Free Online Course in International BusinessFacilitating External FinancingTo understand the risks of external financing, the following questions need to be asked:• What is external financing? • How can it be viewed and understood? • How does CAMEL play a role in external financing as it has been described above? • What are the issues and factors that need to be considered when determining external financing? The answers can be grouped by both commercial and political risk categories as discussed below. Commercial Credit Risk• Nature of the business• Financial strength of the buyer • Nature of the relationship with the buyer new buyer or a frequent customer, dealer/distributor, or a subsidiary/affiliate • Buyer's record of meeting local and international payment obligations • Ownership of buyer, private or public sector • Potential loss if shipment is not accepted: • value of the shipment (marginal pricing concept cash invested in the goods, high or low profit at the margin) • types of goods , perishable or specially manufactured where total loss might result if shipment were refused • likelihood of shipment being refused a change in market conditions for commodity shipments may induce buyer to refuse shipment). Sources of information to help companies identify commercial credit risk are: • credit reports from independent agencies, banks, etc. • customer supplied financial data • industry intelligence Political Risks• Political conditions in buyer's country• Stability of the local, state and federal governments • Possibility of import license cancellation, or other unexpected actions that would result in the non acceptance of the shipment • Possibility of coup, civil disturbance, etc. • Possibility of change in foreign exchange regulations that could delay or disrupt payment Economic Risks• Economic conditions in buyer's country including expected and recent changes• Economic trends inflationary, recessionary, etc. • Currency exchange control regulations • Currency flow regulations • Country's balance of payments Sources of information to help companies identify political and economic risks are government and private agency intelligence reports including the following: • Chase World Guide for Exporters • Chase Econometrics Country Reports • International Monetary Fund Data • World Bank Data • CIA World Fact Book • US Department of Commerce - Country Commercial Guides • US State Department - Country Reports SummaryAfter completing this lesson, you should be able to describe the ways to ensure timely payment and both the economic and political risks factors that influence payment results. Included in the ability to recognize the ways risk factors influence payment is knowing when alternative means of financing need to be considered.ResourcesAssociation of Executes in Finance, Credit & International Business (FCIB) - ww.fcibglobal.comChase Publications - www.chase.com (see World Guide for Exporters & Chase Econometrics Country Reports) International Monetary Fund Data - www.imf.org World Bank Data - www.worldbank.org The CIA World Fact Book - www.cia.gov US Department of Commerce - Country Commercial Guides - www.export.gov US State Department - Country Reports www.state.gov
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