First Midwestern was a well-known bank and has a good relationship with Wisconsin for several years. In my opinion the bank did not provide the correct advice to Wisconsin in structuring and financing the transaction. One of the main reason was, because Wisconsin did not advised their bank with all the details and negotiations happened between them and Vietnamese buyers. The management of Wisconsin had deal with Saigon jewels, (buyers) that they will buy back the finished polished stones and jewelry from Saigon over …show more content…
Currency risk was another issue Wisconsin could face. Because the last two payment of one million dollar were to be made after a period of 12 months intervals after the first draft was paid. So, if the currency fluctuates they might not get paid the amount as assured.
3. “Given the underlying characteristics of this transaction and the country involved, should First Midwestern Bank have been involved in the transaction and ultimately purchased the drafts?”
Given the underlying characteristics of this transaction and the country involved, First Midwestern Bank have been involved in the transaction but should not purchase the drafts. The reason they should get involved in the transaction because the bank has satisfactory relationship with Wisconsin and they were looking to do additional business with them in future. Also if the transaction was done properly, Midwestern could have ended up making a profit from this transaction as they purchased drafts on a discounted rate.
In my opinion the bank should not purchase the drafts for many reasons. Firstly the transaction was done by using the letter of guarantee method, even though Midwestern recommended letter of credit to the buyers. Also the