Components of Trade

Overview

Objectives
After going through this presentation you will be able
to:
Describe the components of trade
Explain the country risks in trade transactions
Identify invisible trade transactions

Movement of Goods, Documents, and

Funds
Any trade transaction can be broadly classified into
three components that collectively complete the
transaction. The three components are:
Movement of Goods

Movement of Documents
Movement of Funds

This is handled by a number of

logistics players operating at
different levels of supply
chains.

Banks have traditionally been

involved in movement of
funds. Their role in movement
of documents depends upon
the decision of the trading
parties.

Country Risks in Trade Transactions:

Reasons
Political instability
arising out of internal
and external conflicts,
and sanctions by other
countries or blocks

Adverse economic
environment affecting
paying capacity of trade
partners

Inadequate legal
infrastructure to settle
disputes

Restrictions on
repatriation of funds
due to foreign exchange
restrictions

Country Risks in Trade Transactions: Types

Foreign Exchange Risks
Foreign exchange risks
arise due to volatility in
foreign currency that
create uncertainty of
future payment value.

Operational Risk

Commercial Risks

Operational risks arise due Commercial risks arise

to transactions that are
due to:
usually customized to
Lack of reliability of
meet the needs unique to
information about
each client.
trading partners
Trade disputes
Banks advise clients to Banks deal in documents
cover foreign exchange and not in goods.
Inco Terms published by
risk with suitable
ICC is one of the methods
mechanisms. Entering
Documentation is usually
evolved to provide better
into forward purchase
drawn to cover some of
understanding of trading
or sale contracts cover the risk elements involved terms between parties
is a good method of
in the transactions.
handling trade
covering exchange risks.
transactions.

Invisible Trade Transactions

Invisible trade transactions are those in which there is
no physical movement of goods. Examples include:
Software exports
Note:
Sale of software and installing software are two
different types of services.
For exports of software from India, SOFTEX forms
have been designed to meet specific requirement
of this type of exports.
Tourism

BPO services

Summary
In this presentation you learnt:
Components of trade
Country risks in trade transactions
Invisible trade transactions