Our Articles

Enjoy,comment and share

RSS World Trade Organization — Latest news

  • WTO launches new edition of Handbook on the TRIPS Agreement November 27, 2020
    The WTO launched today (27 November) the second edition of “A Handbook on the WTO TRIPS Agreement”, which describes the historical and legal background to the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS), its role in the organization and its institutional framework. The publication coincides with the 25th anniversary of the entry into […]
    WTO
  • WTO to host first Trade for Peace Week November 25, 2020
    The WTO will host the first edition of the Trade for Peace Week from 30 November to 4 December 2020. Ten virtual panel sessions will explore the nexus between trade and peace, with the focus on fragile and conflict-affected countries in accession which want to use trade and economic integration to promote sustainable and inclusive […]
    WTO
  • DDG Agah at ITC Joint Advisory Group: Open trade and economic inclusion key to post-COVID recovery November 25, 2020
    In remarks on 25 November to the 54th session of the Joint Advisory Group that oversees the work of the International Trade Centre (ITC), WTO Deputy Director-General Yonov Frederick Agah argued that open international trade, together with efforts to ensure the benefits from economic activity are widely shared, would be necessary to repair the social […]
    WTO
  • DDG Wolff: “WTO reform is both necessary and feasible” November 24, 2020
    Speaking at the “1+6” roundtable meeting presided by Chinese Premier Li Keqiang on 24 November, Deputy Director-General Alan Wolff urged WTO members to begin serious engagement on improving the WTO, arguing there was enough common ground to reach major new agreements. He also called on China to participate actively and contribute positively to planning far-reaching […]
    WTO

Foreign Currency Advance



 

Foreign Currency advance is n hedging technique, which enables Exporters to avoid the risks resulting from a deferred payment denominated in a foreign currency. This service is usually provided by a commercial Bank, which will borrow the needed foreign currency for his client.

Let’s take the example of a French exporter and a US Importer who concluded a 10 000 000 USD deal with a 90-day payment term. In order to neutralize his currency risk exposure, the exporter will apply for a foreign currency advance. The commercial bank will then borrow this amount and lend it to the exporter, which will have to repay in USD at a given date (this should in line with payment maturity agreed in the export sales contract) + interest denominated in USD.

Once the funds are available in the French Exporter’s bank account, he will immediately change the USD against EUR and by then avoid his exposure to the foreign currency.

In this case the exporter will honour his obligations by using the payment received by the US Importer 90 days later.

As we can see this method enables to avoid most of the currency risks linked to his sales contract although the exporter remains exposed to the currency risks resulting from the interest charged by his bank that must be repaid in the foreign currency (Which is marginal compared to the whole operation).

Note that this method could be used as both, a financing tool as well as a currency-hedging tool.

Please click on the links below for more hedging techniques