BRIC banking? Do your due diligence.

• Author: Hinojosa, Victor
• Position: Treasury - Brazil, Russia, India and China

As developed nations emerge from the economic downturn, it is evident that the old world economic order is undergoing a major shift. Brazil, Russia, India and China currently hold more than 40 percent of the world's foreign exchange reserves and 15 percent ($ 15.4 trillion) of the total global gross domestic product.

Reports from The Goldman Sachs Group and others make it clear the so-called BRIC nations will be dominant economic leaders by 2050.

What investment and expansion opportunities does this expectation present for North American companies? If business plans for 2011 include establishing operations in India, building a partnership in Brazil, buying from Russia or exploring investment opportunities in China, here are three points to consider:

1. Learn the BRIC banking systems.

   Moving funds internationally is very different than domestic transfers. Dealing with BRIC countries can be far more complicated than dealing with more developed countries, such as Germany or Canada. The reason is that BRIC banking is typically highly regulated and generally "slow to pay."

   Before transferring funds to a BRIC country, take the time to learn its banking system. This may require researching banking regulations or talking to a foreign exchange (FX) or financial professional who's dealt extensively with the country.

   This research will provide important insights into the costs of transferring money, how long payments will take to arrive, the kind of information required and the best currency to send.

   Consider sending a small test transaction to a foreign location to address any potential problems. This can prevent any larger issues that may impact client relationships. For certified treasury professionals, this type of transaction is similar to a pre-notification through the automated clearing house (ACH) system.

2. Understand local currency payment options.

   Paying in the foreign supplier's local currency rather than U.S. dollars can be cheaper and faster for all parties. Don't assume that, because the dollar is accepted overseas, it's the most cost-effective or convenient payment option.

   Once dollars arrive in any BRIC country, the supplier or partner has to convert them into local currency. In doing so, their bank will charge the supplier or partner a fee and that cost will most likely be passed on in the form of higher prices.

   Additionally, with currency volatility levels still at all-time highs, there's a possibility their currency will appreciate...