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Thread: International Trade, Finance, Investing

  1. #1
    Bronze Member Miro Bagrov's Avatar
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    Thumbs up International Trade, Finance, Investing

    Who's interested?

    Anyone have experience in international trade or investment?

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    Diamond Member Blurock's Avatar
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    What do you have in mind Miro?
    Excellence is not a skill; its an attitude...

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    Yes, I am a retired International Banker that specialized in International Trade and Finance for 25 years. How do we make contact?

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    Bronze Member Miro Bagrov's Avatar
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    Smile

    Alright:
    I want to start a financing institution that is not under the Bank Act. I want to lend money I borrowed from foreigners to locals at low interest rates.
    Perfectly suited to customers who are conscious or sensitive to interest rates (these being businesses, banks, others). This means the niche market aimed at those well educated about interest rates.
    The cost of this I can add as a risk premium on the interest rates. The interest rates abroad are lower - in the 1-3% range.

    If you guys are happy with the concept of importing products and selling it, now consider you can import money and sell it.
    I do not want to start a bank, since the Bank Act forces banks to take money through the traditional reserve bank system. Therefore this will need to be registered as a financial services provider under the FSB.

    The most fun part of something like this is of course the risk management side of it. I will a fascinating piece of financial engineering if it can be done.

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    Diamond Member Blurock's Avatar
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    Problem #1: Borrowing money from abroad at 1-3% is almost impossible as you have yet to add political and country risk on top of the credit risk.

    Problem #2:You will require Reserve Bank approval for offshore loans.

    Problem #3: You still have to register with the NCR as well as the FSB.

    Being in competition with the banks will cause them to "blackball" you and prevent the business from taking off.
    Excellence is not a skill; its an attitude...

  6. #6
    Bronze Member Miro Bagrov's Avatar
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    Quote Originally Posted by Blurock View Post
    Problem #1: Borrowing money from abroad at 1-3% is almost impossible as you have yet to add political and country risk on top of the credit risk.

    Problem #2:You will require Reserve Bank approval for offshore loans.

    Problem #3: You still have to register with the NCR as well as the FSB.

    Being in competition with the banks will cause them to "blackball" you and prevent the business from taking off.
    To 1 & 2: There are actually 2 way you can get the loan.
    Apply for the loan from south Africa (the one you are considering)/ or another way is to apply for it locally (that is at the source country. Then have the money sent to South Africa).
    From the SARB perspective, the fact the money is being sent to south africa for a business will look like foreign investment and they will always allow it.

    To 3: That's very true.

    Actually, the idea is riddled with problems that need solving:
    The Exchange Rate Risk
    The Transaction Risk
    The Business Risk
    The Credit Risk
    (actually there is no known risk that is not involved)
    The Negotiations with foreign banks
    The Finding of local clients
    The Development of all the Contracts and Policies
    The Calculation of Profit margins
    The Accounting & Reporting


    The only real competitive edge is that the SARB forces the banks to use the Repo of 5.5 - 10% depending on the inflation cycle.
    If anyone could provide bellow inflation capital, some people will jump for joy.

  7. #7
    Diamond Member wynn's Avatar
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    It is an interesting concept, I remember a few years ago a few building contractors financed the spec building of houses that way but the exchange rate flipped and they wound up in the dwang.

    If you have a ready market for short term loans (say 3 to 4 months it may be a possibility, I am thinking here of bridging finance or building costs on houses with an ironclad pre approved bond with a local institution.

    The importation of multiple goods from china for small buyers offers opportunity, you collect and pay for a number of smaller orders at the ruling exchange rate, covering yourself for any fluctuations, you charge a healthy fee and warehouse the consignments in china untill you have a container load, then import the container and charge a fee for the warehousing in china, transport to SA and distribution of the products once they get here, if the exchange rate flips either way you dont lose but you make a healthy income on the fee, warehousing, transport and local distribution.
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    Diamond Member Blurock's Avatar
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    I remember in the 80's there were hundreds of consultants selling offshore loans to everyone from farmers to fish shops. Some of them actually believed in what they were doing, but a great number just jumped on the bandwagon to make a fast buck.

    Interest rates were high and even if you had a bond approved, you had to wait until the building society had money to pay out. So the alternative was to apply for a "cheap" offshore loan. Some of these so called agents charged ridiculous raising and admin fees to give borrowers access to "cheap" money.

    Most of the loans never materialised and for the 10% or so that did get funded it all turned sour when the exchange rate turned against them.

    In the 90's the reverse happened. Everyone wanted to invest offshore because of perceived political risk and a falling Rand. The banks and insurance companies even had seminars for their top clients. A number of people also went via the back door dealing with shady brokers. I don't have to tell you how many people lost their money because of bad investments by unscrupulous brokers! And the exchange rate turned against them again!
    Excellence is not a skill; its an attitude...

  9. #9
    Bronze Member Miro Bagrov's Avatar
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    We should discuss exchange rate risk.

    Anyone can fix the rate at their bank. I advised one of my clients to do so. They allow a 21 day forward rate agreement at a fixed rate. The forward rate is higher than the spot. It's more to make a guarantee on your cash flow rather than making a profit.
    However, as you can see, 21 days is not long enough to help with more than the first repayment. After 21 days, you are again exposed to the full extend of the damage.

    So then there are other ways.
    A market hedge for example. If one of your clients is lending a currency, while the other is investing in the same currency they both have opposite views, the one can compensate for the other if the notional principles are the same. This can be of help to the company. But the client is still at huge risk... One of the two will lose.

    Another way is using an option. If you are borrowing money, you are in fact profiting if your local currency appreciates. Which makes the repayments cheaper. However, since the opposite might happen, you can use an option hedge.

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    Site Caretaker Dave A's Avatar
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    The really tricky bit is the nature of the Rand's fluctuation against other currencies. It tends to weaken a lot faster than it strengthens - a real saw tooth graph.

    This means when it weakens, you've got precious little time to exit. And if you're hoping to make (save?) money against a strengthening Rand you are going to have to be really patient.

    My view for quite a while is that if you want to trade on the movements of the Rand, it's a heck of a lot easier to identify buying points when you're trading from offshore. Essentially it suits the offshore speculator, not the locals.
    The trouble with opportunity is it normally comes dressed up as work.

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