance of Payments (BOP)?

The balance of payments (BOP) is a statement of all transactions made

between entities in one country and the rest of the world over a defined period
of time, such as a quarter or a year.

A country's balance of payments tells you whether it saves enough to pay for

its imports. It also reveals whether the country produces enough economic
output to pay for its growth. The BOP is reported for a quarter or a year. 

The balance of payments has three components. They are the current

account, the financial account, and the capital account. The current account
measures international trade, net income on investments, and direct
payments. The financial account describes the change in international
ownership of assets. The capital account includes any other financial
transactions that don't affect the nation's economic output. 
KEY TAKEAWAYS

 The balance of payments include both the current account and capital
account.
 The current account includes a nation's net trade in goods and services,
its net earnings on cross-border investments, and its net transfer
payments.
 The capital account consists of a nation's imports and exports of capital
and foreign aid.
 The sum of all transactions recorded in the balance of payments should
be zero; however, exchange rate fluctuations and differences in
accounting practices may hinder this in practice.
What Is a Trade Deficit?
A trade deficit occurs when a country's imports exceed its exports during a
given time period. A trade deficit represents an outflow of domestic currency
to foreign markets. It is also referred to as a negative balance of trade (BOT).

Trade Deficit = Total Value of Imports – Total Value of Exports

KEY TAKEAWAYS

 A trade deficit occurs when a country's imports exceed its exports

during a given time period.
 The merchandise trade deficit equals the value of goods imported
minus the value of goods exported.
 The current account deficit uses a broader definition that also includes
services and some types of income.
  Trade deficits are not always harmful because they can result from
beneficial foreign investment and alleviate temporary shortages.
 in the long run, persistent trade deficits can create unemployment and
lead to the loss of a nation's wealth to other counties.

What is Trade Surplus ?

A trade surplus is an economic measure of a positive balance of trade, where
a country's exports exceed its imports.

 Trade Balance = Total Value of Exports - Total Value of Imports

A trade surplus occurs when the result of the above calculation is positive. A
trade surplus represents a net inflow of domestic currency from foreign
markets. It is the opposite of a trade deficit, which represents a net outflow,
and occurs when the result of the above calculation is negative. In the United
States, trade balances are reported monthly by the Bureau of Economic
Analysis.

2. What Is an Exchange Rate Mechanism (ERM)?

An exchange rate mechanism (ERM) is a device used to manage a
country's currency exchange rate relative to other currencies. It is part of an
economy's monetary policy and is put to use by central banks.

Such a mechanism can be employed if a country utilizes either a fixed

exchange rate or one with floating exchange rate that is bounded around its
peg (known as an adjustable peg or crawling peg).

KEY TAKEAWAYS

 An exchange rate mechanism (ERM) is a way that central banks can

influence the relative price of its national currency in forex markets.
 The ERM allows the central bank to tweak a currency peg in order to
normalize trade and/or the influence of inflation.
 More broadly, ERM is used to keep exchange rates stable and minimize
currency rate volatility in the market.

Key Points

 A floating exchange rate or fluctuating exchange rate is a type of exchange

rate regime wherein a currency ‘s value is allowed to freely fluctuate according
to the foreign exchange market.
  A fixed exchange-rate system (also known as pegged exchange rate system)
is a currency system in which governments try to maintain their currency value
constant against a specific currency or good.
 Pegged floating currencies are pegged to some band or value, either fixed or
periodically adjusted. These are a hybrid of fixed and floating regimes.

Key Terms

 exchange rate regime: The way in which an authority manages its currency
in relation to other currencies and the foreign exchange market.
 floating exchange rate: A system where the value of currency in relation to
others is allowed to freely fluctuate subject to market forces.
 fixed exchange rate: A system where a currency’s value is tied to the value
of another single currency, to a basket of other currencies, or to another
measure of value, such as gold.
 pegged float exchange rate: A currency system that fixes an exchange rate
around a certain value, but still allows fluctuations, usually within certain
values, to occur.

3. Foreign Exchange Exposure

Definition: Foreign Exchange Exposure refers to the risk associated with the foreign
exchange rates that change frequently and can have an adverse effect on the financial
transactions denominated in some foreign currency rather than the domestic currency of the
company.

In other words, the firm’s risk that its future cash flows get affected by the
change in the value of the foreign currency, in which it has maintained its
books of accounts (balance sheet), due to the volatility of the foreign
exchange rates is termed as foreign exchange exposure.

It is not only those firms who directly make the financial transactions in the
foreign currency denominations faces the risk of foreign exposure, but also,
the other firms who are indirectly related to the foreign currency is exposed to
foreign currency risk.

For example, if Indian company is competing against the products imported

from China and if the Chinese yuan per Indian rupee falls, then the importers
enjoy decreased cost advantage over the Indian company. This shows, that
the companies not having any direct link to the forex do get affected by the
change in the foreign currency.
 Types of Foreign Exchange Exposure

1. Transaction Exposure
2. Operating Exposure
3. Translation Exposure

Transaction Exposure
Definition: The Transaction Exposure is a kind of foreign exchange risk involved in the
international trade wherein the cross-currency transactions (multiple currencies) are involved.
In other words, a risk faced by the company that while dealing in the international trade, the
currency exchange rates may change before making the final settlement, is termed as a
transaction exposure.

Thus, once the cross-currency contract has been agreed upon by the firms
located in two different countries for the specific amount of goods and money,
the contract value may change with the fluctuations in the foreign exchange
rates. This risk of change in the exchange rates is called the transaction
exposure.

The greater the time gap between the agreement and the final settlement, the
higher is the risk associated with the change in the foreign exchange rates.
However, the companies could save themselves against the transaction
exposure through hedging techniques.
 Operating Exposure
Definition: The Operating Exposure refers to the extent to which the firm’s future cash
flows gets affected due to the change in the foreign exchange rates along with the price
changes. In other words, a risk that firm’s revenue will be adversely affected due to the
substantial change in the exchange rate and the inflation rate is called as operating exposure.

Operating Exposure, like transaction exposure, also involves the actual or potential gain or
loss, but the latter is specific in nature and deals with a particular transaction of the firm,
while the former deals with certain macro level exposure wherein not only the firm under
concern gets affected but rather the whole industry observes the change with the change in
the exchange rates and the inflation rate. Thus, with operating exposure, the entire economy
is exposed to the foreign exchange risk.

Since, operating exposure is much broader in nature, and relates to the entire investment of
the firm so with the change in the exchange rates the overall value of the firm gets altered.
The firm’s value is comprised of the operating cash flows and the total assets the firm
possesses.

It is quite difficult to identify operating risk, as the cash flows largely depends on the cost of
firm’s inputs and the prices of its outputs which gets altered significantly with the change in
the foreign exchange rates. Also, such exposure relates to the unseen challenges from the
competitors, entry barriers, etc., which are subjective in nature and are interpreted differently
by different experts. Thus, operating exposure influences the competitive position of the firm
substantially.

Translation Exposure
Definition: The Translation Exposure or Accounting Exposure is the risk of loss suffered
when stock, revenue, assets or liabilities denominated in foreign currency changes with the
movement of the foreign exchange rates.

In other words, the translation exposure stems from the requirement of converting the
subsidiary’s assets and liabilities (operating in another country) denominated in foreign
currency in the home currency of the parent company, at the time of preparing the
consolidated profit and loss statement and the balance sheet. Thus, any change in the foreign
exchange rate will have a considerable impact on the financial statements.

In translating the items denominated in foreign currency in the domestic currency, an

accountant encounters two issues:

1. Whether the financial statement items denominated in foreign currency are converted
at the current exchange rate or at the rate which was prevailing at the time the transaction
occurred (historical exchange rate)?
2. Whether the profit or loss that arises from the rate adjustments be taken into the
current period profit and loss statement or be postponed?
If there is any change in the exchange rate over the previous accounting period, then the
translation of the items denominated in the foreign currency will result in foreign exchange
gains or losses, except when there is a tax implication on these items.

The translation exposure is concerned with the recorded profits and the balance sheet values
and does not affect the overall value of the firm. Since the gains or losses suffered due to the
translation of financial items has no significant impact on the stock prices of the firm. And
the investors do believe that such risk can be diversified and hence does not demand any
extra premium for it.

5.What Is a Foreign Direct Investment (FDI)?

A foreign direct investment (FDI) is an investment made by a firm or individual

in one country into business interests located in another country. Generally,
FDI takes place when an investor establishes foreign business operations or
acquires foreign business assets in a foreign company. However, FDIs are
distinguished from portfolio investments in which an investor merely
purchases equities of foreign-based companies.

KEY TAKEAWAYS

 Foreign direct investments (FDI) are investments made by one

company into another located in another country.
 FDIs are actively utilized in open markets rather than closed markets for
investors.
 Horizontal, vertical, and conglomerate are types of FDI’s. Horizontal is
establishing the same type of business in another country, while vertical
is related but different, and conglomerate is an unrelated business
venture. 
 The Bureau of Economic Analysis continuously tracks FDIs into the
U.S.
 Apple’s investment in China is an example of an FDI.
How a Foreign Direct Investment Works
Foreign direct investments are commonly made in open economies that offer
a skilled workforce and above-average growth prospects for the investor, as
opposed to tightly regulated economies. Foreign direct investment frequently
involves more than just a capital investment. It may include provisions of
management or technology as well. The key feature of foreign direct
investment is that it establishes either effective control of or at least
substantial influence over the decision-making of a foreign business.
6.What are International Financial Markets?

Financial markets, from the name itself, are a type of marketplace that
provides an avenue for the sale and purchase of assets such as bonds,
stocks, foreign exchange, and derivatives. Often, they are called by different
names, including “Wall Street” and “capital market,” but all of them still
mean one and the same thing. Simply put, businesses and investors can go
to financial markets to raise money to grow their business and to make
more money, respectively.

To state it more clearly, let us imagine a bank where an individual maintains

a savings account. The bank can use their money and the money of other
depositors to loan to other individuals and organizations and charge an
interest fee.

The depositors themselves also earn and see their money grow through the
interest that is paid to it. Therefore, the bank serves as a financial market
that benefits both the depositors and the debtors.

Types of Financial Markets

There are so many financial markets, and every country is home to at least
one, although they vary in size. Some are small while some others are
internationally known, such as the New York Stock Exchange (NYSE)  that
trades trillions of dollars on a daily basis. Here are some types of financial
markets.

1. Stock market

The stock market trades shares of ownership of public companies. Each

share comes with a price, and investors make money with the stocks when
they perform well in the market. It is easy to buy stocks. The real challenge
is in choosing the right stocks that will earn money for the investor.
There are various indices that investors can use to monitor how the stock
market is doing, such as the Dow Jones Industrial Average (DJIA) and the
S&P 500. When stocks are bought at a cheaper price and are sold at a
higher price, the investor earns from the sale.

2. Bond market

The bond market offers opportunities for companies and the government
to secure money to finance a project or investment. In a bond market,
investors buy bonds from a company, and the company returns the amount
of the bonds within an agreed period, plus interest.

3. Commodities market

The commodities market is where traders and investors buy and sell natural
resources or commodities such as corn, oil, meat, and gold. A specific
market is created for such resources because their price is unpredictable.
There is a commodities futures market wherein the price of items that are
to be delivered at a given future time is already identified and sealed today.

4. Derivatives market

Such a market involves derivatives or contracts whose value is based on the

market value of the asset being traded. The futures mentioned above in the
commodities market is an example of a derivative.

Functions of the Markets

The role of financial markets in the success and strength of an economy

cannot be underestimated. Here are four important functions of financial
markets:

1. Puts savings into more productive use

As mentioned in the example above, a savings account that has money in it

should not just let that money sit in the vault. Thus, financial markets like
banks open it up to individuals and companies that need a home loan,
student loan, or business loan.
2. Determines the price of securities

Investors aim to make profits from their securities. However, unlike goods
and services whose price is determined by the law of supply and demand,
prices of securities are determined by financial markets.

3. Makes financial assets liquid

Buyers and sellers can decide to trade their securities anytime. They can use
financial markets to sell their securities or make investments as they desire.

4. Lowers the cost of transactions

In financial markets, various types of information regarding securities can

be acquired without the need to spend.

Importance of Financial Markets

There are many things that financial markets make possible, including the
following:

 Financial markets provide a place where participants like investors

and debtors, regardless of their size, will receive fair and proper
treatment.
 They provide individuals, companies, and government organizations
with access to capital.
 Financial markets help lower the unemployment rate because of the
many job opportunities it offers.

 
7.What are International Bonds?

International bonds are bonds issued by a country or company that is not

domestic for the investor. The international bond market is quickly
expanding as companies continue to look for the cheapest way to borrow
money. By issuing debt on an international scale, a company can reach
more investors. It also potentially helps decrease regulatory constraints.

Quick Summary Points

 The three categories of international bonds are domestic bonds,

Eurobonds, and foreign bonds.
 Under dollar-denominated bonds, there are Yankee bonds and
Eurodollar bonds.
 Non-dollar denominated bonds are sold and traded in domestic
markets, foreign markets, and Euro markets.

Three Categories of International Bonds

There are three general categories for international bonds: domestic, euro,
and foreign. The categories are based on the country (domicile) of the
issuer, the country of the investor, and the currencies used.

 Domestic bonds: Issued, underwritten and then traded with the

currency and regulations of the borrower’s country.
 Eurobonds: Underwritten by an international company using
domestic currency and then traded outside of the country’s domestic
market.
 Foreign bonds: Issued in a domestic country by a foreign company,
using the regulations and currency of the domestic country.

For example:

 Domestic bonds: A British company issues debt in the United

Kingdom with the principal and interest payments based or
denominated in British pounds.
  Eurobonds: A British company issues debt in the United States with
the principal and interest payments denominated in pounds.
 Foreign bonds: A British company issues debt in the United States
with the principal and interest payments denominated in dollars.

Dollar-denominated Bonds

Dollar-denominated bonds are issued in US dollars and offer investors

more choices to increase diversity. The two types of dollar-denominated
bonds are Eurodollar bonds and Yankee bonds. The difference between the
two bonds is that Eurodollar bonds are traded outside of the domestic
market while Yankee bonds are issued and traded in the US.

1. Eurodollar bonds

Eurodollar bonds are the largest component of the Eurobond market. A

Eurodollar bond must be denominated in U.S. dollars and written by an
international company. Since Eurodollar bonds are not registered with the
SEC, they can not be sold to the U.S. public. However, they can be traded
on the secondary market. Even though many portfolios do include
Eurodollar bonds in U.S. portfolios, U.S. investors do not participate in
the primary market for such bonds. Therefore, the primary market is
dominated by foreign investors.

2. Yankee bonds

Yankee bonds are another type of dollar-denominated bonds. However,

unlike the Eurodollar bonds, the Yankee bonds’ target market is within the
U.S. These bonds are issued by a foreign company or country that has
registered with the Securities and Exchange Commission (SEC). Since
Yankee bonds are meant to be purchased by U.S. citizens in the primary
market, they must follow regulations set by the SEC. For example, the
company issuing the bond needs to be financially stable and capable of
making payments throughout the period of the bond.
 

Non-dollar-denominated Bonds

Non-dollar-denominated international bonds are all the issues

denominated in currencies other than the dollar. Since there is currency
volatility, U.S. investors face the question of whether to hedge their
currency exposure. The different types of non-dollar-denominated bonds
depend on the domicile of the issuer and the location of the primary
trading market. The three major types are the domestic market, the foreign
market, and the Euro market.

1. Domestic market

The domestic market includes bonds that are issued by a borrower in their
home country using that country’s currency. Domestic markets have seen
significant growth for several reasons. First of all, for companies, issuing
debt in the domestic currency allows them to better match liabilities with
assets. By doing so, they also don’t need to worry about the currency
exchange risk. Also, by issuing debt in dollar-denominated markets and the
domestic market, companies gain access to more investors. This allows
them to obtain a better borrowing rate.

2. Foreign market

The foreign bond market includes the bonds that are sold in a country,
using that country’s currency, but issued by a non-domestic borrower. For
example, the Yankee bond market is the U.S. dollar version of this market.
This is because they are sold in the U.S. using the dollar, but issued by a
syndicate outside of the U.S. Other examples include the Samurai market
and the Bulldog market. The Samurai market is Yen-denominated bonds
issued in Japan but by non-Japanese borrowers. The Bulldog market is
pound-denominated bonds issued in the U.K. by non-Brtish groups.

 
3. Euro market

Securities that are issued into the international market are called
Eurobonds. This market encompasses all the bonds that are not issued in a
domestic market and can be issued in any currency. Eurodollar bonds are
an example of a U.S. dollar-denominated version of a Eurobond as they are
sold in the international markets.

Most of the time, the bonds are written by an international syndicate and
sold in several different national markets simultaneously. Issuers of
Eurobonds include international corporations, supranational companies,
and countries.

8. What Is Interest Rate Parity (IRP)?

Interest rate parity (IRP) is a theory in which the interest rate

differential between two countries is equal to the differential between the
forward exchange rate and the spot exchange rate. Interest rate parity plays
an essential role in foreign exchange markets, connecting interest rates, spot
exchange rates and foreign exchange rates.

The Formula For Interest Rate Parity (IRP) Is

F0=S0×(1+1b/1+ic)
where:
F0=Forward Rate
S0=Spot Rate
ic=Interest rate in country c
ib=Interest rate in country b

What Does Interest Rate Parity (IRP) Tell You?

Interest rate parity is the fundamental equation that governs the relationship
between interest rates and currency exchange rates. The basic premise of
interest rate parity is that hedged returns from investing in different currencies
should be the same, regardless of the level of their interest rates.

If one country offers a higher risk-free rate of return in one currency than that
of another, the country that offers the higher risk-free rate of return will be
exchanged at a more expensive future price than the current spot price. In
other words, the interest rate parity presents an idea that there is no arbitrage
in the foreign exchange markets. Investors cannot lock in the current
exchange rate in one currency for a lower price and then purchase another
currency from a country offering a higher interest rate.

KEY TAKEAWAYS

 Interest rate parity is the fundamental equation that governs the

relationship between interest rates and currency exchange rates.
 The basic premise of interest rate parity is that hedged returns from
investing in different currencies should be the same, regardless of the
level of their interest rates.
 Parity is used by forex traders to find arbitrage opportunities.

9. List of Documents Used in International

Trade 
In an international trade transaction, there is a time lag between the
transfer of goods by the exporter to the importer, and transfer of
payment by the importer to exporter. To protect both parties from
counter-party risk, a number of documents are created and used.

These are listed below:

1. Bill of Exchange

2. Bill of Lading

3. Letter of Credit

4. Certificate of origin of goods

5. Inspection certificate

6. Packing weight list

7. Consular invoice

8. Insurance document
10. What Is a Depositary Receipt?

A depositary receipt (DR) is a negotiable certificate issued by a bank

representing shares in a foreign company traded on a local stock exchange.
The depositary receipt gives investors the opportunity to hold shares in the
equity of foreign countries and gives them an alternative to trading on an
international market.

The DR, which was originally a physical certificate, allows investors to hold
shares in the equity of other countries. One of the most common types of DRs
is the American depositary receipt (ADR), which has been offering companies,
investors, and traders global investment opportunities since the 1920s.

Since that time, DRs have spread to other parts of the globe in the form
of global depositary receipts (GDRs) (the other most common type of DR),
European DRs, and international DRs. ADRs are typically traded on a U.S.
national stock exchange, such as the New York Stock Exchange (NYSE),
while GDRs are commonly listed on European stock exchanges such as the
London Stock Exchange. Both ADRs and GDRs are usually denominated in
U.S. dollars, but can also be denominated in euros.

Key Takeaways
 A depositary receipt (DR) is a negotiable certificate issued by a bank
representing shares in a foreign company traded on a local stock
exchange.
 The depositary receipt gives investors the opportunity to hold shares in
the equity of foreign countries and gives them an alternative to trading
on an international market.
 Depositary receipts can be attractive to investors because they allow
investors to diversify their portfolios and purchase shares in foreign
companies in a more convenient and less expensive manner than
purchasing stocks in foreign markets.

American Depositary Receipts

In the United States, investors can gain access to foreign stocks via American
depositary receipts (ADRs). The main difference is that ADRs are issued only
by U.S. banks for foreign stocks that are traded on a U.S. exchange.
The underlying security of the ADRs is held by an American financial
institution overseas rather than by a global institution. ADRs help reduce the
administration and duty costs that would otherwise be levied on each
transaction. They are a great way to buy shares in a foreign company while
obtaining any dividends and capital gains in American dollars.
11. TYPES OF EXCHANGE RATES

FIXED EXCHANGE RATE

A fixed exchange rate, also known as the pegged exchange rate, is “pegged” or

linked to another currency or asset (often gold) to derive its value. Such an exchange
rate mechanism ensures the stability of the exchange rates by linking it to a stable
currency itself. Also, a fixed currency system is relatively well protected against the
rapid fluctuations in inflation. Some countries following a fixed rate system include
Denmark, Hong Kong, Bahamas & Saudi Arabia.
Advantage: A country with a fixed exchange rate system is attractive to foreign
investors who are lured to invest in that country due to the stability it offers.

Disadvantage: The government of a country following such a system has to maintain

a huge amount of foreign exchange or gold reserves to maintain its value. This
system thus proves to be an expensive one.

FLEXIBLE EXCHANGE RATE

Flexible or Floating exchange rate systems are ones whereby the rate of a currency
is determined by the market forces of demand and supply. Unlike the fixed exchange
rate they do not derive their value from any underlying. Some economists argue that
a floating system is more preferable since it absorbs the shocks of a global crisis and
automatically adjusts to arrive at an equilibrium.

The central bank of the country may interfere in economically extreme situations
such as the recession or boom to stabilize the currency. They may buy or sell an
amount of the currency to prevent the rates from going haywire. This phenomenon is
known as the managed float.
Advantage: The rates under this system are determined by a self-sufficient
mechanism. Therefore, the dependence on government or international monetary
organizations is minimum. Also, the determination of rate by the market forces of
demand and supply promote efficiency and robustness of operations.
Disadvantage: Floating rate systems are prone to greater volatility since they are
determined by the market forces. The increased volatility increases the risk quotient
in such markets consequently making it a relatively expensive place for the foreign
investors.

FORWARD RATE

A forward rate is a one that is determined as per the terms of a forward contract. It
stipulates the purchase or sale of a foreign currency at a predetermined rate at some
date in the future. A forward contract is generally entered into by exporters and
importers who are exposed to Forex fluctuations. The forward rate is quoted at a
premium or discount to the spot price.
Advantage: A forward contract freezes the rate of exchange for both the parties and
thus eliminates the element of uncertainty. Therefore, it provides a complete hedge
against all unruly movements in the market.
Disadvantage: A forward contract is not backed by any exchange. Therefore the
possibility of default is quite high. Also freezing the rates may prove to be a loss-
making decision in some situations. For example, a long forward in a bearish market
or a short forward in a bullish market are instances of the forward backfiring.

SPOT RATE

The spot rate is the current exchange rate for any currency. It is the rate at which
your currency shall be converted if you decided to execute a foreign transaction
“right now”. They represent the day-to-day exchange rate and vary by a few basis
points every day.

DUAL EXCHANGE RATE

In this type of system, the currency rate is maintained separately by two values-one
rates applicable for the foreign transactions and another for the domestic
transactions. Such systems are normally adopted by countries who are transitioning
from one system to another. This ensures a smooth changeover without causing
much disruption to the economy.

Advantage: Countries enforcing a dual exchange rate can enforce separate rates for
capital and current account transactions. Therefore a significant amount of control is
with the government whereby it can influence revenues from capital or current
sources depending upon the need of the hour. It also becomes easier to regulate
international trade and at the same time protect the domestic markets.
Disadvantage: A dual exchange rate system may cause mis-fixing of the exchange
rate and consequent misallocation of resources in various industries. Because of
these several economic anomalies such as black markets, arbitrage opportunities
and inflation may emerge.

SHORT NOTES

1.What Is a Bill of Lading

A bill of lading (BL or BoL) is a legal document issued by a carrier to a shipper
that details the type, quantity, and destination of the goods being carried. A bill
of lading also serves as a shipment receipt when the carrier delivers the
goods at a predetermined destination. This document must accompany the
shipped products, no matter the form of transportation, and must be signed by
an authorized representative from the carrier, shipper, and receiver.

As an example, a logistics company intends to transport, via heavy truck,

gasoline from a plant in Texas to a gas station in Arizona. A
plant representative and the driver sign the bill of lading after loading the gas
on the truck. Once the carrier delivers the fuel to the gas station in
Arizona, the truck driver requests that the station clerk also sign the
document.

KEY TAKEAWAYS

 A bill of lading is a legal document issued by a carrier to a shipper that

details the type, quantity, and destination of the goods being carried.
 A bill of lading is a document of title, a receipt for shipped goods, and a
contract between a carrier and shipper. 
 This document must accompany the shipped goods and must be signed
by an authorized representative from the carrier, shipper, and receiver.
 If managed and reviewed properly, a bill of lading can help prevent
asset theft.

2.What Is a Letter of Credit?

A letter of credit, or "credit letter" is a letter from a bank guaranteeing that a
buyer's payment to a seller will be received on time and for the correct
amount. In the event that the buyer is unable to make a payment on the
purchase, the bank will be required to cover the full or remaining amount of
the purchase. It may be offered as a facility.

Due to the nature of international dealings, including factors such as distance,

differing laws in each country, and difficulty in knowing each party personally,
the use of letters of credit has become a very important aspect of international
trade.

KEY TAKEAWAYS

 A letter of credit is a letter from a bank guaranteeing that a buyer's

payment to a seller will be received on time and for the correct amount.
 There are many kinds of letters of credit, including one for travelers.
 Banks collect a fee for a letter of credit service, typically a percentage of
the size of the letter of credit.

4.What is post shipment credit?

Post Shipment Finance is a kind of loan provided by a financial institution to an
exporter or seller against a shipment that has already been made. This type of export
finance is granted from the date of extending the credit after shipment of the goods to
the realization date of the exporter proceeds. Exporters don’t wait for the importer to
deposit the funds. Types of Post Shipment Finance The post shipment finance can
be classified as : 1. Export Bills purchased/discounted. 2. Export Bills negotiated 3.
 Advance against export bills sent on collection basis. 4. Advance against export on
consignment basis 5. Advance against undrawn balance on exports 6. Advance
against claims of Duty Drawback.

Read more at: https://www.caclubindia.com/experts/what-is-post-shipment-credit--

820155.asp

5.What Is an International Depository Receipt (IDR)?

An international depository receipt (IDR) is a negotiable certificate that banks

issue. It represents ownership in the stock of a foreign company that the bank
holds in trust. International depository receipts are also known as American
Depository Receipt (ADR) in the U.S. ADRs represent stocks of quality issuers
in a number of developed and emerging markets. In Europe, IDRs are known
as Global Depository Receipts, and trade on the London, Luxembourg, and
Frankfurt exchanges. IDR can also specifically refer to Indian Depository
Receipts (IDRs).