1

INTERNATIONAL FINANCIAL MANAGEMENT

 Rehman ali
 Roll #

 1st member

2
MODEL

 Ahmad hassan
 Roo# 17

 2nd member

3
REGULATORY BODIES

 Basit ali
 Roll#

 3rd member

4
MANAGEMENT OF FOREX RISK

 Tariq ahmad shah

 Roll#13

 4th member

5
 EXCHANGE RISK MANAGEMENT

Many firms are exposed to foreigner exchange risk.

Where their wealth is effected (positively/negatively)
by the movement in the exchange rates. And they will
seek to manage their risk exposure.
o We will discuses different types of foreign exchange
risks and introduce methods for hedging that risks.
TYPES OF FOREIGN EXCHANGE RISK

Three types of foreign exchange risk.

o Transaction risk
o Economic risk
o Translation risk
TRANSACTION RISK

The risk of financial loss or gain to MNE due to

unanticipated exchange rate change effecting future
cash flow from transaction that are dominated in foreign
exchange.
o Associated with the import and export.
o The amount finally received depend on foreign
exchange movement.
o Transaction risk increase when the time period
between transaction date and settlement date
increase.
ECONOMIC RISK

The risk of financial loss or gain to MNE due to the

effect of unanticipated exchange rate change on the
future cash flows that are dominated in foreign
currencies.
o Transaction exposure focuses on relatively short-
term cash flows effects. economic exposure
encompasses these plus the longer-term affects of
changes in exchange rates on the market value of a
company.
TRANSLATION RISK

The risk of losses or gains on the MNE balance sheet

due to unhedged exchange rate changes during an
accounting period.
Note: a paper-based exercise - it is the translation not
the conversion of real money from one currency to
another.
DIFFERENCE

Transaction risk Economic risk Translation

risk
• Arises from • The amount are
contractual uncertain and • Arises when a
commitment and
based on estimate. firm have only
amount are known.
• Economic risk foreign
arise when a operations.
MNC incurs a
cost in one
• Focus on short term currency and
cash flow generates sales in
another.
• Arises even a
company have • Is backward
domestic looking concept.
operations.
Sharif Ullah
Roll# 29
5th member
HEDGING TRANSACTION RISK

 Invoice in home currency

One easy way is to insist that all foreign customers pay in your home
currency and that your company pays for all imports in your home currency.

 Leading and lagging

If an importer (payment) expects that the currency it is due to pay will
depreciate, it may attempt to delay payment. This may be achieved by
agreement or by exceeding credit terms.
If an exporter (receipt) expects that the currency it is due to receive will
depreciate over the next three months it may try to obtain payment
immediately. This may be achieved by offering a discount for immediate
payment.
 Matching
When a company has receipts and payments in the same foreign
currency due at the same time, it can simply match them against
each other.
It is then only necessary to deal on the forex markets for the
unmatched portion of the total transactions.

 Forward contracts
The forward market is where you can buy and sell a currency, at a
fixed future date for a predetermined rate, i.e. the forward rate of
exchange. This effectively fixes the future rate.
NAME : WAQAR HUSSAIN BARKI
ROLL#

6TH MEMBER

15
 LETTER OF CREDIT

A letter issued by a bank to another bank

(especially one in a different country) to
serve as a guarantee for payment made to
a specified person under specific
conditions.

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 TYPES OF LETTER OF CREDIT

1. Documentary letter of credit.

A documentary letter of credit specifies the

various documents which are required to
be produced by exporter to importer such
as commercial invoice, bill of exchange
and insurance policy etc.

17
2. Revocable letter of credit.

The revocable letter of credit can be

withdrawn by the importer bank at any
time, withdraw can be effected by without
notice to the exporter.

18
3. Irrevocable letter of credit.

The irrevocable letter of credit just opposite

of revocable letter of credit. It can not be
withdrawn without permission of the
exporter.

19
4. Restricted letter of credit.

The importer may insist that shipping

documents be transferred through a
specified bank only.

20
 Group# 7th
 NAME: TAJDAR ALAM
 ROLL NO: 33
 SEMESTER: 5TH
Defintion
One of the negotiable instruments
A bill of exchange is an order in writing, directing a person to
pay a sum of money, to a specified person.
Section 5 of the negotiable instruments Act, 1881
Defines a bill of exchange as 'an instrument in writing, containing
an unconditional order, signed by the maker, directing a certain
person to pay a certain sum of money only to or to the order of a
certain person, or to the bearer of the instrument’
 Parties to a Bill of Exchange
 i. The Drawer- the person who makes the
order for making payment. He is the maker of
the bill. In the
 ii. The Drawee- the person to whom the order to pay is
made. He is generally a debtor of the drawer and when he
accepts the bill he becomes the ‘acceptor’ and is liable on
it.
 The Payee- The person to whom the payment is to be
made. The drawer can also draw a bill in his own name
thereby he himself becomes the payee. Here the words in
the bill would be pay to us or order.
Features of a bill of exchange
 Although a bill of exchange and a promissory note are different
in form, the essential requirements are more or less the same.
 1. it must be in writing
 2. it must be signed by the drawer.
 3. The Drawer, Drawee, and Payee must be certain.
 4. The sum payable must also be certain
 5. It should be properly stamped, formalities like date, place etc.
 6. It must contain an express order to pay money and money
alone. E.g.. “please pay Rs.5000 to the order of ‘P’.
 7. The order must be unconditional.
 Difference between promissory Note and Bills of Exchange
Points of Differ Promissory Note Bill of Exchange
No. of parties Two parties; maker & payee Three parties; Drawer, Drawee &
payee
Promise or Order Promise to pay Order to pay
Prior acceptance Not necessary Acceptance by Drawee
Liability (maker) Absolute and primary Secondary and conditional
Relation The maker of the promissory The maker or drawer of an
note stands in immediate accepted bill stands in
relation with the payee immediate relations with the
acceptor and not the payee

Notice of Dishonor To the maker; not necessary
protest Not necessary in case of dishonor
of note
Who draws on whom A promissory note is made by a
debtor and sent to his creditor
To be given by the holder to all
the liable persona.
Foreign bill of exchange must be
protested for dishonor when
such protest is required to be
made by the law of the country
where they are drawn
A bill is drawn by a creditor on
his debtor
 Group # 8th
 NAME: USMAN SADDIQ
 ROLL NO: 15
 Semester: 5th
Ahmad Peshawar KPK
Rs.50,000 2 April, 2018
Three months after date pay to me or my order, the sum of Rupees Fifty Thousand only, for
value received.

STAMP
Accepted
(Signed) (signed)
Khan Ahmad
2/4/2018 128, Sawabi
Hayatabad phase #5 , 5/10 Mall Avenue KPK, Pakistan
Khyber PakhtunKhwa Peshawar-220055

To,
Khan
Hayatabad phase #
5/10 Mall Avenue
KPK Pakistan
 Types of Bills of Exchange
 1. Demand Bill- a bill of exchange that is payable on demand or at sight or
when presented is a demand bill.

 2. Usance Bill- A bill which specifies the time period for the payment is a
Usance bill. It is also known as a time bill.

 3. Documentary Bill- It is a bill which is accompanied by documents

confirming genuineness of trade transaction that took place between the buyer
and seller. These documents include invoices, railway receipts, lorry receipts,
bills of ladding etc.

 4. clean Bills- A clean bill does not accompany any documents of proof. The
interest rate charged on clean bills is usually higher than documentary bills.

 5. Inland Bills- it is a bill of exchange that is drawn in Pakistan and payable in

Pakistan or a bill drawn on an Pakistani resident, either payable in Pakistan or
any other country.
 6. Foreign bills- All bill of exchange payable outside
Pakistan are foreign bills. Bills which are not inland bills are
foreign bills.
 Export Bill- A bill drawn by an exporter on party outside
Pakistan.
 Import Bill- A bill drawn by exporter outside Pakistan on
Pakistani importers.
 7. Trade Bill- A Bill drawn and accepted for the purpose of
a genuine trade transaction.
 8. Accommodation Bills- A bill drawn, accepted or
endorsed without any consideration.
Difference between bill of exchange and bill
of Lading
 A bill of exchange is a documentation of payment, much like a
promissory note. On the other hand, a bill of lading is a
receipt detailing the goods being shipped.
 Bills of Lading:
 A document from a shipper of goods that describes the goods
being shipped and notes the quantity.
 Serves as a receipt when the goods being shipped arrive at
their destination.
 Evidence of shipment, proof of receipt of the goods by the
carrier from the company or individual providing the goods for
shipment.
 Bill of exchange:
 Bill of exchange is a document used in international
shipping, a negotiable instrument that is created by the
seller or exporter and given to the buyer or importer.
 Legally bind the buyer to pay an agreed-upon sum of
money to the seller on a specified date.
 Bank draft- when bill of exchange is issued by bank is
called bank draft.
 if issued by an individual, it is commonly referred to as
trade draft.
Difference between a bill of exchange
and cheque
Bill of Exchange Cheque
Payable on demand, or at a fixed or Payable on demand
determinable future date

Drawn on any one Drawn on a financial institution

Can’t be crossed Can be crossed
(always negotiable)

Continuing security Presented for payment within a reasonable

time

Obligation from acceptance of bill Ongoing relationship

It should be stamped Not required
Accepted before the drawee can be made Not require any acceptance
liable