Consumer Protection and Legislation PDF

Exchange Rates and Bad Debts What Are Foreign Exchange Markets? dEFINITIONS Foreign exchange markets are platforms in which currencies can be bought and sold. These include:...

Exchange Rates and Bad Debts What Are Foreign Exchange Markets? dEFINITIONS Foreign exchange markets are platforms in which currencies can be bought and sold. These include: Forex Dealers - Traders in currency with authorization from the government. Commercial Banks Central Bank - A national bank which Forex Dealers provides financial services to the Central Banks government and other commercial banks. Speculators Speculators - Individuals or businesses that hope to profit from the buying and selling of assets. Impacts of Exchange Rate Fluctuations Notes Appreciation Imports Demand for imports rise because goods become cheaper Exports Demand for exported products drop as they are expensive Depreciation Imports Demand for imports drop because goods become expensive Exports Demand for exported products rise as they are cheaper Bad Debts Customers may fail to pay for goods due many reasons like if the customer: Has gone out of business Is poor at money management Has experienced a bad debt Does not want to pay Been encouraged to buy too much Impacts of Bad Debts Causes stress Causes cashflow problems Use of valuable resources to get the debt paid Other companies may delay payments Banks hesitate to lend money Profitability suffers Page 1 Impacts of Bad Debts on Individuals dEFINITIONS Impact on personal life May struggle to borrow money due to a low credit rating Causes stress and depression Credit Rating - An estimate on a firm’s or individual’s ability to repay debt May result in homelessness Creditworthiness - Being safe to lend money to somebody Ways to Reduce Bad Debts Credit Guarantee Insurance - Cover for losses resulting for bad debts when trading Check creditworthiness of customers with a foreign firm Place limits on amounts new customers can order Produce clear terms and conditions Notes Ensure invoices are sent promptly Resolve trading disagreements Take out insurance like export credit guarantee insurance Employ a professional debt collector Page 1