Course code Ekon3135

Credit points 3

International Payments

Total Hours in Course81

Number of hours for lectures24

Number of hours for seminars and practical classes8

Independent study hours49

Date of course confirmation21.01.2021

Responsible UnitInstitute of Economics and Finance

Course developer

author Ekonomikas un finanšu institūts

Gunita Mazūre

Dr. oec.

Prior knowledge

Ekon2109, Macroeconomics

Ekon3049, Corporate Finances

Ekon3113, Finance and Taxes

Course abstract

The development of financial sector initiates new financial assets and payment types offered by different financial intermediaries. The study course provides an understanding and detailed knowledge on the development of financial assets and settlements, their theoretical and practical aspects, foreign exchange operations, foreign exchange market mechanism, derivatives used to limit the exchange risks, European and cross-border payments, application of financial instruments and payment methods: collection of payments, a letter of credit, factoring and forfeiting, advantages and disadvantages of international settlements. The programme includes provision of knowledge on risk elimination-hedging, future currency contracts, options and international commercial terms – Incoterms and special banking types of payments.

Learning outcomes and their assessment

1. Knows and understands the principles and types of international currency system and politics - independent work.
2. Familiar with the principles of the functioning of foreign exchange market and the factors influencing the exchange rate - discussion in class.
3. Knowledge and understanding of currency classification, foreign exchange market operation, derivatives market and exchange rate calculations - test with calculations.
4. Knowledge on information sources, rules (Incoterms), forms of payment and methods of financing used in international trade - test.
5. Able to calculate exchange rate in the spot and future OTC market, analyse the results obtained, understand the causes and draw conclusions - tests with calculations, exam, calculations in classes.
6. Understands the international trading rules of Incoterms and future contracts as well as the types of documentation for special trade finance instruments - tests with calculations, exam and calculations in classes.
7. Able to solve various tasks independently, collaborate in a group with colleagues to obtain necessary information and produce a report on the chosen topic, including practical aspects of the topic, conclusions and suggestions - independent work, group work, discussions in classes.
8. Students are able to present and explain their topic to the audience as well as create a presentation on currencies - group work, presentations.
9. Able to plan tasks responsibly - independent work.
10. Able to engage and take responsibility for group performance and analysis. Students are able to present the results of independent work - group work, report and presentation.
11. Practical application of the acquired theoretical knowledge and practical skills on the theoretical and practical aspects of foreign exchange market and foreign currency trading, international trade information sources and regulations as well as application of settlement methods and financing methods in international trade - individual work, group work, tests, report, presentations, exam.

Course Content(Calendar)

1. International Monetary System and its development (lectures - 2 h)
Gold standard. Gold devices standard. Advantages and disadvantages of gold standard. Bretton Woods exchange rate system. Causes of the collapse of the Bretton Woods exchange rate system. Flexible exchange rate regime. European Monetary System.
2. Foreign exchange market, its structure and participants (lectures - 2 h)
Basic concepts and characteristics of the foreign exchange market. Types of foreign exchange market, market classification. Foreign exchange market participants. The role of the banking system in the foreign exchange market. Foreign exchange market risks: currency risk, currency transaction risk, currency translation risk, inflation and deflation risk, economic risk.
3. Mechanism of International Currency Market (FOREX) (lectures - 2 h)
Forex history, advantages, trading sessions. Forex trading platform, price formation. Technical and fundamental analysis. Operating principles of MetaTrader5 trading platform.
4. Currencies, currency quotation and currency risk reduction (lectures - 3 h, practical work - 1 h)
Extended concept of currency and currency classification. Currency classification. Currency convertibility and its breakdown. Impact of convertibility on the national currency. Major currencies. Sole legal tenders. Currency quotation. Currency orders. Hedging. Balancing revenue and payments. Balancing long-term assets and liabilities. Foreign currency invoicing.
5. Exchange rate and factors affecting the exchange rate (lectures - 3 h, practical work - 2 h)
Classification of exchange rates. Exchange rate definition and regulation. Exchange rate regimes and classification of exchange rate regimes by the IMF. Exchange rate policy, Currency Board. Exchange rate determination: pegged exchange rates – single p, peg to the currency basket (SDR), limited flexibility currency, floating currency. Exchange rate hybrids. Determining the spot rate in the foreign exchange market. Factors affecting exchange rates: economic, political and social factors. Hot money. Spot transactions or spot currency transactions, their characteristics. Exchange rate calculations.
6. Application of financial derivatives to reduce foreign exchange risk (lectures - 3 h, practical work - 2 h)
Definition and classification of financial derivatives. Documentation of derivatives market, market participants. Types of future contracts: forwards, futures, options and swaps. Examples of swap transaction quoting. Application and necessity for swaps in Latvia. Currency intervention applied by the Bank of Latvia.
7. International commercial terms – Incoterms 2020 (lectures - 2 h)
Purpose and application of Incoterms. Reference to Incoterms in the sales contract. Structure of Incoterms. Terminology of Incoterms. Obligation of the seller to deliver goods. Transfer of risk and expenses associated with commodities. Modifying of Incoterms. Customs clearance of goods. Packaging and control of goods. Types of transportation and the corresponding term from Incoterms. Recommended use of Incoterms. Groups of Incoterms.
8. International trade information sources (lectures - 2 h, practical work - 1 h)
Description of information sources. Application of information sources. International trade documents: transport documents, commercial documents, insurance documents, official documents, financial documents.
9. International payments in banks, types and methods of international settlements (lectures - 3 h, practical work - 1 h)
Risks in international trade. Documentary collection transactions: regular collection, documentary collection. Operation scheme of documentary collection. Advantages and disadvantages of collection. Letters of Credit (L/C): revocable letter of credit, irrevocable letter of credit, approved letter of credit, unverified letter of credit. Other types of letters of credit. Operation scheme of irrevocable approved letter of credit. Advantages and disadvantages of letters of credit. Advance payment. Delayed payment. Cheques.
10. Types of trade finance (lectures - 2 h, practical work - 1 h)
Barter trade. Bank guarantees: payment guarantee, tender guarantee, performance guarantee, advance payment guarantee. Factoring. Historical development of factoring. Factoring process, advantages and disadvantages. Dynamics of factoring transactions in the world. Forfeiting. Historical development of forfeiting. Forfeiting operation process, advantages and disadvantages. Dynamics of forfeiting business in the world. Comparative characteristics of factoring and forfeiting.

Requirements for awarding credit points

1. Theoretical and practical aspects of the foreign exchange and derivatives market - test with calculations (20%).
2. International trade information sources, Incoterms, types of payments and financing methods - test (15%).
3. Currencies, diversity of currencies, design and value - individual work, group work, presentation (10%).
4. Study of the chosen study course theme by writing a report and including practical aspects, conclusions and proposals. Presentation of the report - individual work, group work, report and presentation (20%)
5. Activity in classes (5%)
6. Exam - all themes (30%).

Description of the organization and tasks of students’ independent work

Getting ready for practical assignments and tests as well as presentation of selected currency. Individually or in a group developed report on the chosen course theme and its presentation.

Criteria for Evaluating Learning Outcomes

All assignments shall be completed. Every assignments is graded. The evaluation of the study course depends on the evaluation of independent and practical assignments (tasks), 10% corresponds to one point on a 10-point assessment scale.

Compulsory reading

1. Incoterms 2020 [tiešsaiste]. The International Chamber of Commerce (ICC). ICC Publication 2020 Edition. Pieejams: https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/
2. Rupeika-Apoga R. Tirdzniecība ar valūtu kā uzņēmējdarbības veids. Rīga, 2006. 335 lpp.
3. Oļevskis G. Starptautiskā tirdzniecība. Rīga: RISEBA, 2003. 204 lpp.
4. Praude V. Finanšu instrumenti. I: ieguldījumi, darījumi, analīze. Rīga: Burtene, 2009. 446 lpp.
5. Sang Man Kim. Payment Methods and Finance for International Trade. 1st edition: Kindle Edition, 2020. 303 p.
6. Copeland L. Exchange Rates and International Finance. 6th edition. Great Britain: Prentice Hall, 2014. 519 p.
7. Rubanovskis A. Starptautiskā ekonomika: Valūtas tirgus. Rīga: EKA, 2004. 146 lpp.
8. Rupeika-Apoga R. Valūtas tirgus un valūtas darījumi. Rīga; Datorzinību centrs, 2003. 159 lpp.

Further reading

1. Bhogal T. International Trade Finance: a Pragmatic Approach. Switzerland: Palgrave Macmillan, 2019.354 p.
2. Brigham E.F., Gapenski L.G. Financial Management: Theory and Practice. Chicago: Dryden Press, 2007.1071 p.
3. Cheol S. U., Resnick B.G. International Finance. 7th global edition. McGrawHill education, 2014.608 p.
4. Grath A. The Handbook of International Trade and Finance: the Complete Guide to Risk Management, International Payments and Currency Management, Bonds and Guarantees, Credit Insurance and Trade. 2nd edition, Kogan page, 2012.. 222 p.
Grath A. The Handbook of International Trade and Finance: The Complete Guide for International Sales, Finance, Shipping and Administration. 4th edition. London: Kogan Page. 2016.
5. Gutkins A., Jadčenko L. Iespēju līgumu teorija un prakse. Rīga, 2003. 127 lpp.
6. Hallwood C.P., MacDonald R. International Money and Finance. Oxford: Blackwell, 2000.547 p.
7. Henderson C. Currency Strategy: the Practitioner's Guide to Currency Investing, Hedging and Forecasting. Chichester: John Wiley & Sons, 2006.243 p.
8. Incoterms 2000. Rīga: Latvijas Tirdzniecības un rūpniecības kamera. Tulkojums no angļu valodas, 2000.
9. Luca C. Trading in the Global Currency Markets. New York: Institute of Finance, 2003. 593 p.
10. Madura J. International Financial Management. Andover: Cengage Learning EMEA, 2014. 671 p.
11. Saļņikovs I. Starptautiskais valūtas tirgus FOREX: Valūtas dīlinga pamati. Rīga, 2000. 135 lpp.
12. Vaidere I. Starptautiskās valūtas attiecības. Rīga: LU Akadēmiskais apgāds, 2015. 141 lpp. Pieejams elektroniski: https://www.inese-vaidere.lv/wp-content/uploads/2017/04/Starpatutiskas_Valutas_attiecibas-I-Vaidere.pdf
13. Котелькин С. В. Международная финансовая система. Москва: Экономист, 2004. 538 с.
14. Красавина Л. Международные валютно - кредитные и финансовые отношения. Москва: Финансы и статистика, 2006. 576 с.

Periodicals and other sources

1. Business Week: nedēļas izdevums. Business Week [tiešsaiste]. Bloomberg L.P. Businessweek ISSN 0007-7135. Pieejams: https://www.bloomberg.com/businessweek.
2. Dienas Bizness: nedēļas laikraksts: Latvijas biznesa avīze. Rīga: Diena: Dagens Industri, 2005.
3. Financial Times: laikraksts. Financial Times [tiešsaiste]. England based finance newspaper. London: The Financial Times Ltd. Pieejams: http://www.ft.com/home/europe.
4. Forbes: žurnāls. Rīga: SK Media, 2010. ISSN 1691-6018.
5. Bank for International Settlement: Foreign Exchange and Derivatives Reports: Annual Reports [tiešsaiste]. Pieejams http://www.bis.org.
6. Komercbanku mājaslapas.

Notes

Restricted elective study course for the specialisation direction “Accounting and Finance” of the academic Bachelor study programme “Economics”