International Trade Assignment Help

International Trade Assignment Help On Finance a Plant

On the basis of a legal, political, economical analysis of China, it is identified that a business such as a banking or

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financial institution can be started significantly in the country. The good support between country’s political parties is beneficial for a business to attain success as well as the country government also supports businesses at global level. The legal system for business is also significant to operate ethically and attain success. The continuous reforms of country government have significantly directed all companies or institutions operating in China to get indulge in international trade. If, business started in China would serve the company with an advantage to serve different multinational companies expanding their business in China. The large customer base would be easy to create if served effectively. Good infrastructure, improving economy, financial support, effective communication network, advanced technology etc all present the new institution with a potential to earn more profits. On the basis of all these aspects, here in this international trade business case study assignment help paper the options available for the banking institutions to finance MNC along with the foreign exchange aspects affecting the financing for the MNC, its first customer are discussed.

Financing Options Being a newly established banking institution in China, the company may provide different financing options to its first client that is as follows: Overdraft: It is one of the most popular financing forms with an advantage of availability, expediency and flexibility. In this as interest rates are high it is beneficial for short-term requirements like funding working capital. Bank term loans: With this, the MNC may get fixed-term finance for longer periods. This type of financing is secured by a charge against company assets. Asset-based finance: With this, MNC may get finance for its asset over its approximate life span with the use of asset as security for the loan. Receivables Finance: In this form of finance, outstanding customer invoices are used as security (Groppelli & Nikbakht, 2006). Angel funding: Investing in a company with an aim to attain shares in the company. Initially, all these types of financing options are available to customers. Among these options, the most suitable option for MNC looking for finance for its Latin America plant, Bank term loans. With this type of finance, it would become easy for MNC to have long-term finance for managing its plant. Managing a plant requires lots of investment and long time period to start production and earn profits, so it is better to select Bank term loans (Jain, 2007).

Foreign Exchange Aspects affecting the financing for the MNC In addition to the evaluation of financing options available to the bank newly established in China, it is also vital to consider the foreign exchange aspects that may affect the financing for the MNC (Levi, 2009). Without developing an understanding of following foreign exchange aspects, it would be difficult for bank to effectively financing an MNC plant in Latin America: Foreign Currency Risk: As bank being situated in China and plant approached for financing is situated in Latin America, it is possible for both the parties to confront foreign exchange risks, which is also known as currency risk. Before providing financing it is vital for the institution, to evaluate the foreign currency risks. It is a risk that originates from changes in the relative valuation of both countries’ currencies (Groppelli & Nikbakht, 2006). Changes in the foreign currency rates may direct bank or MNC towards impulsive gains and losses at the time when the profits or dividends from the allotted investment are transformed from the foreign currency into Chinese currency or U.S. dollars. For effective financing and appropriate returns, it is vital to reduce currency risks (Jain, 2007).

Need to Hedge Foreign Exchange: The bank need to hedge foreign exchange to reduce currency risks or offset any currency related gains or losses. For hedging foreign exchange various options are available such as currency futures, forwards and options. All these instruments are usually costly and complicated to use (Foreign Currency transaction risk, n.d.). So, it is vital for the bank to identify that if, a Hedge is necessary against financing MNC Latin American plant. In this concern, the bank needs to undertake followings steps:

  • Determine that cost of the hedge and does it evidences a disproportionate amount of the total investment and what is the interest rate. In other words, here it is essential to identify that does the cost prevail over the currency’s downside risk.
  • Considering period of financing as in short-term currencies fluctuate little, which means that the cost of hedge will not be worth the marginal benefit (Chapter 18: International Managerial Finance, n.d.).
  • Identifying the risk of the currency declining or effect of inflation over it in long run.

Consideration of all these aspects is vital to identify the need to hedge foreign exchange so that currency risks can be reduced for the bank as well as the MNC (Leach & Melicher, 2011).

Foreign Exchange Instrument: The large amount of funds and the long financing period make it essential to hedge the foreign exchange, so one simple and flexible alternative or financial instrument, which could be used to hedge against currency risk are currency-focussed exchange traded funds. The two available options to the bank are Currency Shares Canadian Dollar trust and Wisdom Tree Dreyfus Chinese Yuan Fund (Foreign Currency transaction risk, n.d.).

Government Regulations: While financing an MNC plant in Latin America, it is vital for the bank to be aware of Chinese as well as American government regulations related to financing and foreign exchange currency rates and procedures to determine the rates. In addition to this, every country government have specific limitations to financing in an industry, which also needs to be acknowledged with thorough analysis for effective management of cash flows and earnings (Chapter 18: International Managerial Finance, n.d.).

Conclusion With the help of above discussion by our Australia and US assignment help experts , it becomes clear that financing is not an easy task as it involves consideration of different aspects among which the one key aspect is foreign currency risks and its management. In addition to this identifying the need of hedge against foreign exchange risks is also significant while financing a company in other country (Madura, 2009). At the same time, selection of appropriate financial instrument to hedge and becoming aware of government regulations is also vital and need to be followed effectively.

References Chapter 18: International Managerial Finance. (n.d.). Special Topics in Managerial Finance. Retrieved from Groppelli, A.A. & Nikbakht, E. (2006). Finance (5th ed.). USA: Barron’s Educational Series. Jain, N. (2007). Foreign Exchange Risk Management. India: New Century Publications. Foreign Currency transaction risk. (n.d.). Retrieved from Leach, J.C. & Melicher, R.W. (2011). Entrepreneurial Finance (4th ed.). USA: Cengage Learning. Levi, M.D. (2009). International Finance (5th ed.). London: Routledge. Madura, J. (2009). Financial Markets and Institutions (9th ed.). USA: Cengage Learning. Get business analysis assignment help and business strategy assignment help services from Australia and US experienced experts. We assure you that you will get perfect and complete business  plan assignment help services from our experts.