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  • Items proposed for consideration at the next meeting of Dispute Settlement Body February 28, 2020
    The WTO Secretariat has circulated a meeting notice and list of items proposed for the next meeting, on 28 February 2020, of the Dispute Settlement Body, which consists of all WTO members and oversees legal disputes among them. The meeting notice is circulated in the form of a document officially called an “airgram”.
    WTO
  • US donates USD 600,000 to further developing countries’ trading capacities February 25, 2020
    The United States contributed USD 600,000 (CHF 590,000) in 2019 to help developing and least-developed countries (LCDs) participate effectively in global trade negotiations. This donation will finance training workshops for officials from WTO member governments to help them deepen their understanding of multilateral trade rules and strengthen their negotiating capacity.
    WTO
  • Lithuania donates EUR 50,000 to enhance developing countries’ trading capacity February 24, 2020
    Lithuania is contributing EUR 50,000 (CHF 53,000) to help developing and least-developed countries take an active part in global trade negotiations. The contribution was acknowledged by Director-General Roberto Azevêdo at a meeting with Lithuania’s Minister of Foreign Affairs, Linas Linkevičius, on 24 February 2020.
    WTO
  • Third anniversary of Trade Facilitation Agreement sees increasing implementation rate February 22, 2020
    Three years since the Trade Facilitation Agreement (TFA) entered into force on 22 February 2017, WTO members have continued to make steady progress in its implementation. Director-General Roberto Azevêdo, on the occasion of the TFA’s third anniversary, welcomed members’ efforts to ensure traders can reap the full benefits of the Agreement.
    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