International Business Structuring in a Rapidly Changing Environment: Results

We are pleased to announce that last month we held our International Business Structuring in a Rapidly Changing Environment event, which had to be postponed for a long time due to the COVID-19 epidemic. However, we wanted to meet with all our members in person, so we did not resort to online conferences, especially on such an important issue.

The world is changing rapidly and what happened during the epidemic proved that the economy is deeply connected globally. And even a small shop on the outskirts can suffer from its changes somewhere on the other side of the world.

Therefore, it seems to us that the topic that Kayla Harris chose for her speech is extremely important. Her report was devoted to the essence and main forms of international credit. She explained that international credit is the movement of loan capital in the sphere of international economic relations, associated with the provision of foreign exchange and commodity resources on repayment terms, urgency, security, and interest payment. Banks, enterprises, states, and international financial institutions act as creditors and borrowers.

The terms of international credit reflect its connection with the economic laws of the market and are used to solve the problems of economic agents of the market and the state.

The functions of international credit express the features of the movement of loan capital in international economic relations. Among them:

Redistribution of loan capital between countries to meet the needs of expanded reproduction. In this way, credit contributes to the alignment of national profit with average profit, increasing its mass.
Saving distribution costs in international settlements through credit funds (drafts, bills, checks, transfers, etc.), development, and acceleration of non-cash payments.
Accelerating the concentration and centralization of capital through the use of foreign loans.
Regulation of the economy.
The classification of loan forms is carried out according to purpose, type, loan currency, terms, and security.

Purpose:

commercial loans servicing international trade in goods and services;
financial loans used for investment objects, purchase of securities, repayment of external debt, foreign exchange intervention by the central bank;
intermediate credits for servicing mixed forms of export of capital, goods, and services (for example, engineering);

Types:

commodity (when exporting goods with deferred payment);
currency (in cash);
delivery technique;
cash loans credited to the borrower's account;
acceptance in the form of acceptance (consent to pay) drafts by the importer bank;
deposit certificates;
bond loans, consortium loans, etc.;

Terms:

short-term loans (from one day to one year, sometimes up to eighteen months);
medium-term (from one year to five years);
long-term (over five years).

Security:

secured loans;
blank loans.

A specific form of credit servicing of foreign economic relations are operations on leasing, factoring, and forfeiting.
Leasing - an agreement on the lease of movable and immovable property for three to fifteen years. Unlike a traditional lease, the lessee chooses the object of a leasing transaction, and the lessor purchases the equipment at his own expense. As a result, the lease term is shorter than the physical wear and tear of the equipment. After the expiration of the leasing period, the client can continue the lease on preferential terms to buy the property at the residual value. In world practice, the lessor is usually a leasing company, not a commercial bank.

Factoring - purchase by a specialized financial company of all monetary claims of the exporter to a foreign importer in the amount of up to 70-90% of the contract amount before the due date for their payment; the factoring company credits the exporter for up to 120 days. Thanks to factoring services, the exporter does not deal with scattered foreign importers but with a factoring company.

Forfeiting is the purchase by a bank forfeiture for a full term on predetermined terms of bills of exchange (drafts) and other financial documents. Thus, the exporter transfers to the forfeiture the commercial risks associated with the insolvency of the importer. As a result of the sale of a portfolio of debt claims, the structure of the balance sheet of the exporting company is simplified, and the time for collection of claims, accounting, and administrative expenses are reduced.