International credit is a loan capital movement in the MEO sector related to the provision of foreign exchange and commodity resources on an urgent, repayable and interest basis.
An international loan arose as one of the levers of the initial accumulation of capital. The basis of its development was the output of production beyond the national framework, the strengthening of the internationalization of economic relations, the international generalization of capital, specialization and cooperation of production. The intensification of world economic relations, the deepening international division of labor have led to an increase in the scale and an extension of the terms of the international loan.
The main the principles of international credit are as follows:
return; urgency; pay; security; target character.
Currency of the loan and currency of payment. International credit involves the choice of a certain type of currency as a form of mediating relations between the creditor and the borrower. In this case, the credit currency and the payment currency may not coincide. So, the currency of the international loan (both the currency of the loan and the currency of payment) can be determined in the currency of the country of the creditor, the currency of the country of the borrower, the currency of third countries or in international account units. At the same time, a number of factors influence the choice of currency: interest rate level, international settlement practice, inflation rate and others.
The amount (limit) of the loan is part of the loan capital provided in commodity or cash to the borrower. The amount of a company loan is recorded in the contract. The amount of a bank loan (credit line) is determined by a loan agreement. A loan may be provided in the form of one or more trenches (shares), which vary in their conditions.
In international practice, credit covers up to 85% of the cost. The rest is provided by other payments (advance, cash, guarantees).
The term of the international loan. This condition depends on a number of factors: destination; the ratio of supply and demand of similar loans; contract size; national legislation; traditional lending practices; interstate agreements.
To determine the effectiveness of the loan, the full and average terms are distinguished. The full term is calculated from the moment the loan is started to its final repayment and includes the period of use, preferential (grational) peri-
one – deferred repayment of the used loan and repayment period, i.e. payment of principal debt and interest. The full loan term does not show how long the entire amount was at the disposal of the borrower. Therefore, to compare the effectiveness of loans with different conditions, the average term is used. Its calculation is necessary to determine the period on average, which accounts for the entire loan amount. The average term includes a fully grace period and half the term of use and repayment. The average term is usually less than the full term if the loan is granted and repaid immediately in full by a lump sum. However, if the use and / or repayment of the loan is uneven, then the average period is defined as the ratio of the amount of outstanding debts to the loan limit.
According to repayment conditions, loans differ:
with uniform repayment in equal shares within the agreed period; with uneven repayment depending on the principle and schedule fixed in the agreement; with a one-time repayment of the entire amount at once; equal annual contributions of the principal amount and interest.
In accordance with international export credit practice, the date of completion of the relevant obligations under the commercial contract is accepted as a criterion for calculating the start of loan repayment.
The cost of the loan is the amount that is paid by the borrower to the creditor for using the loan, taking into account the total annual interest rate. This indicator includes the main loan rate, commissions (in percent per annum) and other elements. The following types of commissions are distinguished: negotiation commission, management commission, participation commission, agent commission, commission for the obligation to provide the borrower with the necessary funds, i.e. creditor reward for reserving funds. The cost of the loan also includes hidden and contractual elements.
The hidden elements of the loan value include: overstatement of prices of goods, compulsory insurance, forced deposits, overstatement of collection commissions and others.
The contractual elements of the loan value include: the interest period, i.e. part of the loan term during which the rate is fixed at the constant level; interest rates and bank commissions (nominal and real) and others.
Interest rates on an international loan are based on interest rates of leading creditor countries. However, due to the multifactorial nature of loan interest, a gap arises between national rate levels. The main factors determining the size of the interest rate are:
monetary, financial, economic and political situation of the borrowing country; sources of credit funding; international agreements on the regulation of the value of loans; type of interest rate (floating or fixed); availability of competitive offers; status, commercial reputation and financial position of the borrower (creditor); nature of project risks; quality of loan security; availability of credit insurance coverage; the moment of conclusion of a loan agreement in relation to a commercial contract; loan term; amount of contract; credit currency; inflation; the state of international and national capital markets.
To compare the conditions of various loans, the “gran-element” indicator is used, which shows how much payments to repay the loan the borrower saves as a result of attracting a loan on more favorable terms than market ones.
One of the most important conditions of an international loan is protection against various types of risk associated with credit operations. There is a credit risk – the risk of non-payment by the borrower of the main debt and interest on the loan; transfer risk – the risk of the impossibility of transferring funds to the creditor’s country due to currency restrictions in the borrower’s country; currency risk – risk, arising from a change in the exchange rate of the loan. The main factors determining the risk in international trade and economic credit relations are external debt, public debt, borrowed reserves, the period covered by insurance, political events, inflation, GDP growth rates, the structure of foreign trade, state of trade and balance of payments, subjective factors.
The main methods of protection against risks associated with credit relations are: government guarantees, guarantees of first-class banks, urgent currency transactions, early repayment of loans, multicurrency reservations and others.
Thus, the state of the economy, national and world markets for loan capital largely determine the monetary and financial conditions of an international loan.