国际金融英语InternationalFinanceUnit8.DeterminationofInterestRatesMovements.ppt

1、Unit 8. Determination of Interest Rates Movements,The loanable funds theory, commonly used to explain interest rate movements, suggests that the market interest rate is determined by the factors that control the supply of and demand for loanable funds. The phrase “demand for loanable funds” is widel

2、y used in financial markets to refer to the borrowing activities of households, businesses, domestic governments and foreign governments and corporations,I. Demand for Loanable Funds,A. Household Demand for Loanable Funds,Households commonly demand loanable funds to finance housing expenditures, aut

3、omobiles and household items, which results in installment debt. There would be an inverse relationship between the interest rate and the quantity of household funds demanded. This simply implies that at any point in time, households would demand a greater quantity of loanable funds at lower rates o

4、f interest. Various events can cause household borrowing preferences to change, for example, if tax rates on household income are expected to significantly decrease in the future, households might believe that they can more easily afford future loans repayments and thus be willing to borrow more fun

5、ds,B. Business Demand for Loanable Funds,Businesses demand loanable funds to invest in long-term (fixed) and short-term assets. The quantity of funds demanded by businesses depends on the number of business projects to be implemented. Businesses evaluate a project by comparing the present value of i

6、ts cash flows to its initial investment. Projects with a positive net present value (NPV) are accepted because the present value of their benefits outweighs the costs. The required return to implement a given project will be lower if interest rates are lower because the cost of borrowing funds to su

7、pport the project would be lower. Consequently, more projects will have positive NPVs, and businesses will need a greater amount of financing. This implies that businesses will demand a greater quantity of loanable funds when interest rates are lower,In addition to long-term assets, businesses also

8、invest in short-term assets (such as account receivables and inventory) in order to support ongoing operations. Any demand for funds resulting from this type of investment is positively related to the number of projects implemented and thus inversely related to the interest rate. All businesses are

9、likely to demand more funds if interest rates are lower at a given point in time. Some events may affect the business demand for loanable funds, for instance, a lot of projects will be acceptable as a result of more favorable economic forecasts, causing an increased demand for loanable funds,C. Gove

10、rnment Demand for Loanable Funds,Whenever a governments expenditures can not be completely covered by its incoming revenues from taxes and other sources, it demands loanable funds, and the government will issue treasury securities, which represents government debt. The government demand for funds is

11、 said to be interest-inelastic or insensitive to interest rates. Like the household and business demand, the government demand for loanable funds are affected by various events. For instance, assume that new bills were passed that caused a net increase in the deficit of $20 billion, the government d

12、emand for loanable funds would increase by that amount, and the new demand for loanable funds would decrease if the government budget deficit were reduced,D. Foreign Demand for Loanable funds,The demand for loanable funds in a given market also includes foreign demand by foreign governments or corpo

13、rations. Foreign governments and corporations would demand a larger quantity of domestic funds if their own interest rates were high relative to domestic rates. For instance, the British government may obtain financing by issuing British treasury securities to U.S. investors, representing a British

14、demand for U.S. funds. British demand for U.S. funds is influenced by the differential between its interest rates and U.S. rates. Therefore, for a given set of foreign interest rates, the quantity of domestic loanable funds demanded by foreign governments or firms will be inversely related to domest

15、ic interest rate,Note: Based on the above analysis, because most of these sectors are likely to demand a larger quantity of funds at lower interest rates, the aggregate demand for loanable funds is inversely related to interest rates at any point in time,II. Supply of Loanable Funds,The term “supply

16、 of loanable funds” is commonly used to refer to funds provided to financial markets by savers. (1) The household sector is the largest supplier; (2) The loanable funds are supplied by some government units that temporarily generate more tax revenues than they spend; (3) The loanable funds are suppl

17、ied by some businesses whose cash inflows exceed outflows. Households as a group represent a net supplier of loanable funds, whereas governments and businesses are net demanders of loanable funds,Suppliers of loanable funds are willing to supply more funds if the interest rate (reward for supplying

18、funds) is higher, other things being equal. A supply of loanable funds exists at even a very low interest rate because some households choose to postpone consumption until later years, even when reward (interest rate) for saving is low. Foreign households, governments, and corporations commonly supp

19、ly funds to domestic markets by purchasing domestic securities. The supply of loanable funds is also influenced by the monetary policy by the domestic central bank, which controls the amount of reserves hold by depository institutions and can influence the amount of savings that can be converted int

20、o loanable funds. Note that minimal attention has been given to financial institutions in this section. Although financial institutions play a critical intermediary role in channeling funds, they do not represent the ultimate suppliers of funds. Any change in the financial institutions supply of fun

21、ds results only from a change in habits by the households, businesses or governments that supply the funds,III. Equilibrium Interest Rate,In equilibrium, Da = Sa (Da represents aggregate demand and Sa represents aggregate supply): (a) If the aggregate demand for loanable funds increases without a co

22、rresponding increase in aggregate supply, there will be a shortage of loanable funds. Interest rates will rise until an additional supply of loanable funds is available to meet the excess demand. (b) If the aggregate supply of loanable funds increases without a corresponding increase in aggregate de

23、mand, there will be a surplus of loanable funds. Interest rates will fall until the quantity of funds supplied no longer exceeds the quantity of funds demanded,Unit 9. Instruments of International Settlements,In international trade practice, the buyer is obliged to make payment to the seller. The in

24、struments (or bills) used for payment or transfer of money in international trade practice, including draft, promissory note, and check,Draft (Bill of Exchange) (汇票,A. The definition of the draft,A bill of exchange (draft) is an unconditional order in writing, addressed by one person to another, sig

25、ned by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a certain sum of money to the order of a specified person or to the bearer,B. 3 Parties of Draft,A bill of exchange has three parties: the drawer, the drawee and the p

26、ayee: The drawer is one who issues the bill of exchange, and he demands the drawee to pay a certain sum of money to the payee. He signs his name on the bill, and guarantees that the payer will pay the money or accept the bill upon the presentation of the draft. He draws the bill of exchange upon the

27、 drawee presumably because the drawee owns or is expected to pay him a certain sum of money. The drawee of the bill of exchange is required by the bill of exchange to pay a certain sum of money to the payee upon the presentation of the bill or, if the bill is a time bill, he is required to accept th

28、e bill and effect the payment at the maturity of the bill. The payee of the bill of exchange is the creditor of the bill of exchange. He is entitled to ask the drawee for the payment. If refused, he is entitled to have recourse to the drawer for the payment. The payee is generally the one that is li

29、sted on the bill. But for a negotiable bill, the payee listed on the bill may transfer the bill to someone else. He then becomes the prior endorser or transferor, when the man to whom the bill is transferred is the subsequent party,C. Types of drafts,1) Commercial bills and bankers bill Commercial b

30、ill is drawn by commercial companies, which is often used in foreign trade finance, while bankers bill is drawn by banks, which is chiefly used in remittance. 2) Clean bill (光票) and documentary bill (跟单汇票) In the transfer of the bill of exchange, if the bill of exchange is accompanied by the relevan

31、t documents, it is a documentary bill. If theres no attachment of documents, it is a clean bill. In international trade, mostly it is the documentary bill that is used, occasionally the clean bill is used to collect payment in small amount or sundry charges. 3) Sight bill (即期汇票) and time bill (远期汇票)

32、 A sight bill demands immediate payment by the drawee at the sight of the bill. In case of the time bill, the drawee is to accept it first and pay it at a later date. The date may be in a certain number of days after the acceptance, such as “30 days after sight”. 4) Commercial acceptance (承兑) bill a

33、nd bankers acceptance bill If the drawee of a time bill is a commercial firm, it becomes a commercial acceptance bill after it is accepted by the drawee. If the drawee of a time bill is a bank, it becomes a bankers acceptance bill after it is accepted by the bank. Bankers acceptance bill can be very

34、 useful for financing the importer,D. Stages in handing a bill of exchange,1) To draw To draw is to fill up by the drawer, such as the particulars in a bill of exchange, the date of drawing, the name of drawee, the time and amount of payment, etc. The draft is signed by drawer and then sent to payee

35、. The payee might be restrictive payee (pay Co. only; pay Co. not transferable), or order (pay Co. or order; pay to the order of Co.) or to bearer (pay bearer, pay Co. or bear). Except for the first one, the other two are negotiable and transferable. “To order” type requires endorsement when transfe

36、rring, while the “to bearer” type requires no endorsement when transferring. 2) Presentation (提示) and acceptance (承兑) That act of taking the bill to the drawee and demanding that he make the payment or accept the bill is known as presentation. For a sight bill, payment should be made at the same tim

37、e when presentation is made, and for a time bill, the drawee is required to accept the bill when the bill is presented to him. For the drawee, to see the bill is called sight, and to make the acceptance when a time bill is presented to him, he needs to write “accepted” on the bill, together with the

38、 date and his signature. Then the bill is given back to the holder of the bill. Upon acceptance, the drawee becomes the acceptor, and is then obligated to pay at the maturity of the bill,3) Payment Under the sight bill, the drawee is required to make the payment when the bill is presented to him; wh

39、ile for a time bill, the drawee is required to accept the bill when the bill is presented to him and make payment at the maturity of the bill. When paid, the bill is retained by the payer while the receipt is made and signed by the holder of the bill. 4) Endorsement (背书) If the draft is marked as be

40、ing not negotiable, then it becomes a non-negotiable instrument. But in most cases, the draft is negotiable and transferable as the payee on most drafts is “to the order of” Negotiation and transfer is effected with endorsement. If the payee on the draft is “to the bearer”, then negotiation and tran

41、sfer is done with mere delivery of the draft. Endorsement is done when the payee has signed his name on the back of the bill. It may be a specified endorsement (特别背书) and blank endorsement (空白背书,5) Dishonor (拒付) and recourse (追索) Dishonor is the refusal to make payment or accept a bill by the payer

42、when it is presented to the drawee. Upon dishonor, the holder of the bill should immediately make the protest (拒绝证书) (or certificate of dishonor). The protest is an official document made by the local notary public, bank, chamber of commerce, or trade association testifying that the bill of exchange

43、 has been dishonored. When the holder of the bill has got the protest, he should exercise the right of recourse against his prior endorser. And the prior endorser will further exercise recourse against his prior endorser. This process will continue until the drawer is reached,II. Promissory Note(本票,

44、A. Definition of Promissory Note,A promissory note is an unconditional promise in writing made by one person to another, signed by the maker(出票人), engaging to pay, either on demand(见票即付)or at a fixed or determinable future time, a certain sum of money, to, or to the order of, a specified person or t

45、o bearer,B Parties of Promissory Note,As a promissory note is a promise by the maker (not drawer) to pay to the payee, there are only two parties concerned, i.e. the maker and the payee. The maker of a promissory note can be more than one person, they are jointly and separately responsible for the p

46、ayment of the bill. Promissory notes can be sight promissory notes or time promissory notes. Promissory notes can be made by commercial firms or bankers. Promissory notes made by the bankers are usually called cashiers order or cashiers check (银行本票).They are all sight notes. And in international tra

47、de, most promissory notes are drawn by bankers which are mostly not negotiable,A promissory note is like a bill of exchange that has been accepted, and can only have one copy. When it is dishonored, the payee needs not to produce protest for the settlement of the dispute. Commercial promissory notes

48、 are rarely used in international trade practice. But in domestic trade practice in some countries, some sellers accept commercial promissory notes as guarantee for the payment, especially, installment payment of some expensive goods. In using the bankers promissory notes, the importer first needs t

49、o buy the promissory note from a bank, and then send it to the exporter for the settlement of payment. When the payee has received the bill, he usually will deposit in his own bank that will ask the bank, which has made the bill for payment,ASIA INTERNATIONAL BANK, LTD. 18 Queens Road, Hongkong CASH

50、IERS ORDER Hongkong, Aug.8, 1995. Pay to the order of Dockfield if by collection or L/C it is adverse exchange (逆汇), by which the exporter takes the initiative to gather payment from the buyer. To choose a method for the payment of the goods, you should consider the credit standing of the buyer. Dif

51、ferent methods of payment mean different credits. Bank credit (银行信誉) is more reliable than commercial credit (商业信誉). So, we should choose the right method for the safe settlement of the payment,I. Remittance,A. Definition,Remittance is to deliver the payment of the goods to the seller by bank transf

52、er. In remittance, there are four parties involved: the remitter, the beneficiary, the remitting bank and the paying bank. The remitter remits the money to the beneficiary as it is required by the contract concluded between them. And when the remitter comes to the remitting bank, he fills an applica

53、tion form for the bank to effect the payment, which upon remittance will be binding upon the remitting bank. And the paying bank pays the beneficiary because it is the branch bank or correspondent bank of the remitting bank in the country of the seller. Remittance is mainly used for payment in advan

54、ce (预付货款) , open account (赊销) for small quantity of goods, commission, sundry charges, etc. (a) If it is used for payment in advance or cash with order, it will place the seller in an advantageous position. (b) If for delivery first and payment afterwards, it will place the buyer in a favorable posi

55、tion. Note:Remittance uses commercial credit and hence in adopting this method, the parties involved need have trust in each other,B. Types of Remittance,Money transfer can be channeled through banks by mail transfer (MT), telegraphic transfer (TT), and demand draft (DD). a) By mail transfer, the bu

56、yer will hand over the payment of the goods to the remitting bank that will authorize its branch bank or correspondent bank in the country of the beneficiary by mail to make payment to him. b) By telegraphic transfer, the buyer will hand over the payment of the goods to the remitting bank which will

57、 authorize its branch bank or correspondent bank in the country of the beneficiary by telegraphic means to made the payment to him. Mail transfer is cheap but time-consuming, while telegraphic transfer is more expensive but much faster. c) By demand draft, the buyer will come to the local bank to bu

58、y a bankers bill and then deliver it to the seller or beneficiary by mail. When the seller of beneficiary receives it, he will come to the bank designated by the bankers bill for cash,II. Collection,A. Definition,Under collection, the exporter takes the initiative to collect the payment from the buy

59、er. Upon the delivery of the goods, the exporter draws a bill of exchange on the importer for the sum due, with or without relevant shipping documents attached, and authorizes his bank to effect the collection of the payment through its branch bank or correspondent bank in the country of importer. collection can be of either documentary collection (跟单托收) or clean collection (光票托收). Documentary collection has the relevant shipping documents attached to the draft, while in clean collection only draft is used. Documentary collection is most often used in the payment of goods in international tr