Introduction to Finance

hedging 
action taken to reduce risk 
or insure against a possible negative 
outcome 
forward contract 
specifi es the 
currencies to be exchanged, an 
exchange rate, and a future date 
when the transaction will be 
completed
forward rate 
exchange rate 
specifi ed in the forward contract
4
We discuss the use of forward contracts in the Learning Extension at the end of this chapter. Futures and options 
contracts are covered in the Learning Extension at the end of Chapter 11.

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6.6 Financing International Trade
145
An attempt was made to conceal the bribery by setting up a bogus consulting contract for the 
director general of the Saudi foundation that owned the hospital. The former HealthSouth 
executives were indicted after a Justice Department investigation alleged that they had viol-
ated the 
U.S. Travel Act
by using interstate commerce when making the bribes and the FCPA 
by falsely refl ecting the bogus bribe payments as legitimate consulting expenses on Health-
South’s fi nancial statements. 
When conducting business activities in certain foreign countries, business executives also 
are sometimes faced with extortion demands by organized criminals. Most of us would agree 
that extortion payments are morally wrong. Paying organized criminals is not diff erent from 
paying corrupt government offi
cials.
6.6
Financing International Trade
GLOBAL
One of the substantial fi nancial burdens of any industrial fi rm is the process of man-
ufacture itself. When a U.S. manufacturer exports goods to distant places such as India or 
Australia, funds are tied up not only for the period of manufacture but also for a lengthy period 
of transportation. To reduce costs, manufacturers may require the foreign importer to pay for 
the goods as soon as they are on the way to their destination. In this way, a substantial fi nancial 
burden is transferred to the importer.
Financing by the Exporter
If the exporter has confi dence in foreign customers and is in a fi nancial position to sell to them 
on an open-book account, then sales arrangements should operate very much as in domestic 
trade, subject, of course, to the complex nature of any international transaction.