Monetary and financial conditions of international loans
The complex of monetary, financial and payment terms of the loan includes the currency of the loan and the currency of payment, the amount and terms of the loan, the cost of the loan (interest, commissions), collateral.
Credit and payment currency. For international credit, it is important in what currency it is provided, as its volatility can lead to large losses of the lender. The choice of the loan currency is influenced by a number of factors: its stability, the interest rate level, the practice of international settlements, the degree of inflation and the dynamics of the exchange rate. The currency of the payment may not coincide with the currency of the loan, since the goods are basically settled in the main currencies of international payments (US dollar, euro), and the final settlements for foreign trade contracts are most often made in the payer's currency, if it is convertible. For example, the loan currency is a dollar, euro, and the currency of payment is the national currencies of borrowers (so-called soft loans).
The amount (limit) of a loan is fixed in a commercial contract. The amount of the bank loan (credit line) is determined by the loan agreement. The loan can be provided in a lump sum or in several installments (tranches). In accordance with the established practice, international credit usually covers up to 85% of the cost of export equipment. The rest is provided by advance cash payments and guarantees. The term of an international loan depends:
- from the purpose of the loan;
- the relationship between supply and demand for similar loans;
- national legislation;
- traditional lending practices
- international relations.
The loan term is complete and average. The full term is considered from the moment of the use of the loan until its final repayment. It is defined as follows:
where Cn is the full term of the loan; Pi is the period of use; Lp - grace period; Pn - repayment period.
Unlike a bank loan, the period of use of a commercial loan coincides with the delivery of the goods under the contract. The beginning of the full term is the date of acceptance by the buyer of the drafts issued by the exporter after the last shipment of the goods was delivered, i.e. after the exporter has fulfilled all obligations under the contract. The grace period is especially important for corporate loans, since during this period the borrower pays only interest, and the beginning of repayment of the capital part of the debt coincides with the beginning of the receipt of proceeds from the operation of the credited and purchased equipment.
But the full term of the loan does not show, during what period at the disposal of the borrower is the entire loan amount. Therefore, in order to compare the effectiveness of loans with different conditions, the average time is used, showing, on average, the total amount of the loan:
where Сср - average term of the credit; 0,5PI - half of the period of use; Lp - grace period; 0,5Pp - half of the repayment period.
The average term of the loan is less than the full term. True, they can coincide if the loan is granted immediately in full and repaid by a lump sum. If the use or repayment of the loan is uneven, then the average period is determined as follows:
where Сср - average term; NK - outstanding loan on the date; Lim - the amount (limit) of the loan.
The cost of a loan is built from contractual and hidden elements.
Contractual elements - are:
- interest rates and bank fees; the percentage period during which the percentage is fixed
at an unchanged level;
is a grant element that shows which part of the payments the creditor is not receiving as a result of the grace period of the loan.
Hidden items of the loan value are:
- overstatement of commodity prices;
- forced deposits;
- compulsory insurance requirements;
- overstatement of bank commissions (for settlement operations, for example);
- individual obligations to compensate part of the cost of lending.
To the main elements of the loan amount are the amounts that the debtor pays to the lender:
where Ck is the cost of the loan; KD - the capital part of the debt; ΣΠ is the sum of all interest paid on the loan.
To additional elements include the amounts paid by the borrower to third parties (guarantors, insurers, etc.). In addition, in addition to the basic interest, a special and one-time bank commission is paid. For medium- and long-term loans, commissions are charged for the obligation to provide loans and for reserving funds (0.2-0.75% per annum). With syndicated loans, the bank manager is paid a one-time commission (0.5% of the loan amount), as well as to banks for participation (0.2-0.5%).
There are several types of commissions for loans:
- a commission for negotiations ( negotiation fee);
- participation fee ( participation fee);
- management fee ( management fee);
- agency commission ( agency fee);
- commission for the obligation to provide the debtor with the necessary funds ( commitement fee).
Ultimately, the cost of an international loan is formed on the basis of interest rates (usually in the leading market states: the USA, Europe, Japan). The main factors determining the interest rate are as follows:
- the monetary, financial, economic and political situation in the borrower's country;
- Sources of credit;
- type of interest rate (floating, fixed, combined);
- loan term; rate of inflation;
- the connectedness or non-attachment of a loan with commercial transactions;
- the state of international and national credit markets;
- the dynamics of the exchange rate;
- the currency of the loan and payment;
- the amount of the contract;
- the quality of the loan;
- the status, commercial reputation and financial position of the borrower;
- the nature of project risks;
- availability of loan guarantee;
- international agreements on loans.
In other words, interest on the international credit market - is a multifactorial phenomenon. Periodically, there is an explosive growth in interest on the international credit market, as a consequence of the influence of this or that factor. Since the 1970s. In this market, floating interest rates appeared, which depend on the level of the market rate. Floating interest rates for various loans on the international credit market in practice mean that a specific margin is added to the base rate, the amount of which depends on the risk of the borrower, i.e. its credit rating. Part of the term of a loan granted at a floating rate, during which the rate is fixed at an unchanged level, is called the interest period.
The real interest rate is also used in the international credit market. This is the nominal rate after deducting the inflation rate for a certain period. The alignment of national interest rates in the international credit market does not occur only as a result of the movement of short-term capitals between countries, but also depending on the dynamics of exchange rates. The higher the exchange rate - the lower the deposit, and hence the loan interest on deposits and loans in this currency.
The mechanism for calculating the interest rate on international loans is well developed. The interest rate is considered in London at the level of LIBOR, in Europe - EURIBOR, in Southeast Asia - TIBOR, in India - MIBOR, etc. All of these interest rates became the basis for calculating the real interest rate. Since real or market interest rates differ significantly from official rates, the above base rates have become market indicators of floating interest rates. These indicators, as a rule, are calculated by organizations of participants in the international credit market, leading information agencies or government agencies. Based on the LIBOR rate ( London Interbank Offered Rate - ), the leading inter-national banks provide loans to borrowers in the London credit market. Most often, based on the LIBOR rate, the interest rate is calculated for bilateral and multilateral government loans. The LIBOR stake is calculated by the Association of British Banks ( British Bankers' Association - ВВА). LIBOR rate smoothes differences in interest rate policy of individual banks and is a universally recognized indicator of floating interest rates. It is calculated daily on working days in the UK. In the period from 11.00 to 11.30 GMT, the agency " Moneyline Telerate" collects the declared rates of banks for certain currencies and for each specific period. 25% of the highest rates and 25% of the lowest rates are excluded. The average of the remaining bets is the LIBOR bet. At 12.00 GMT, the calculated rates are transferred to the world news agencies (Reuters, Bloomberg, Thompson Financial, etc.). In the future, these rates are placed on the Internet.
The calculation of the LIBOR rate for each currency is based on a specific set of banks (the so-called LIBOR). The number of banks in the panel depends on the activity of operations in the segment of the international credit market with the corresponding currency and should be at least 8. The composition of the panels is regularly reviewed. Since 2005, the panels for the calculation of the LIBOR rate for the Danish krone, Australian and New Zealand dollars include 8 banks, Swiss franc and Canadian dollar - 12, euro, yen, pound sterling and US dollar - 16 banks.
In the 1990's. the EURIBOR rate, was first calculated as the average for currencies entering the zone of the European Monetary Union, and since 1998 - for the euro as a whole. The EURIBOR - rate is the rate at which leading European banks place interbank deposits with other leading banks. It is calculated only on interbank transactions in euros with 15 fixed terms (1, 2, 3 weeks and 1-12 months). The procedure for calculating the EURIBOR rate is the same as for LIBOR; defining the composition of the EURIBOR & quot ;, single time of announcement and transfer to Reuters and the Internet. The role of this rate on the international credit and other sectors of the international financial market is less significant than the rates LIBOR. It serves to calculate rates for bonds and loans, deposits and urgent foreign trade contracts.
Terms of repayment - one of the elements of the monetary, financial and credit terms of the loan. Under terms of repayment, loans are divided as follows:
- with uniform redemption in equal shares;
- with uneven repayment depending on the payment schedule;
- with a one-time repayment of the whole amount at once;
- annuity (equal annual contributions of principal loan amount and interest).
In order to determine the start of repayment of a loan in accordance with international practice, the following methods are used:
- the date of the first or last delivery;
- the date of each delivery;
- weighted average delivery date;
- the date the loan was used;
- the date of the largest delivery;
- the date of completion of work or putting the equipment into operation.
Most of these dates are directly recorded in the loan agreement. An exception is the definition of the beginning of loan repayment based on the weighted average delivery date, which is calculated by the formula
where Дср - the average weighted date of delivery; C - the amount of the separate delivery; T - the delivery period; Sk is the sum of the contract.
The amount of the next payment is determined by the formula
where lim is the credit limit; z - the interest rate; n - the number of repayment periods for principal and interest.
To compare the conditions for the provision of various international loans, use such an indicator as the grant element of the loan (preferential element). It shows how much the loan repayments are saved by the debtor as a result of obtaining a loan on more favorable terms than the general market. The grant element for private international loans is 3.2-4.5%.
The Grant element is calculated in simple or weighted ways. A simple grant element is equal to
where El is the grant element; Pr - market interest; Pf - the actual interest rate on the loan.
The weighted grant element is calculated by the formula
where Elv is the weighted grant element; Sk is the amount (limit) of the loan; Gsr - average loan term; E "is a grant element.
An important characteristic of an international loan is its collateral. Securing a loan is a method of protection against credit, currency and other risks. International loans have financial, commodity and legal support. The financial and commodity security of an international loan can be represented in the following ways:
- a flexible structure of payments to repay the loan;
- long-term and guaranteed supply of raw materials at fixed prices;
- the issuance of a payment counter-guarantee of the borrower;
- pledge of commodity-material values;
- pledge of rights under lease agreements with foreign real estate tenants (investment goods);
- a system of special reserve accounts;
- counter-guarantees of first-class banks and companies, participants in project lending;
- an independent evaluation of the project;
- receiving refinancing from the bank-supplier credits in the amount of 100% of the loan provided by the bank to the client;
- an increase in the value of the contract of the share of advance and other cash payments;
- the right of the creditor to pre-term forcible repayment of the loan, its assignment;
- currency clauses, currency transactions, credit limit;
- fixing the deadline for the beginning of repayment of the loan;
- blocking of the borrower's account in the national currency with the right to apply the proceeds from its sale to foreign currency for the repayment of the loan.
Legal support for a loan is:
- export (import) licenses (quotas);
- a license to attract (grant) a loan;
- a license to open an account abroad;
- compulsory insurance with assignment of insurance policies to the creditor bank (guarantor);
legal examination of the feasibility study of the loan.
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