International Finance and Law: Case Study of Fashion Pvt. Ltd's Trade

This case study focuses on the international finance and trade practices of Fashion Pvt. Ltd, an Indian textile exporter. The company plans to import machinery from Germany and expand its exports to new markets, necessitating additional working capital. The analysis outlines key international trade principles, including the importance of increasing exports to boost profits. It examines various international trade financing options, such as bank credits, factoring, and forfeiting agreements, to meet both short-term and long-term capital requirements. The study recommends factoring agreements for short-term needs and forfeiting for machinery purchases, emphasizing the reduction of operational efforts and optimal capital costs. The company's projected sales growth and business expansion highlight the need for these financing strategies to support its international trade activities. The case study also highlights the use of financial instruments like letters of credit and bank guarantees to facilitate trade transactions.

Running head: INTERNATIONAL FINANCE AND LAW
International Finance and Law
Name of the Student:
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Table of Contents
Key International Trade and Finance Principle:..............................................................................2
Increase in Export thereby increase in profit:..............................................................................2
International Trade Financing:....................................................................................................2
Financial Instruments to facilitate foreign trade:.............................................................................2
Typical foreign trade transaction involved:.....................................................................................3
Recommended International financing strategy for the company:..................................................4
References and bibliography:..........................................................................................................5

2INTERNATIONAL FINANCE AND LAW
Key International Trade and Finance Principle:
International trade or business involves transactions cross the geographical border of a
country. In the given case study of Fashion Pvt. Ltd, the company is planning to purchase some
machinery from Germany. Their trade practice is based on letter of credit, which allows a 180
days credit period to the buyers. They are also planning to extend their export to various new
international markets, which needs additional working capital. To meet the capital need for
purchase of machinery and working capital for lag in collection from accounts receivable, they
need to raise funds. Analysing all this aspects, key international trade practices can be outlined as
follows.
Increase in Export thereby increase in profit:
They are having a projected increase in their sales for the current year, and it will
increase their volume of business considerably. As they are having a well growth and
performance experience in the past, their target of 40% growth is justifiable. They just need to
finance the working capital to achieve that target.
International Trade Financing:
The most important point in this case study is the financing of capital for the machinery
purchase and working capital requirement. There are various ways of international trade finking
to meet their capital needs. They need to select one of the optimum options for financing their
capital requirements.

3INTERNATIONAL FINANCE AND LAW
Financial Instruments to facilitate foreign trade:
There are various financial instruments available to the Fashion Pvt. Ltd to finance their
long term and short-term capital needs. They can raise the fund from bank or from any other
agencies. They can avail Pre-Shipment and Post-Shipment finance from the bank for their short-
term capital needs to purchase raw materials, pay wages and packaging expenses. They also can
raise fund by discounting Letter of Credits received from their buyers. For financing their
machinery purchase, they can use the Letter of credit or bank guarantee from the bank.
To raise fund from other agencies, they can chose either the factoring or forfeiting
agreements with the factoring agencies. They can go for the factoring with resource agreement,
which will leave the default risk on to them, or they can go for the factoring without resource,
which will cost more to them, but the default risk will be completely assumed by the factoring
agent. On the other hand, to meet the long-term capital needs for machinery purchase, they can
enter into a forfeiting agreement against bill of exchange, letter of credit or promissory notes.
There are numerous other financing options for internationals trade financing. The Export Import
Bank of India also facilitates various credit options, loans and financial and non-financial
supports to the exporter and importers for promoting export and import.
Typical foreign trade transaction involved:
In the given case study, the company is going to import machineries from Germany,
which involves various basic events and transactions. The company will borrow some funds
based on certain trade documents and invoices. They will receive letter of credit from the buyer
and then they will approach any one of bank or the factoring agent to raise working capital to
meet their short-term expenses. They also need long-term finance, which will be met by the bank

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guarantee or forfeiting. Many other basic international trade transactions such as procurement of
goods, shipment of goods and raising and collecting various clearance and approval are also
involved in the whole process.
Recommended International financing strategy for the company:
There are mainly two options available for the company to meet their long term and
short-term finance needs, one is bank credit and the other is factoring and forfeiting. After
analysing the terms of bank credit and factoring agreements, it would be better for the company
to go for the factoring agreement for their short-term capital requirements. Further, they should
go for the factoring with resource option, which will assume the full buyer’s default risk
(Hoefele, Schmidt‐Eisenlohr and Yu 2016). It also eliminates certain level of efforts, which
would have been required for the company in collection of debts from the buyers. For their long
term capital needs to purchase the machinery from Germany, they should chose the Forfeiting
option against the bills of exchange, invoices and other trade documents.
From the above discussions, it can be concluded that, the company is projecting a sales
growth as well as a growth in their volume of business and it needs short term and long term
capitals. The most appropriate source of those capitals could be the factoring and forfeiting
agreements, which will reduce their operational efforts to certain extent along with optimal
capital costs.

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References and bibliography:
DiCaprio, A., 2014. ADB trade finance gap, growth, and jobs survey.
Eva, Koišová, and Ivanová Eva. "DEVELOPMENT AND TENDENCIES OF FACTORING
MARKET." Management (16487974) 26, no. 1 (2015).
Hoefele, A., Schmidt‐Eisenlohr, T. and Yu, Z., 2016. Payment choice in international trade:
Theory and evidence from cross‐country firm‐level data. Canadian Journal of Economics/Revue
canadienne d'économique, 49(1), pp.296-319.
JANČÍKOVÁ, E., 2014. Bank Payment Obligation–New Challenge For Supply Chain
Finance. FINANCIE A RIZIKO 2014 časť 2, 2, p.107.