Appendix 4
Answers to Gdanski
Construct SA Case Study
1 Gdanski Construct SA, if successful with their bid will be supplying
materials to and carrying out work for a foreign buyer. Their initial risks
are:-
Financial
Political
Foreign exchange
Financial risks
(a) non-payment by Combinex for materials
(b) non-payment by Combinex for construction.
Political risks
(a) refusal by Canadian Central Bank to release foreign exchange
(b) embargo by Canadian Government on import of steel products
(c) refusal by Canadian Government to grant work permits to Polish
construction force.
Foreign exchange risks
(a) adverse movement between the Can. $ and Zloty before advance
payments are made
(b) adverse movement between the Can. $ and Zloty for stage payments,
completion and acceptance payments
(c) adverse movement between the Can. $ and Zloty for four promissory
notes maturing over a period of 4 years.
Finance of International Trade
2 Gdanski Construct SA will need the following instruments to cover the
risks inherent in this contract:
1 Confirmed irrevocable documentary credit from Combinex bankers to
cover shipments of materials.
2 Confirmed standby credit to cover possibility of failure by Combinex to
make stage payments.
3 Confirmed standby credit to cover completion and acceptance
payments.
4 Endorsement by approved bank on each promissory note guaranteeing
payment at maturity.
5 Forward exchange contracts or currency options to protect against
exchange movements.
3 Combinex Inc. face the following risks in conducting this contract with a
foreign supplier:
Financial
Political
Foreign exchange
Financial risks
(a) non-refund by Gdanski Construct of advance payments of 10%
(materials) and 10% (construction)
(b) failure by Gdanski Construct to supply materials and to complete
construction in accordance with contract
(c) supply of sub-standard materials.
Political
(a) refusal of Polish Central Bank to release funds if advance payments
have to be repaid
(b) embargo on export of steel products by Polish Government
(c) refusal by Canadian Government to grant work permits to Polish
construction force.
Foreign exchange
(a) adverse movement between Can. $ and Zloty before advance
payments are made
(b) adverse movement between Can. $ and Zloty before stage payments,
completion and acceptance payments are made
190
Answers to Gdanski Construct SA Case Study
(c) adverse movement between Can. $ and Zloty during the life of four
promissory notes.
4 Combinex will require the following measures to cover their risks:
1 Advance payment bonds from an acceptable bank for 10% of value of
materials and construction work.
2 Performance bond from acceptable bank for 10% of contract value
covering construction, quality of materials and standard of work.
3 Forward exchange contracts, with options, for advance payments.
4 Forward exchange contracts for stage payments, completion and
acceptance payments.
5 Forward exchange contracts to cover maturities of four promissory
notes.
Alternatively, currency options could be used for 3, 4 and 5.
191

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