Assignment 1

Budgeting for International Operations

Sales Budget: When a worldwide company creates a sales budget, external considerations
such as labour, materials, overhead, and distribution and administrative costs might influence
the decision of which items to market and the product mix. Depending on the type of product
sold, the market potential, competitiveness, influence of lower-priced replacements, and
market features may be comparable or different in each country. Transfer pricing policies
determine sales budgets for multinational businesses that generate products only for
intracompany sales. Organizations that sell their products in worldwide markets, on the other
hand, must deal with tariffs, international trade agreements, import limitations, and other
potential legal limits.

Expense Budget: Foreign operations that only serve the local market incur costs similar to
those incurred by a multinational's domestic operations. These costs will be incurred within a
single country and may not be impacted by foreign currency exchange rates. Despite the
narrow focus of these international activities, external factors like government policies that
determine economic growth, inflation, interest rates, pricing, or costs might influence
spending budgets. Native or local managers frequently have a better awareness of the
potential of the foreign market, the availability of local suppliers, the state of the local
economy, and the influence of government regulations.

Capital Budgeting: In a global company context, the capital budgeting process becomes
increasingly complex. Developing and analysing investments from a foreign perspective will
be especially valuable when international banks, third parties, and governments are
considering investing in or reviewing the possible project. Tax effects between countries have
a considerable impact on the cash flows of an investment. The timing and mode of cash
remittance affect the actual amount of taxes paid by the parent organisation for a
multinational corporation. Another factor to consider in the capital budgeting process is the
weighted average cost of capital to be used when analysing overseas investments.

Cash Budgeting: Long-term cash planning in an international business aims to balance cash
inflows with cash outflows, limiting the multinational's foreign currency exposure to solely
cash flows repatriated from a foreign unit to the parent firm. Management accountants and
other planners on their team must consider currency exchange controls that foreign
governments may implement to limit the amount of local or other currency leaving or
entering their country during a given time period when establishing the cash budget. The key
to establishing a multinational's cash budget is an effective reporting system. Managers will
be able to stick to budget policies, monitor the company's liquidity condition, and reach
performance targets if they receive frequent and accurate operating reports.
 Assignment 2

Different Credit Facilities Offered by Financial Institutions for Export and

Import

The different types of credit facilities can be mainly classified as:

- Fund Based Credit

- Non-fund based Credit

 Fund Based Credit Facilities: Fund-based credit facilities are those in which the borrower
receives funds directly from the financial institution. Various types of fund-based credits
are:
 Pre shipment Stage: Commercial banks provide financing on a short-term basis for a
standard period of 180 days at a very low interest rate. Cash packaging credit loan,
advance against hypothecation, advance against pledge, and other types of advances
are available.
 Post Shipment Stage: Commercial banks typically provide funding at the post-
shipment stage for a period of 90 days at a low interest rate. Post-shipment finance can
take many forms, including bill negotiation under LC, bill purchase/discounting,
overdraft against bills under connection, and so on.

o Loan: It is credit facility that is repayable in a pre-agreed time. Loans are granted
to businesses to cover various operating expenses such as production,
distribution, and expansion.
o Working Capital loan: Banks give working capital term loans for periods ranging
from 3 to 7 years, payable in yearly or half-yearly instalments, to satisfy a
company's working capital needs.
o Cash Credit: It is a credit facility in which the borrower can borrow at any
moment within the specified limit for a set period of time for their working
capital needs. It was secured through the hypothecation of any current assets or
through mortgage of real estate.
 o Packing Credit: Banks may consider this type of support when a company
obtains an export order to meet special demands. Packing credit is a financial
facility that allows a company to purchase items for export. If the company has a
confirmed export order or a letter of credit in its favour, it can ask the bank for a
packing credit facility.

 Non- Fund Based Credit Fcailities: Non-fund based financial services are those in which
the financial institution does not directly supply monies to the borrower but instead
provides a guarantee or letter of credit. These types of credit facilities are:
 Banks are authorised to provide guarantees and bid bonds on favour of foreign
buyers. Bank guarantees come in a variety of forms; these are Bide bonds,
preference guarantee, advance payment guarantee, guarantee for payment of
retention money, guarantee for foreign currency loans.
 Credit rating for importers: On the request of exporters, banks conduct credit ratings
on importers. They gather vital information about their creditworthiness and
provide it to exporters.
 Invoicing in a foreign currency: A buyer may insist on invoicing in a foreign
currency that is generally acceptable to him. If the contract is not for significant
currencies, banks supply the relevant information, such as whether the currency is
marketable or not.
 Forward exchange contract: Banks mitigate the risks associated with fluctuating
foreign exchange rates by fixing the rate in advance for future transactions. Forward
exchange rates are the name given to such rates.