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  • Trade Policy Review: Saudi Arabia March 3, 2021
    The third review of the trade policies and practices of Saudi Arabia takes place on 3 and 5 March 2021. The basis for the review is a report by the WTO Secretariat and a report by the Government of Saudi Arabia.
    WTO
  • Civil society call for fishing subsidies deal welcomed by Dr Ngozi and negotiations chair March 1, 2021
    Director-General Ngozi Okonjo-Iweala welcomed civil society’s plea for a successful conclusion to the fisheries subsidies negotiations, illustrated through a fish ice sculpture set up by a coalition of non-governmental organizations (NGOs) in front of the WTO headquarters on 1 March. Dr Okonjo-Iweala visited the sculpture accompanied by the chair of the negotiations, Ambassador Santiago Wills […]
    WTO
  • Twelfth Ministerial Conference to take place in Geneva in late 2021 March 1, 2021
    WTO members have agreed that the organization’s Twelfth Ministerial Conference (MC12) will take place in the week of 29 November 2021 in Geneva, Switzerland. The timing and venue were endorsed at a meeting of the WTO’s General Council on 1 March.
    WTO
  • DG Okonjo-Iweala: WTO can deliver results if members “accept we can do things differently” March 1, 2021
    Addressing the WTO General Council immediately after taking office on 1 March, Director-General Ngozi Okonjo-Iweala called on members to “do things differently” to achieve reforms necessary to keep the WTO relevant, starting with swift action to curb harmful fisheries subsidies, and to help scale up COVID-19 vaccine production and distribution. The new head of the […]
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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