Posted On
14 June 2012

Dear Sir/Madam

I am doing internship in International business branch of PSU Bank and my project is on international trade finance.


Using account statements of facilities like PCFC, FBP, LC, etc of one of the company dealing with this bank, I want to analyze whether the firm is properly using the credit limits. Are they using fluctuation in currency in right manner. Can their financing cost be reduced.

Please give me a basic how can I do this by using excel or some other way you can suggest.

Thanks in advance

Regards
Vivek Antil

Posted On
14 June 2012

I think yours is a very challenging and worthwhile project for intership.

You seem to have set out the objectives quite appropriate. From your query, I could see the following objectives of your project:

a. to critically analyse if the firms are using credit limit properly;

b. to suggest ways to minimize financing cost;

c. to suggest ways to manage fluctuations in currency value.

You can apply financial and analytical tools to all the objectives.

I like to comment first on the currency fluctuation objective. You may suggest use of appropriate derivative instrument, such as forward or option. Through the use of firm's real-life data, you can illustrate which instrument will yield maximum advantage and minimum cost. Excel can be used to carry out the required calculations.

For rest of the objectives, I would comment in the second part.

Posted On
14 June 2012

Thank you so much sir for your expert advice. But sir derivative could be usrd for certain extent only.

I was thinking to analyze on the basis of account statement of facility like packing credit. Like when to take PC in foriegn currency and when to take in INR.Theoretically its better to take PCFC when rupee is appreciating and PC when it is depreciating.Am I on right track ?How can i prepare excel model on it

Posted On
14 June 2012

You are right. But you can always include derivatives as one of the avenues to mitigate foreign currency risk.

I believe an exporter can resort to various credit facilities based on certain rules and regulation. You will need to prepare a working model where the firm will optimize its financing cost within the regulatory constraints.

Preparing Excel model can't be explained due to limitations of the platform here itself. Though you can visit www.finance30.com to find out more on it.

If you are apt at OR, then you can also formulate it as a dynamic or goal programming problem. Both will require extensive Excel modeling. I suggest you two things - talk to your mentor (faculty) and visit the above website.

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