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In the paper money circulation exchange rates may significantly deviate from the PPP[28]. In many developing countries and countries with economies in transition, the exchange rate in 2 – 4 times lower parity. Deviation from the PPP exchange rate is influenced by supply and demand for the currency, which in turn depends on various factors.
Exchange rates are published in the press. Typically, in the current information contained in the previous two quotes of the day and short-term forecasts.
3.3. Factors affecting the exchange rate
3.4. The main methods of regulating the exchange rate
3.5. Exchange rate regime
3.6. Currency quotation
4. Foreign exchange operations
4.1. Cash Transactions (transaction «spot»)
4.2. Forward contracts
4.3. Deal with an option
4.4. Transaction «swap»
4.5. Interest arbitrage
4.6. Currency futures
4.7. Exchange risk insurance
5. International settlements
5.1. The concept and means of international settlements
5.2. The mechanism of international settlements
5.3. The main forms of international settlements
Exchange rates are published in the press. Typically, in the current information contained in the previous two quotes of the day and short-term forecasts.
3.3. Factors affecting the exchange rate
Should distinguish between circumstantial and structural (long term) changes affecting the exchange rate.
Conjuncture factors affecting the exchange rate:
– The state of the economy (inflation rate, interest rates, currency markets, speculation, monetary policy, balance of payments, the extent of the use of national currencies in international payments, the acceleration or delay of International Settlements);
– The political situation in the country (political factor);
– The degree of confidence in the national currency at the national and international markets (psychological factor).
Circumstantial factors associated with fluctuations in enterprise activity, political and military-political situation, guesses and predictions. The exchange rate depends on how pessimistic or optimistic about the company with respect to public policy.
The higher inflation in the country compared with other states, the lower the rate of its currency, if not counteract other factors. Inflationary depreciation of money in the country causes a decrease in their purchasing power and a tendency to decline in their exchange rate[29].
The exchange rate affects the degree of currency on world markets. In particular, the preferential use of the U.S. dollar in international transactions and international capital markets is a constant demand for it and maintains its course even in the fall of its purchasing power or passive balance of payments[30]. Rising interest rates on deposits and (or) the profitability of securities in any currency will increase the demand for that currency and will lead to higher prices. Relatively high interest rates and yields of securities in the country (in the absence of restrictions on capital flows) will lead in the first place, the influx into this country of foreign capital and thus – to increase the supply of foreign currency, it’s cheaper and more expensive currency. Second, bring a higher return deposit and securities in national currency promote national cash outflow from the currency market, reducing demand for foreign currency, and a decline in the foreign and local currency appreciations.
With an active balance of payments is growing demand for its currency from foreign debtors, its rate can be increased.
Economic importance of the exchange rate determines the need for its regulation.
Along with the market conditions, which include the effect is difficult to supply and demand for currency, is the dynamics of its course, affect, and relatively long-term trends that determine the position of a national currency in the currency of the hierarchy (structural factors).
Structural factors:
– The competitiveness of goods on world markets and its changes. They are caused, ultimately, technological determinants. A forced export stimulates the flow of foreign currency;
– The growth of national income causes an increased demand for foreign products, while imports of goods may increase the outflow of foreign currency;
– A consistent increase in domestic prices compared to prices in the markets of partners increases the desire to buy cheaper foreign goods, while the tendency of foreigners to purchase goods or services that become increasingly expensive, disappears. As a result of reduced supply of foreign currency and depreciation is domestic;
– Other things being equal, higher interest rates is a factor in attracting foreign capital and, consequently, foreign currency, and can also lead to higher prices of domestic. But the rise in interest rates is well known, and the shadow side: it increases the cost of credit and a depressing effect on investment activity in the country;
– The development of securities market (bonds, bills of credit, stocks, etc.) that make up a healthy competition the foreign exchange market. The stock market may attract foreign currency directly, but also attract national funds which would otherwise be used for buying foreign currency[31].
Conjuncture factors affecting the exchange rate:
– The state of the economy (inflation rate, interest rates, currency markets, speculation, monetary policy, balance of payments, the extent of the use of national currencies in international payments, the acceleration or delay of International Settlements);
– The political situation in the country (political factor);
– The degree of confidence in the national currency at the national and international markets (psychological factor).
Circumstantial factors associated with fluctuations in enterprise activity, political and military-political situation, guesses and predictions. The exchange rate depends on how pessimistic or optimistic about the company with respect to public policy.
The higher inflation in the country compared with other states, the lower the rate of its currency, if not counteract other factors. Inflationary depreciation of money in the country causes a decrease in their purchasing power and a tendency to decline in their exchange rate[29].
The exchange rate affects the degree of currency on world markets. In particular, the preferential use of the U.S. dollar in international transactions and international capital markets is a constant demand for it and maintains its course even in the fall of its purchasing power or passive balance of payments[30]. Rising interest rates on deposits and (or) the profitability of securities in any currency will increase the demand for that currency and will lead to higher prices. Relatively high interest rates and yields of securities in the country (in the absence of restrictions on capital flows) will lead in the first place, the influx into this country of foreign capital and thus – to increase the supply of foreign currency, it’s cheaper and more expensive currency. Second, bring a higher return deposit and securities in national currency promote national cash outflow from the currency market, reducing demand for foreign currency, and a decline in the foreign and local currency appreciations.
With an active balance of payments is growing demand for its currency from foreign debtors, its rate can be increased.
Economic importance of the exchange rate determines the need for its regulation.
Along with the market conditions, which include the effect is difficult to supply and demand for currency, is the dynamics of its course, affect, and relatively long-term trends that determine the position of a national currency in the currency of the hierarchy (structural factors).
Structural factors:
– The competitiveness of goods on world markets and its changes. They are caused, ultimately, technological determinants. A forced export stimulates the flow of foreign currency;
– The growth of national income causes an increased demand for foreign products, while imports of goods may increase the outflow of foreign currency;
– A consistent increase in domestic prices compared to prices in the markets of partners increases the desire to buy cheaper foreign goods, while the tendency of foreigners to purchase goods or services that become increasingly expensive, disappears. As a result of reduced supply of foreign currency and depreciation is domestic;
– Other things being equal, higher interest rates is a factor in attracting foreign capital and, consequently, foreign currency, and can also lead to higher prices of domestic. But the rise in interest rates is well known, and the shadow side: it increases the cost of credit and a depressing effect on investment activity in the country;
– The development of securities market (bonds, bills of credit, stocks, etc.) that make up a healthy competition the foreign exchange market. The stock market may attract foreign currency directly, but also attract national funds which would otherwise be used for buying foreign currency[31].
3.4. The main methods of regulating the exchange rate
The main body of the foreign exchange regulations of the Russian Federation is the Central Bank of Russia. It defines the scope and procedure of appeal to the Russian Federation, foreign currency and securities in foreign currency, sets the rules for the residents and Russia operations with foreign currency and securities in foreign currency, as well as rules for non-residents operations with rubles and securities in rubles; establishes the procedure for compulsory transfer, import and transfer to Russia of foreign currency and securities in foreign currency belonging to residents, as well as events and conditions of opening resident foreign currency accounts with banks outside of Russia, sets out general rules for licensing credit institutions to carry out foreign exchange transactions and issues such licenses, establishes uniform forms of accounting, reporting, documentation and statistics of currency transactions.
The main methods of monetary control are:
– Currency intervention (buying and selling foreign currency to national);
– Central bank operations in the open market (buying and selling of securities);
– Change in central bank interest rates and (or) reserve requirements.
Exchange controls exercised by exchange controls and their agents. Currency control bodies are the Central Bank and the Government of the Russian Federation. Currency control agents are organizations that are in accordance with legislative acts may perform the functions of currency control.
The main directions of monetary control are:
– Determination of compliance of foreign exchange transactions with current legislation and the availability of necessary licenses and permits;
– To verify that the residents of foreign currency liabilities to the state, the validity of payments in foreign currency, completeness and objectivity of accounting and reporting of currency transactions and for transactions with nonresidents in rubles.
The object of national and transnational regulation is currency restrictions and currency convertibility regime.
As rightly pointed out Frederic Bastiat «you cannot give money to some members of the community but by taking it from others»[32]. Cash is in fact equivalent to existing facilities, money is their «mirror image», and, therefore, imperative redistribution of opportunity or simply move the cost of changing the terms without affecting the sum.
Foreign exchange restrictions – is introduced in legislation or regulation, restriction of operations with national and foreign currency, gold and other currency values.
Distinguish restrictions of payments and transfers for current transactions balance of payments and financial transactions (is transactions involving the movement of capital and credit), the operations of residents and nonresidents.
The number and type practiced in the country depends on foreign exchange restrictions convertibility regime. Currency convertibility (reversibility) – is the ability to convert (exchange) currency of the country for the currencies of other nations. Distinguish between free or fully convertible (reversible) exchange, partially convertible and nonconvertible (irreversible).
Fully convertible («freely usable» in the terminology of the IMF) are the currencies of the countries in which virtually no foreign exchange restrictions on all types of operations to all holders of currencies (residents and nonresidents). In partial convertibility of the country remain restrictions on certain types of operations and / or to individual holders of the currency. If the limited possibilities for conversion of non-residents, the convertible is called outer if non-residents – domestic. What matters most is convertibility on current account of balance of payments, it is possible without restrictions to the import and export goods. Most industrialized countries have switched to this type of partial convertibility of the mid-60s of the twentieth century.
Currency is not convertible, if the country has almost all kinds of restrictions and, above all, a ban on the purchase – sale of foreign currency, its storage, export and import. Inconvertible currency is typical of many developing countries.
The main methods of monetary control are:
– Currency intervention (buying and selling foreign currency to national);
– Central bank operations in the open market (buying and selling of securities);
– Change in central bank interest rates and (or) reserve requirements.
Exchange controls exercised by exchange controls and their agents. Currency control bodies are the Central Bank and the Government of the Russian Federation. Currency control agents are organizations that are in accordance with legislative acts may perform the functions of currency control.
The main directions of monetary control are:
– Determination of compliance of foreign exchange transactions with current legislation and the availability of necessary licenses and permits;
– To verify that the residents of foreign currency liabilities to the state, the validity of payments in foreign currency, completeness and objectivity of accounting and reporting of currency transactions and for transactions with nonresidents in rubles.
The object of national and transnational regulation is currency restrictions and currency convertibility regime.
As rightly pointed out Frederic Bastiat «you cannot give money to some members of the community but by taking it from others»[32]. Cash is in fact equivalent to existing facilities, money is their «mirror image», and, therefore, imperative redistribution of opportunity or simply move the cost of changing the terms without affecting the sum.
Foreign exchange restrictions – is introduced in legislation or regulation, restriction of operations with national and foreign currency, gold and other currency values.
Distinguish restrictions of payments and transfers for current transactions balance of payments and financial transactions (is transactions involving the movement of capital and credit), the operations of residents and nonresidents.
The number and type practiced in the country depends on foreign exchange restrictions convertibility regime. Currency convertibility (reversibility) – is the ability to convert (exchange) currency of the country for the currencies of other nations. Distinguish between free or fully convertible (reversible) exchange, partially convertible and nonconvertible (irreversible).
Fully convertible («freely usable» in the terminology of the IMF) are the currencies of the countries in which virtually no foreign exchange restrictions on all types of operations to all holders of currencies (residents and nonresidents). In partial convertibility of the country remain restrictions on certain types of operations and / or to individual holders of the currency. If the limited possibilities for conversion of non-residents, the convertible is called outer if non-residents – domestic. What matters most is convertibility on current account of balance of payments, it is possible without restrictions to the import and export goods. Most industrialized countries have switched to this type of partial convertibility of the mid-60s of the twentieth century.
Currency is not convertible, if the country has almost all kinds of restrictions and, above all, a ban on the purchase – sale of foreign currency, its storage, export and import. Inconvertible currency is typical of many developing countries.
3.5. Exchange rate regime
Exchange rate regime characterizes the order setting exchange ratios between currencies[33].
Distinguish between fixed and «floating» exchange rates and options, which combine in various combinations of the individual elements of a fixed and «floating» rate. Such a classification of exchange rate regimes generally conformed to the IMF currency division into three groups:
– Currency-bound (to a single currency, «currency basket» or the international monetary unit);
– Currencies with great flexibility;
– Currencies with limited flexibility.
Fixed exchange rate regime
Under the regime of fixed exchange rate the Central Bank sets the exchange rate at a certain level against the currency of any country to which the «tied» the currency of the country, the currency basket (usually it consists of currencies of major trading partners) or to the international monetary one.
Feature a fixed rate is that it remains unchanged for a longer or shorter time (several years or several months), that is not dependent on changes in supply and demand for the currency. Change the fixed rate is a result of its formal review (depreciation – decrease or revaluation – increase).
With a fixed rate the central bank often sets the various courses on individual transactions – treatment of multiple exchange rates. Fixed exchange rate regime is usually installed in countries with rigid exchange restrictions and non-convertible currency.
Mode of the «floating» or floating its currency
This mode is typical for countries where currency restrictions are absent or insignificant. Under such a regime exchange rate changes with relative ease under the influence of supply and demand for the currency. «Demand creates supply», the well-known position, but in complex systems is possible by introducing a second level of innovation in the process, it becomes the source of his self-control and random evolutionary dynamics[34].
Mode «floating» exchange rate does not preclude holding the Central Bank of various measures aimed at regulating the exchange rate. In March 1973 the country switched to floating exchange rates. However, the dominant state-controlled swimming rates.
Intermediate versions of exchange rate regime
For intermediate between a fixed and «floating» exchange rate regime options are:
– Mode «sliding lock», in which the Central Bank sets the exchange rate daily based on certain factors: inflation, balance of payments, changes in the value of official gold reserves, etc.;
– Mode of «currency corridor» in which the central bank sets the upper and lower limits of the exchange rate variations. Mode «currency corridor» as a mode called «soft commit» (if set narrow limits of variation) and the mode of «managed float» (if the corridor is wide enough). The wider «corridor», the more the movement of the exchange rate corresponds to the actual ratio of market supply and demand for currency[35];
– The mode of «co» or «collective diving» rates, which rates countries – members of the group supported the currency in relation to each other within the «currency corridor» and «swim together» around the office, outside the group.
The development of the exchange rate regime of the ruble in Russia. After the entry of Russia in 1992, the IMF, the Central Bank refused treatment of multiple exchange rates and imposed a regime of «floating» exchange rate. Since mid-1995 mode of the «floating» exchange rate regime was replaced by «currency corridor». In 1995-1997 The Bank of Russia established the absolute values of the upper and lower bounds on the exchange rate variations, and later introduced «horizontal trading band» with a central rate of the ruble to the U.S. dollar to possible deviations from it within certain limits. This «corridor» has been extended August 17, 1998, and since September 1998 exchange rate is set to «free float».
Distinguish between fixed and «floating» exchange rates and options, which combine in various combinations of the individual elements of a fixed and «floating» rate. Such a classification of exchange rate regimes generally conformed to the IMF currency division into three groups:
– Currency-bound (to a single currency, «currency basket» or the international monetary unit);
– Currencies with great flexibility;
– Currencies with limited flexibility.
Fixed exchange rate regime
Under the regime of fixed exchange rate the Central Bank sets the exchange rate at a certain level against the currency of any country to which the «tied» the currency of the country, the currency basket (usually it consists of currencies of major trading partners) or to the international monetary one.
Feature a fixed rate is that it remains unchanged for a longer or shorter time (several years or several months), that is not dependent on changes in supply and demand for the currency. Change the fixed rate is a result of its formal review (depreciation – decrease or revaluation – increase).
With a fixed rate the central bank often sets the various courses on individual transactions – treatment of multiple exchange rates. Fixed exchange rate regime is usually installed in countries with rigid exchange restrictions and non-convertible currency.
Mode of the «floating» or floating its currency
This mode is typical for countries where currency restrictions are absent or insignificant. Under such a regime exchange rate changes with relative ease under the influence of supply and demand for the currency. «Demand creates supply», the well-known position, but in complex systems is possible by introducing a second level of innovation in the process, it becomes the source of his self-control and random evolutionary dynamics[34].
Mode «floating» exchange rate does not preclude holding the Central Bank of various measures aimed at regulating the exchange rate. In March 1973 the country switched to floating exchange rates. However, the dominant state-controlled swimming rates.
Intermediate versions of exchange rate regime
For intermediate between a fixed and «floating» exchange rate regime options are:
– Mode «sliding lock», in which the Central Bank sets the exchange rate daily based on certain factors: inflation, balance of payments, changes in the value of official gold reserves, etc.;
– Mode of «currency corridor» in which the central bank sets the upper and lower limits of the exchange rate variations. Mode «currency corridor» as a mode called «soft commit» (if set narrow limits of variation) and the mode of «managed float» (if the corridor is wide enough). The wider «corridor», the more the movement of the exchange rate corresponds to the actual ratio of market supply and demand for currency[35];
– The mode of «co» or «collective diving» rates, which rates countries – members of the group supported the currency in relation to each other within the «currency corridor» and «swim together» around the office, outside the group.
The development of the exchange rate regime of the ruble in Russia. After the entry of Russia in 1992, the IMF, the Central Bank refused treatment of multiple exchange rates and imposed a regime of «floating» exchange rate. Since mid-1995 mode of the «floating» exchange rate regime was replaced by «currency corridor». In 1995-1997 The Bank of Russia established the absolute values of the upper and lower bounds on the exchange rate variations, and later introduced «horizontal trading band» with a central rate of the ruble to the U.S. dollar to possible deviations from it within certain limits. This «corridor» has been extended August 17, 1998, and since September 1998 exchange rate is set to «free float».
3.6. Currency quotation
Exchange rates – defining the proportions of exchange, that is, the mobile market rates of the day. They depend on the condition of the course yesterday, before closing, and on major international stock exchanges – from Tokyo to New York, what are the views of market conditions, foreign exchange potential of the banks. Full quotation includes the selling rate (usually higher) and buying (lower). The difference (margin) account fees.
Turnover on international stock exchanges, as well as short-term play money capital in order to profit from the difference in interest rates and exchange rates in the hundreds of times higher than world trade[36].
Exchange rates (currency quotation) – To identify and exchange rate chosen on the basis of market mechanisms[37].
In the currency market are two methods of currency quotes: direct and indirect (inverse). In most countries (including Russia) applied direct quotation, in which the rate of one unit of foreign currency expressed in domestic currency. In the indirect quotation exchange rate of national currency units expressed in a certain amount of foreign currency. Indirect quotation applied in the UK and since 1987 in the USA.
There are also quotes an official, interbank, exchange-traded. The official exchange rate quotation by the Central Bank. The official exchange rate used for accounting purposes and customs payments for the balance of payments.
Methods for determining the official exchange rate varies by country depending on the nature of the monetary system and exchange rate regime. In countries where the fixed exchange rate regime, the quotation is determined purely by administrative means. The Central Bank sets (regardless of supply and demand for currency) exchange rate against the currency of any one country to which the «tied» the currency of that country, or in relation to several currencies at once (on the basis of the «currency basket») or SDRs. At the same time the Central Bank may establish different exchange rates for individual operations (multiplicity of exchange). This method was used in the Russian Federation until July 1992.
Under the regime of «currency corridor» official exchange rate set under the «currency corridor», or at the level of the exchange (as, for example, in Russia from July 1995 to May 1996) or by daily quotations, the so-called «sliding fixation».
In some countries with underdeveloped exchange market, where the main circulation of currency transactions pass through the currency market, the official rate set at the level of the exchange.
In countries with a free currency market, where a regime of «floating» rate, depending on the prevailing supply and demand for foreign currency, central banks set the official exchange rate at the interbank level. In some industrialized countries maintained a tradition of setting the official exchange rate at the level of the exchange.
Since the bulk of foreign exchange operations in industrialized countries are carried out on-the-counter interbank market, the main course of the internal market in these countries is the interbank rate. Interbank quotation installs large commercial banks – the main operators of the foreign exchange market, supporting one another permanent relationship. They are called market makers (makers of the market).Other banks – market-users (users of the market) to apply for quotation of market makers. Interbank Foreign Exchange quotes are set by market makers by sequential comparison of supply and demand for each currency.
On the interbank rates are guided all the other members of the currency market, it is the basis of establishing rates for each currency. Exchange rate is mostly for reference.
In countries with rigid exchange restrictions and fixed exchange rate, all operations are conducted at the official rate. In some countries with underdeveloped exchange market, where the volume of currency transactions are in foreign currency exchange rate of the main foreign exchange market is the exchange quotation, which is formed on the exchange, based on the consistent comparison of bids for the purchase and sale of foreign currency (exchange fixing). Exchange rate is the basis of establishing rates, both in interbank transactions and for bank customers.
Distinguish quotes:
– The lines are used in most countries (including Russia). When direct quotation cost per unit of foreign currency expressed in national currency unit (for example, U.S. $ 1 = 29.64 RUR):
– Indirect, the unit adopted a national currency, the rate of which is expressed in a certain amount of foreign currency. Indirect quotation is used in the UK, since 1987, and in the U.S. (for example, 1 RUR = 0.034 U.S. dollar).
Between direct and indirect quotations of the inverse relationship exists:
The display of exchange rates of a large bank of any country is induced by the dollar against other currencies that is, represented by direct quotation.
For the British pound has historically maintained an indirect quotation, so the string GBP in this table is read as follows:
For example, on April 10, 2012 Bank of Russia[38] set for accounting purposes and customs payments the following rates:
Turnover on international stock exchanges, as well as short-term play money capital in order to profit from the difference in interest rates and exchange rates in the hundreds of times higher than world trade[36].
Exchange rates (currency quotation) – To identify and exchange rate chosen on the basis of market mechanisms[37].
In the currency market are two methods of currency quotes: direct and indirect (inverse). In most countries (including Russia) applied direct quotation, in which the rate of one unit of foreign currency expressed in domestic currency. In the indirect quotation exchange rate of national currency units expressed in a certain amount of foreign currency. Indirect quotation applied in the UK and since 1987 in the USA.
There are also quotes an official, interbank, exchange-traded. The official exchange rate quotation by the Central Bank. The official exchange rate used for accounting purposes and customs payments for the balance of payments.
Methods for determining the official exchange rate varies by country depending on the nature of the monetary system and exchange rate regime. In countries where the fixed exchange rate regime, the quotation is determined purely by administrative means. The Central Bank sets (regardless of supply and demand for currency) exchange rate against the currency of any one country to which the «tied» the currency of that country, or in relation to several currencies at once (on the basis of the «currency basket») or SDRs. At the same time the Central Bank may establish different exchange rates for individual operations (multiplicity of exchange). This method was used in the Russian Federation until July 1992.
Under the regime of «currency corridor» official exchange rate set under the «currency corridor», or at the level of the exchange (as, for example, in Russia from July 1995 to May 1996) or by daily quotations, the so-called «sliding fixation».
In some countries with underdeveloped exchange market, where the main circulation of currency transactions pass through the currency market, the official rate set at the level of the exchange.
In countries with a free currency market, where a regime of «floating» rate, depending on the prevailing supply and demand for foreign currency, central banks set the official exchange rate at the interbank level. In some industrialized countries maintained a tradition of setting the official exchange rate at the level of the exchange.
Since the bulk of foreign exchange operations in industrialized countries are carried out on-the-counter interbank market, the main course of the internal market in these countries is the interbank rate. Interbank quotation installs large commercial banks – the main operators of the foreign exchange market, supporting one another permanent relationship. They are called market makers (makers of the market).Other banks – market-users (users of the market) to apply for quotation of market makers. Interbank Foreign Exchange quotes are set by market makers by sequential comparison of supply and demand for each currency.
On the interbank rates are guided all the other members of the currency market, it is the basis of establishing rates for each currency. Exchange rate is mostly for reference.
In countries with rigid exchange restrictions and fixed exchange rate, all operations are conducted at the official rate. In some countries with underdeveloped exchange market, where the volume of currency transactions are in foreign currency exchange rate of the main foreign exchange market is the exchange quotation, which is formed on the exchange, based on the consistent comparison of bids for the purchase and sale of foreign currency (exchange fixing). Exchange rate is the basis of establishing rates, both in interbank transactions and for bank customers.
Distinguish quotes:
– The lines are used in most countries (including Russia). When direct quotation cost per unit of foreign currency expressed in national currency unit (for example, U.S. $ 1 = 29.64 RUR):
– Indirect, the unit adopted a national currency, the rate of which is expressed in a certain amount of foreign currency. Indirect quotation is used in the UK, since 1987, and in the U.S. (for example, 1 RUR = 0.034 U.S. dollar).
Between direct and indirect quotations of the inverse relationship exists:
The display of exchange rates of a large bank of any country is induced by the dollar against other currencies that is, represented by direct quotation.
For the British pound has historically maintained an indirect quotation, so the string GBP in this table is read as follows:
1 pound = 1.62 U.S. dollar– Cross-rate is the ratio between the two currencies in relation to third currencies.
For example, on April 10, 2012 Bank of Russia[38] set for accounting purposes and customs payments the following rates:
1 U.S. dollar = 29.64 RUR.
4. Foreign exchange operations
The most common is separation of currency transactions in cash and term. The first is also called the overnight (overnight). In this case we are talking about the provision of goods (currency) at the time of the transaction or within a few days, in the second – about the time lag between the date of the transaction and its implementation.
4.1. Cash Transactions (transaction «spot»)
Transactions on a «spot» (spot – cash, instant) made at the rate established at the time of the agreement, and the supply of currency no later than the second enterprise day. Delayed pay increases progressively fine-interest.
At the heart of deals «spot» is based on correspondent relationships among banks.
– The spatial arbitrage. This foreign currency transaction had to start spontaneously dealers. Profit arises from differences in the courses on various foreign exchange markets.
Under normal conditions, currency trading is, in its macroeconomic consequences, to a positive phenomenon, because it promotes the equalization of market rates. But inflation in the atmosphere an additional influx of a particular currency may cause the exchange rate distortions.
In a simple arbitrage interact two counterparties. Buyer shall pay from their bank accounts, dealer – acting on the orders of the first (or in conjunction with them) – accrues revenue. Their foreign exchange reserves as a whole does not change.
Complex or the conversion arbitrage involves working with a number of currencies in different markets. The study of the geography of currency rates reveals a point relative to cheaper foreign currency purchase. Broker like climbing the stairs, exchanging currency purchased on the third and fourth. And back to the original currency is not necessary.
Arbitration profit extremely unstable and conversion operations involve a risk to stay in the position outright in any link.
– Cross-operation – this is the equation of one currency to another through a third – the National, the country where the transaction or that the fairly widespread in world currency markets, through a preliminary equalization rates to the dollar.
In Russia, the cross-denominated transactions are carried out mediation when dealing with «soft» currencies.
Cross – the operation used a combination of foreign exchange purchase and sale of securities.
But the use of cross-operation is fraught with the risk of exchange rate changes between the first and second acts of the transaction. Sometimes, to avoid losses, it is necessary to involve a third or fourth transaction currency.
At the heart of deals «spot» is based on correspondent relationships among banks.
– The spatial arbitrage. This foreign currency transaction had to start spontaneously dealers. Profit arises from differences in the courses on various foreign exchange markets.
Under normal conditions, currency trading is, in its macroeconomic consequences, to a positive phenomenon, because it promotes the equalization of market rates. But inflation in the atmosphere an additional influx of a particular currency may cause the exchange rate distortions.
In a simple arbitrage interact two counterparties. Buyer shall pay from their bank accounts, dealer – acting on the orders of the first (or in conjunction with them) – accrues revenue. Their foreign exchange reserves as a whole does not change.
Complex or the conversion arbitrage involves working with a number of currencies in different markets. The study of the geography of currency rates reveals a point relative to cheaper foreign currency purchase. Broker like climbing the stairs, exchanging currency purchased on the third and fourth. And back to the original currency is not necessary.
Arbitration profit extremely unstable and conversion operations involve a risk to stay in the position outright in any link.
– Cross-operation – this is the equation of one currency to another through a third – the National, the country where the transaction or that the fairly widespread in world currency markets, through a preliminary equalization rates to the dollar.
In Russia, the cross-denominated transactions are carried out mediation when dealing with «soft» currencies.
Cross – the operation used a combination of foreign exchange purchase and sale of securities.
But the use of cross-operation is fraught with the risk of exchange rate changes between the first and second acts of the transaction. Sometimes, to avoid losses, it is necessary to involve a third or fourth transaction currency.
4.2. Forward contracts
Urgent or forward contracts are two-fold objective: profit-in the form of foreign exchange and insurance of participants against currency risks.
Emergency surgery for the sale (purchase) of foreign currency consists of the following conditions:
– The course of the transaction is recorded at the time of its conclusion;
– Transfer of currencies is carried out in 1 – 3 months (sometimes deadline is extended to one year);
– At the time of the transaction no amounts of accounts are generally not performed.
Forward exchange transaction occurred as a form of insurance for foreign trade operations. If the goods are sold on credit, the exporter seeks to preserve the value of its currency now existing rate. The importer, buying goods on credit and insuring them against the appreciation of the currency of the country of origin, may act as a buyer of the currency at a fixed time of the transaction rate.
Forward transactions are bank lenders seeking to guarantee itself against a possible depreciation of currency, which provided a loan.
Common in international practice has focus on the rate of «LIBOR» (London: Inter Bank Offered Rate) – the interest on interbank deposits in London.
Calculation of the premium (discount) to the forward rate by the following formula:
RQC – rate quoted currency;
% B – the rate on deposits in foreign currency B;
% A – the rate on deposits in foreign currency A;
PF – period forward.
The enterprise press usually puts the data on exchange rates of CIS countries and the interest rates on deposits. However, in this currency environment plays a significant role time unpredictability, non-economic conditions, foreign exchange rates on forward transactions are contractual in nature.
Emergency surgery for the sale (purchase) of foreign currency consists of the following conditions:
– The course of the transaction is recorded at the time of its conclusion;
– Transfer of currencies is carried out in 1 – 3 months (sometimes deadline is extended to one year);
– At the time of the transaction no amounts of accounts are generally not performed.
Forward exchange transaction occurred as a form of insurance for foreign trade operations. If the goods are sold on credit, the exporter seeks to preserve the value of its currency now existing rate. The importer, buying goods on credit and insuring them against the appreciation of the currency of the country of origin, may act as a buyer of the currency at a fixed time of the transaction rate.
Forward transactions are bank lenders seeking to guarantee itself against a possible depreciation of currency, which provided a loan.
Common in international practice has focus on the rate of «LIBOR» (London: Inter Bank Offered Rate) – the interest on interbank deposits in London.
Calculation of the premium (discount) to the forward rate by the following formula:
RQC – rate quoted currency;
% B – the rate on deposits in foreign currency B;
% A – the rate on deposits in foreign currency A;
PF – period forward.
The enterprise press usually puts the data on exchange rates of CIS countries and the interest rates on deposits. However, in this currency environment plays a significant role time unpredictability, non-economic conditions, foreign exchange rates on forward transactions are contractual in nature.
4.3. Deal with an option
In contrast, forward transactions with exact delivery date, united by the concept of «outright» (outright), option (a choice) does not fix the date of delivery. Distinguish between temporary options, options buyers and sellers. In all cases we are talking about the fact that one party pays the other an additional premium, but instead gets some special right. In the temporary option, for example, the right timing of currency supply. The bank sells foreign currency to the client on the forward rate «+» an extra bonus with the deadline for delivery. But the customer gets the right to demand payment at any time during a fixed period. Such an option could be very advantageous for particular variations in market exchange rates.
If the option is received (for a premium) the buyer, then as a matter of choice may be, and the right to refuse to accept the exchange of goods. Here, premium – premium plays the role of compensation. Right out of the deal for the forward period, and may belong to the seller who pays a premium to the buyer.
If the option is received (for a premium) the buyer, then as a matter of choice may be, and the right to refuse to accept the exchange of goods. Here, premium – premium plays the role of compensation. Right out of the deal for the forward period, and may belong to the seller who pays a premium to the buyer.
4.4. Transaction «swap»
Today, the transaction «swap» – is the purchase or sale of currency under a fixed exchange rate, but at the same time the conclusion of the reverse forward transaction, and payment terms are usually not the same (deal «sell-buy» in the jargon of the foreign exchange market). The swap transaction is used to cover the currency risk, as well as a possible gain in the future.
For example, somebody buys dollars for rubles a month for delivery and immediately makes a deal to sell them. Forward selling rate (is percentage price premium dollar) is the subject of the contract.
For interbank relationships swap transaction – an exchange of obligations or requirements, a form of insurance against risk, diversification, and replenish reserves.
The swap agreements between central banks are foreign currency exchange amounts (loans) to the short term, the exchange, which decays to the acts of buying foreign currency (for the target of intervention) and resell foreign currency.
Such agreements are common between the U.S. Federal Reserve and central banks of European countries. European Monetary Cooperation Fund – a prototype of the European Central Bank – interacted with the participants of the European Community based on three-month renewable constantly swap agreements.
Swap transactions are widely used in the monetary and credit transactions to profit from the difference in interest rates, in transactions with other valuables, including gold.
For example, somebody buys dollars for rubles a month for delivery and immediately makes a deal to sell them. Forward selling rate (is percentage price premium dollar) is the subject of the contract.
For interbank relationships swap transaction – an exchange of obligations or requirements, a form of insurance against risk, diversification, and replenish reserves.
The swap agreements between central banks are foreign currency exchange amounts (loans) to the short term, the exchange, which decays to the acts of buying foreign currency (for the target of intervention) and resell foreign currency.
Such agreements are common between the U.S. Federal Reserve and central banks of European countries. European Monetary Cooperation Fund – a prototype of the European Central Bank – interacted with the participants of the European Community based on three-month renewable constantly swap agreements.
Swap transactions are widely used in the monetary and credit transactions to profit from the difference in interest rates, in transactions with other valuables, including gold.
4.5. Interest arbitrage
In practice, often there are situations when interest rates suddenly rise or fall, and the forward market has not reacted to them. Here lurk the richest opportunities for application of interest rate arbitrage: buying the currency of a country on the spot rate and selling it for a fixed rate with an additional profit arising from the difference in percentage. An arbitrage profit is temporary – it disappears when the change in forward rate equalizes competitive conditions.
4.6. Currency futures
Futures emerged in the form of contracts for the supply of food and raw materials at an agreed price by a certain date. The contracts themselves are traded on commodity exchanges. The list of «real» content of futures extended. In Russia, the common three-month futures contracts for delivery of petroleum and petroleum products.
A futures contract is the stock market where buy and sell packages of securities (treasury bills and bonds), deposits, foreign currency. The main mass of this financial future is a three-month currency future. Exposing the financial futures market, brokers usually inform the date of the contract and payment and interest rates. The benefit will depend on the buyer to exchange rate, which is made a contract, and interest on short-term bank deposits.
A futures contract is the stock market where buy and sell packages of securities (treasury bills and bonds), deposits, foreign currency. The main mass of this financial future is a three-month currency future. Exposing the financial futures market, brokers usually inform the date of the contract and payment and interest rates. The benefit will depend on the buyer to exchange rate, which is made a contract, and interest on short-term bank deposits.
4.7. Exchange risk insurance
With the expansion of foreign exchange transactions in the general instability of monetary circulation is becoming urgent need for insurance of risks relating to exchange rate fluctuations. The system of measures to reduce currency losses called «hedging» (hedging – fence).
Forwards, options, swap transactions, futures – are the natural methods of short-term hedging. It is in itself a dual role of foreign exchange operations – profit and loss insurance. Banks seek to carry out operations to undesirable exchange rate changes, explore the possibility of compensation due to parallel or pre-emptive monetary actions.
Hedging through forward transactions involved in the Russian Vnesheconombank. He established a list of hard currency, which was carried out exchange risk insurance, the warranty period, the rates of commission.
Apart from hedging operations through currency, there are methods of direct insurance risks:
– Structural balance reserves. If the bank there are open positions on a range of currencies (and without that banks and other commercial structures practically cannot live), you should carefully monitor these rates so that the anticipation of devaluation, in time to the conversion of a declining currency, as well as get rid of unreliable stock values[39].
– Manipulation of payment deadlines (leads and lags – lead and lag). When the expected sharp changes in exchange rates, the banks seek to manipulate the timing calculations: if the expected appreciation of the currency of payment, apply for early payment, and vice versa if you are going to depreciate, the payment delay. Such measures are used to pay for goods and services, transfer of profits, repayment of loans or interest payments, etc.
– Discounting of bills in foreign currency is a form of insurance of foreign trade, in which the bank assumes the risk of currency fluctuations, and the debtor's insolvency. Bill discounting is used in long-term transactions (for example, deliveries of investment goods).
There are other private forms of hedging: the formation of the bank and its customers of the insurance fund, inclusion in a trade or credit transaction so-called «multi-currency clause», implying the possibility of revising the currency of payment, consultancy services on part of the hedge, which the bank provides its customers, etc.
Forwards, options, swap transactions, futures – are the natural methods of short-term hedging. It is in itself a dual role of foreign exchange operations – profit and loss insurance. Banks seek to carry out operations to undesirable exchange rate changes, explore the possibility of compensation due to parallel or pre-emptive monetary actions.
Hedging through forward transactions involved in the Russian Vnesheconombank. He established a list of hard currency, which was carried out exchange risk insurance, the warranty period, the rates of commission.
Apart from hedging operations through currency, there are methods of direct insurance risks:
– Structural balance reserves. If the bank there are open positions on a range of currencies (and without that banks and other commercial structures practically cannot live), you should carefully monitor these rates so that the anticipation of devaluation, in time to the conversion of a declining currency, as well as get rid of unreliable stock values[39].
– Manipulation of payment deadlines (leads and lags – lead and lag). When the expected sharp changes in exchange rates, the banks seek to manipulate the timing calculations: if the expected appreciation of the currency of payment, apply for early payment, and vice versa if you are going to depreciate, the payment delay. Such measures are used to pay for goods and services, transfer of profits, repayment of loans or interest payments, etc.
– Discounting of bills in foreign currency is a form of insurance of foreign trade, in which the bank assumes the risk of currency fluctuations, and the debtor's insolvency. Bill discounting is used in long-term transactions (for example, deliveries of investment goods).
There are other private forms of hedging: the formation of the bank and its customers of the insurance fund, inclusion in a trade or credit transaction so-called «multi-currency clause», implying the possibility of revising the currency of payment, consultancy services on part of the hedge, which the bank provides its customers, etc.
5. International settlements
5.1. The concept and means of international settlements
International operations – is the regulation of payments for monetary claims and liabilities arising from economic, political, scientific, technological and cultural relations between states, organizations and citizens of different countries.
Calculations carried out mainly by means of transfer in the form of entries in bank accounts. For this correspondent on the basis of agreements with foreign banks open correspondent accounts with banks «Loro» (through foreign banks in domestic credit institution) and «Nostro» (by the bank in a foreign bank).
Correspondent relations determine the order of payment, the fees, and methods of replenishment spent.
Since there is no global credit money taken in all the countries in the international accounts are used mottos – means of payment in foreign currency. Among them:
– Commercial bills of exchange (draft) – written orders for the payment of a sum certain person in a certain period, exhibited by exporters on foreign importers;
– Normal (ordinary) bills – debt obligations of importers.
– Bank bills – bills, bank exhibited this country to their foreign correspondents. Depending on the reputation of the banks' sphere of circulation of their bills is wider than commercial paper. Buying bank bills, importers exporters send them to repay their obligations.
– Bank Check – a written order to the bank to your bank – correspondent on the transfer of certain amount from its current account abroad to the check holder.
– Bank transfer – postal and telegraphic transfers abroad.
– Bank Cards – registered vouchers that entitle holders to use them to purchase goods and services on a cashless basis.
The system of international payment transactions using the so-called correspondent relationships with banks in other countries – the most common form of the transactions undertaken by commercial banks in the long-term philosophy[40].
Along with the national currencies of the leading countries used international currency unit – Euro and in a small amount of SDRs.
Gold, which is directly under the gold monometallic used as an international payment and means of purchase, in fiat credit money is used only as emergency money in the world of unforeseen circumstances. State if necessary resort to selling part of the official gold reserves of those currencies in which they expressed their international obligations. Thus, gold has been used for international payments indirectly through operations in the gold markets[41].
Calculations carried out mainly by means of transfer in the form of entries in bank accounts. For this correspondent on the basis of agreements with foreign banks open correspondent accounts with banks «Loro» (through foreign banks in domestic credit institution) and «Nostro» (by the bank in a foreign bank).
Correspondent relations determine the order of payment, the fees, and methods of replenishment spent.
Since there is no global credit money taken in all the countries in the international accounts are used mottos – means of payment in foreign currency. Among them:
– Commercial bills of exchange (draft) – written orders for the payment of a sum certain person in a certain period, exhibited by exporters on foreign importers;
– Normal (ordinary) bills – debt obligations of importers.
– Bank bills – bills, bank exhibited this country to their foreign correspondents. Depending on the reputation of the banks' sphere of circulation of their bills is wider than commercial paper. Buying bank bills, importers exporters send them to repay their obligations.
– Bank Check – a written order to the bank to your bank – correspondent on the transfer of certain amount from its current account abroad to the check holder.
– Bank transfer – postal and telegraphic transfers abroad.
– Bank Cards – registered vouchers that entitle holders to use them to purchase goods and services on a cashless basis.
The system of international payment transactions using the so-called correspondent relationships with banks in other countries – the most common form of the transactions undertaken by commercial banks in the long-term philosophy[40].
Along with the national currencies of the leading countries used international currency unit – Euro and in a small amount of SDRs.
Gold, which is directly under the gold monometallic used as an international payment and means of purchase, in fiat credit money is used only as emergency money in the world of unforeseen circumstances. State if necessary resort to selling part of the official gold reserves of those currencies in which they expressed their international obligations. Thus, gold has been used for international payments indirectly through operations in the gold markets[41].
5.2. The mechanism of international settlements
Trade implies equivalence, so transfer the object of trade is always accompanied by what lawyers call consideration[42]. Foreign contracts provide for the transfer of goods, or documents that are forwarded by the bank of the exporter or importer's bank to the bank of the country – the payer to pay in a timely manner. The calculations are carried out by various means of payment used in international circulation: bills, checks, money orders, wire transfers.
When paying with foreign buyers interested exporter to export proceeds for goods and services as quickly as possible came to his account. It depends not only on the forms, but also on the types of calculations. Types of calculations used in the global foreign trade practices, are as follows:
– Payment in cash;
– Calculation of credit;
– Mixed (combined) calculations[43].
Schematically, the mechanism of international payments is as follows:
– The importer buys from a bank wire transfer, cashier's check, promissory note or other payment document and sends the exporter;
– Exporter receives payment from the importer, this paper and sells it to his bank for local currency, which it needs for production and other purposes;
– The exporter's bank sends abroad its correspondent bank payment document;
– From the sale of this document, amount of foreign currency is credited by the bank of the importer to exporter's bank's correspondent account.
This mechanism allows for international settlements through correspondent banks by offsetting counterclaims and obligations without the use of cash.
Banks tend to support the necessary foreign exchange positions in different currencies according to the structure and timing of payments, as well as carrying out monetary and financial conditions and payment of foreign trade transactions include the following elements:
– Exchange rates, the choice of which along with its level, the interest rate and currency exchange rate depends on the degree of efficiency of the transaction;
– The currency of payment, which must be repaid the obligation of the importer (or borrower); mismatch of currency rates and currency of payment – the simplest method of exchange risk insurance;
– Payment terms – an important element of foreign trade transactions. Among them are distinguished: cash payments, payments to a loan, a loan with an option (the right to choose) cash payment.
By cash international settlements are settlements in the period from the date of readiness of the exported goods to the transfer of documents of the importer.
Provision of credit has a definite influence on the conditions of international payments. If his calculations are carried out after the international transfer of goods in the ownership of the importer, exporter that lends it’s usually in the form of issuing a bill. If the importer pays for goods in advance, he credits the exporter.
Loan with an option for cash payment, if the importer, exercise the right of deferral of payment for goods purchased, he is deprived of discounts offered by cash payment.
When paying with foreign buyers interested exporter to export proceeds for goods and services as quickly as possible came to his account. It depends not only on the forms, but also on the types of calculations. Types of calculations used in the global foreign trade practices, are as follows:
– Payment in cash;
– Calculation of credit;
– Mixed (combined) calculations[43].
Schematically, the mechanism of international payments is as follows:
– The importer buys from a bank wire transfer, cashier's check, promissory note or other payment document and sends the exporter;
– Exporter receives payment from the importer, this paper and sells it to his bank for local currency, which it needs for production and other purposes;
– The exporter's bank sends abroad its correspondent bank payment document;
– From the sale of this document, amount of foreign currency is credited by the bank of the importer to exporter's bank's correspondent account.
This mechanism allows for international settlements through correspondent banks by offsetting counterclaims and obligations without the use of cash.
Banks tend to support the necessary foreign exchange positions in different currencies according to the structure and timing of payments, as well as carrying out monetary and financial conditions and payment of foreign trade transactions include the following elements:
– Exchange rates, the choice of which along with its level, the interest rate and currency exchange rate depends on the degree of efficiency of the transaction;
– The currency of payment, which must be repaid the obligation of the importer (or borrower); mismatch of currency rates and currency of payment – the simplest method of exchange risk insurance;
– Payment terms – an important element of foreign trade transactions. Among them are distinguished: cash payments, payments to a loan, a loan with an option (the right to choose) cash payment.
By cash international settlements are settlements in the period from the date of readiness of the exported goods to the transfer of documents of the importer.
Provision of credit has a definite influence on the conditions of international payments. If his calculations are carried out after the international transfer of goods in the ownership of the importer, exporter that lends it’s usually in the form of issuing a bill. If the importer pays for goods in advance, he credits the exporter.
Loan with an option for cash payment, if the importer, exercise the right of deferral of payment for goods purchased, he is deprived of discounts offered by cash payment.
5.3. The main forms of international settlements
To link the opposing interests of counterparties in the international economic organizations and their payment relationship apply various forms of payment.
The choice of methods of payment depends on:
– Type of product;
– Availability of credit agreement;
– The solvency and reputation of counterparties for foreign economic transactions.
The contract specifies the conditions and methods of payment.
– The collection form of payment – the client's order to the bank on receipt of payment from the importer of goods and services and placement of these funds to the exporter's bank. Banks perform collection operations, using the instructions received from the exporter in accordance with the Uniform Rules for Collections.
– Letter of credit – an agreement on the obligation of the bank at the request of the customer to pay for the documents, accept, or (negotiate) a bill in favor of a third person (beneficiary) to whom a letter of credit.
The procedure for this form of payment is regulated by the Uniform Customs and Practice for Documentary Credits. The letter of credit (especially irrevocable and confirmed) to a greater extent than the collection ensures timely payment.
However, this is the most complex and expensive form of payment, the importer in this case has to reserve the amount of credit or use credit bank.
– Bank Transfer – order one bank to another to pay the payee (beneficiary) a certain amount. It involves:
– Originator – the debtor;
– A bank, took the assignment;
– The bank that executes instructions;
– Payee.
In international transactions often take the transferor bank customers. In the form of transfer payments made collections, advance payments recalculated. Bank transfers are often combined with other forms of payment, as well as the guarantees of banks.
The instruction specifies a way to recover the bank of the payer amount paid to them. Payee bank is guided by specific instructions contained in the payment order.
– Advance payment – the payment of goods importer in advance of shipment, and sometimes to their production (for example, the import of expensive equipment, ships and aircraft). In contrast to international practice, where advance payments are 10 – 33% of the contract, in Russia they reach 100%. Thus lend importers of foreign suppliers. Consent of the importer at a pre-payment due either to his interest, or the pressure of the exporter.
– Calculations on open account – settlements providing for periodic payments in a timely manner at the importer to exporter of regular supplies of goods on credit to this account. These calculations are most beneficial to the importing and practices of trust and long-term relationship with a foreign supplier.
The seller delivers the goods with no guarantee of payment, the buyer transfers money to the payment date. The seller does not receive any guarantees from the buyer. Therefore, such terms of payment are possible only in one country or between firms that know each other well and in foreign trade are rarely encountered.
The peculiarity of this form of payment is that the movement of goods a head of the movement of money. Calculations related to commercial loans. In fact, this form of payment used for lending to the importer.
– Calculations based on bills, checks, bank cards – international payments, which apply transferable and regular bills. For the payment of a bill acceptor is responsible (importer or the bank), consenting to pay it. A uniform law a bill (1930) governs the form, details, and the terms of billing and payment of bills.
For non-commercial transactions be used travel (tourism) receipts issued by a major bank in different currencies. Cheque – monetary instrument prescribed form containing an order to pay the bank designated by him the currency to its owner. Form and check details are regulated by national and international laws (check the 1931 Convention, etc.).
If payment is made by check, the debtor (buyer) either alone puts a check (check the client), or shall refer it to the bank statement (check the bank).
Road (coach) check – a payment document, the monetary obligation (order) to pay the amount indicated on it the owner of the check. It is issued by major banks in national and foreign currency.
Eurocheque – check in the Euro-currency issued by a bank customer without prior payment of cash and in larger amounts through a bank loan of up to 1 month. He is paid in any currency of the country – member agreement. Eurocheque in force since 1968.
The choice of methods of payment depends on:
– Type of product;
– Availability of credit agreement;
– The solvency and reputation of counterparties for foreign economic transactions.
The contract specifies the conditions and methods of payment.
– The collection form of payment – the client's order to the bank on receipt of payment from the importer of goods and services and placement of these funds to the exporter's bank. Banks perform collection operations, using the instructions received from the exporter in accordance with the Uniform Rules for Collections.
– Letter of credit – an agreement on the obligation of the bank at the request of the customer to pay for the documents, accept, or (negotiate) a bill in favor of a third person (beneficiary) to whom a letter of credit.
The procedure for this form of payment is regulated by the Uniform Customs and Practice for Documentary Credits. The letter of credit (especially irrevocable and confirmed) to a greater extent than the collection ensures timely payment.
However, this is the most complex and expensive form of payment, the importer in this case has to reserve the amount of credit or use credit bank.
– Bank Transfer – order one bank to another to pay the payee (beneficiary) a certain amount. It involves:
– Originator – the debtor;
– A bank, took the assignment;
– The bank that executes instructions;
– Payee.
In international transactions often take the transferor bank customers. In the form of transfer payments made collections, advance payments recalculated. Bank transfers are often combined with other forms of payment, as well as the guarantees of banks.
The instruction specifies a way to recover the bank of the payer amount paid to them. Payee bank is guided by specific instructions contained in the payment order.
– Advance payment – the payment of goods importer in advance of shipment, and sometimes to their production (for example, the import of expensive equipment, ships and aircraft). In contrast to international practice, where advance payments are 10 – 33% of the contract, in Russia they reach 100%. Thus lend importers of foreign suppliers. Consent of the importer at a pre-payment due either to his interest, or the pressure of the exporter.
– Calculations on open account – settlements providing for periodic payments in a timely manner at the importer to exporter of regular supplies of goods on credit to this account. These calculations are most beneficial to the importing and practices of trust and long-term relationship with a foreign supplier.
The seller delivers the goods with no guarantee of payment, the buyer transfers money to the payment date. The seller does not receive any guarantees from the buyer. Therefore, such terms of payment are possible only in one country or between firms that know each other well and in foreign trade are rarely encountered.
The peculiarity of this form of payment is that the movement of goods a head of the movement of money. Calculations related to commercial loans. In fact, this form of payment used for lending to the importer.
– Calculations based on bills, checks, bank cards – international payments, which apply transferable and regular bills. For the payment of a bill acceptor is responsible (importer or the bank), consenting to pay it. A uniform law a bill (1930) governs the form, details, and the terms of billing and payment of bills.
For non-commercial transactions be used travel (tourism) receipts issued by a major bank in different currencies. Cheque – monetary instrument prescribed form containing an order to pay the bank designated by him the currency to its owner. Form and check details are regulated by national and international laws (check the 1931 Convention, etc.).
If payment is made by check, the debtor (buyer) either alone puts a check (check the client), or shall refer it to the bank statement (check the bank).
Road (coach) check – a payment document, the monetary obligation (order) to pay the amount indicated on it the owner of the check. It is issued by major banks in national and foreign currency.
Eurocheque – check in the Euro-currency issued by a bank customer without prior payment of cash and in larger amounts through a bank loan of up to 1 month. He is paid in any currency of the country – member agreement. Eurocheque in force since 1968.