wilmott.com

Hi,Can someone please tell me how the ACC and ACE trade financing deals are structured. What is the risk in these types of deals. I did not understand much by googling.Any idea on structure and risk greatly appreciated.regards

What do you mean by ACC and ACE?

Hi,1. Adiantamento sobre Contrato de Câmbio ? ACC2. Advance on Exchange Contracts Adiamento sobre Cambiais Entregues ? ACEWhat is it regards

In Brazil the Central Bank has a very tight exchange rate policy. Importers and Exports only after presenting several papers to the intermidiate bank and get these papers validated by the Central Bank, are allowed to buy or sell Dollars to delivery/receive goods. With that in mind, ACC and ACE are short term funding for the exporter. ACC- max of 360 days prior to shippment ACE - max of 210 after the shippmentThey are credit notes and have lower cost of funds than Brazilian Benchmark Interest Rates. They Analyse a history of performance ( how many of those contracts were actually shipped or how many of those deals were 100% completed). In the case of not performing the transaction is a really bad red flag on your name at the Central Bank(which can be a pain for you next time you need) so there is a incenptive on performing your transaction. Regarding the phisycal good banks try to sell insurance on that when negotiating the ACC and ACE deal. I hope it's a start for you

Thanks Dantas,I am not sure how thw fx exhange contract plays a role here.I beleieve exporter will receive fgn exhange after shipment but will need to be funded in local currency today. So what is the agreement between bacnk and exporter ? Does the exporter do a fgn ccy contract with bank in brazil.I am not sure.thanks for any help.regards

Drona,The exporter receives in BRL, only. As the bank is funded in foreign currency and has the rights over the goods the bank hedged the FX exposure.What excacly are you looking for? If you especify I can go over the trade finance desk at the bank here and get the answer for you.Please let me know

Dantas,thanks.> As the bank is funded in foreign currency and has the rights over the goods the bank hedged the FX exposure.Why do you say bank is funded in fgn currency ? Are you saying central bank gives Dollar funds to local banks - who provide the local currency converted from $ funds.Now when the exporter receives the dollars -> it is remitted to local bank and paid back to central bank.Is there a difference between Trava and ACE/ACC then ?I am just looking for how funds flow and where the risk is what needs to be hedged etc.regards

Drona, The Bank get funds in the foreign interest rates market, like an everyday operation, so like libor + % Spread. There is no central bank action in the trade structure, the central bank just over sees it very closely. The exporter doesn't receive Dollars they receive the equivalent amount converted in BRL.I don't know what you mean by Trava...The bank funds in libor -> convert into BRL and passes it to the exporter -> the exporter transfer the rights over the goods to the bank.So when the exporter sell the goods on the future date spot prices and pays the bank back, they naturally hedged the banks exposure of the FX markets.

Dantas,Thank you very much.Just to confirm ACE and ACC only differ in that one is pre-shipment and other is post shipment ?RegardsShankar

Drona,You are correct.Regards