TRADE bills of exchange have been discounted for hundreds of years, and the basis of the calculation for the discount (face value x interest rate x number of days / number of days in year) is easily understood.

However, the advent of computers has made a more sophisticated approach possible, and banks investing in forfaiting assets are looking to compare their yields with those, which might be obtained from a Euro loan made directly to the guaranteeing bank. With such a loan, interest would be paid six monthly in arrears, and to allow a comparison forfait assets are usually discounted on a basis which allows for this semi-annual compounding effect. The forfaiting convention is the DTYCSA discount rate (discount to yield compounded semi-annually).

Additionally, it is usual for the exporter to pass on some of the financing costs to the importer. This is often by way of a mark up over Libor, and our spreadsheet will also help you calculate your grossed-up selling price.

Download our free forfaiting spreadsheet now to assist with invoicing for your export business. (Contains no macros and is McAfee VirusScan protected.) The only condition is you do not remove the copyright notice. The numbers and text in red are illustrative only, and can be replaced with your own details.

Finally, inquiries are invited from institutional investors and fund managers regarding our professional windows based software products, featuring a full range of discount routines - including internal rate of return calculations. A full portfolio management system is also available.

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