Wednesday, May 29, 2019

Risk associated with International Transaction.

All business transactions are accompanied by one or the other risk. However, these risks get enlarged when dealing with parties located internationally. In addition to the commercial risk present in a domestic transaction are foreign exchange risks as well as the country risk, arising due to the political and economic policies of the country.


Political Stability:
Political Instability resulting from internal or external conflict can jeopardize any imports/exports transactions of the companies involved in trade activities with such countries. It may result in delayed payments at best to outright default at worst.

Economic Environment:
Adverse economic conditions in the country may get reflected in the poor paying capacity of the companies operating there (also, unstable currency).
Legal Infrastructure:
In the case of Trade Disputes, a solid legal framework assures a company of a quick and just solution.
Foreign Exchange Restrictions:
Forex restrictions in an importer’s country can limit an importer’s ability to make payments for its international purchases.


Foreign Currency Volatility:
A volatile foreign currency may result in uncertainty in terms of the value of future payments in that currency.


Reliability of Information:
The very fact that International Trade partners are separated by large geographical, cultural and political distances, implies that they tend to have limited information on each other’s financial standings and business track records. As a result, the mutual level of confidence and trust in each other is low.

Trade Dispute:
Dispute resolution mechanisms in each country are different and international trade disputes are more complicated to resolve that domestic trade disputes. Hence, in case of a default, unilateral termination of contract or any other trade dispute, the legal proceedings may turn out to be very expensive and long drawn.

Thursday, January 10, 2019

Guide to starting with long term investment and selecting your financial advisor

Retail Investors normally invests to save their yearly income taxes and rarely their investments are made with proper strategy or planning. They try to look for quick and easy alternatives through which they can save the maximum of their income taxes and quite often with limited knowledge about the investment products, they are misled by the last minute cold calling done by the agents, who are obligated to sell their company's products to meet their targets.
Investments made with such discretion are a mismatch to investors expectations and as a result, they lose both money and trust on the markets and thereby they divert their investments to Bank FDs or life insurance policies considering LIC as the best and the safest option.

Investment, on the other hand, should be considered a full year process involving multiple discussions with their financial advisor on investment plan and strategies.
With Financial Advisor, I don't mean the brokers, I meant a person who is aware of the investment products and their associated risks and who should be able to guide you on your investment plans.
So the first task is to find the right guy, a.k.a financial advisor (FA), whom you can trust exposing your finances and he/she can accordingly guide you with your investments.

One of the best ways to evaluate a FA is to never finalize a FA in one meeting. Try to arrange the meeting with multiple FAs and ask questions and take notes and compare the responses of the different advisors you meet to help you decide whether the financial advisor is qualified and he/she is a good fit to help you with your investments.
Some of the questions that can be asked to a financial advisor are:
• Their education and professional experience and how long they have been working with the firm.
• How they decide on appropriate investments for their clients
• What is the compensation arrangement with the employer, if they are paid by salary, commission or other fees
• How often you'll meet and how they will keep you informed
• Try to get references from previous clients
• Has there been any restrictions, terms or conditions placed on their registration approval and if they are currently under investigation by securities regulators in the country where you plan to start with investments.

On the other hand, a Financial Advisor should be asking you below questions before creating your financial plan or recommending you any investment product.
• Age
• Total annual income
• Number of dependents
• Estimated net worth
• Income Tax paid in the last 2-3 years
• Monthly expenses
• Investment knowledge and experience
• Investment goals/objective
• Investment term or when you will need access to money you’ve invested
• And your risk tolerance or tolerable limit of asset corrosion in the event of recessionary trends.

Once you feel you have got the right advisor, it is time to schedule the further meetings with him/her and discuss your long term objectives, which you planned to achieve from your savings.
A piece of advice: Do not hesitate/hide about any of your investment constraints/risks tolerance thresholds with your advisor. Consider them to be your investment doctor :)

Job doesn't end here for the Investors. They need to regularly monitor their investments and ask their financial advisor to arrange meetings (almost monthly) to keep track of the goals and investment objectives.
They should ask for, at least quarterly, investment statements to confirm the strategy followed by traders is as per the investment plan prepared by the financial advisors.