What is trade finance?

Trade finance is trade flow of international trade. It includes to mitigate the risk involvement in an international trade transaction.There are two main parties in a trade finance:

  1. An Exporter – a company that requires payment for their goods or services.
  2. An Importer -a company that wants to make sure whether they are paying for correct quality and quantity

Products and services

Euro Exim Bank Ltd. offers the following products and services in their trade finance branches in globally.

  1. Letter of credit

It is an undertaking/promise given by a Bank/Financial Institute on behalf of the Buyer/Importer to the Seller/Exporter, that, if the Seller/Exporter presents the complying documents to the Buyer’s designated Bank/Financial Institute as specified by the Buyer/Importer in the Purchase Agreement then the Buyer’s Bank/Financial Institute will make payment to the Seller/Exporter.

  1. Bank guarantee

It is an undertaking/promise given by a Bank on behalf of the Applicant and in favor of the Beneficiary. Whereas, the Bank has agreed and undertakes that, if the Applicant failed to fulfill his obligations either Financial or Performance as per the Agreement made between the Applicant and the Beneficiary,

What are the risks?

As international trade takes place across borders, with companies that are unlikely to be familiar with one another, there are various risks to deal with.

As international trade carryout across different countries, companies may familiar with another. There are different types of risk factors.

These include:

Risk of payment: Whether the exporter may have paid in full and on time? has the importer get the goods they wanted?

Geographical Location Risk[Country]: A collection of risks associated with doing business with a foreign country, such as exchange rate risk, political risk and sovereign risk.

Risk of Corporation: The risks associated with the company (exporter/importer): what is their credit rating? Do they have a history of non-payment?

To reduce these risks, banks – and other financiers – have stepped in to provide trade finance products.

What are the risks of trade finance?

As international trade takes place across borders, with companies that are unlikely to be familiar with one another, there are various risks to deal with. These include:

Payment risk: Will the exporter be paid in full and on time? Will the importer get the goods they wanted?

Country risk: A collection of risks associated with doing business with a foreign country, such as exchange rate risk, political risk and sovereign risk. For example, a company may not like exporting goods to certain countries because of the political situation, a deteriorating economy, the lack of legal structures, etc.

Corporate risk: The risks associated with the company (exporter/importer): what is their credit rating? Do they have a history of non-payment?

To reduce these risks, banks – and other financiers – have stepped in to provide trade finance products.

CONCLUSION:

Trade finance is huge industry and it involve different types of financial services and financial institutions. Following users are involving into trade finance systems. They are producers, manufacturers, importers, traders and exporters.

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