OVERVIEW

OF
INTERNATIONAL TRADE
AND
TRADE FINANCE
TRIVIA DARE

 WHAT IS THE QUANTUM OF

INTERNATIONAL TRADE?
 USD 25000 BILLION approx
 WHAT IS INDIA'S SHARE IN WORLD
TRADE?
 1.87 %( 2010)
WHAT ARE THE TWO MAIN ACTIVITIES IN A TRADE TRANSACTION?
 International Trade transaction
GOODS
CARRIER

BUYER SELLER
WHAT ARE THE RISKS ?
(Importer) (Exporter)

PAYMENT BANK
International trade - risks
Market risk

Country risk

Currency risk

Counterparty risk
Market risk

 Normal risks in the trade

 Fall in sale price

 New products coming to market
 Change in trends
 Environmental developments
 Country
Risk
 War, other security concerns
 Civil strife, political instability
 Externalisation risk
 Regulatory risk
o Risk of non- renewal of import and exports licenses
o Risk of the imposition of an import ban after the delivery of the goods
o Surrendering of political sovereignty
o Changes in the policies of the government
o Exchange control regulations
o Trade embargoes
 Currency risk
Exporter
 Receives payment in foreign currency
 Incurs expenses are in home currency
 Long delay between order and payment
 Incurs a loss if foreign currency loses value

Importer
 Incomes are in home currency
 Pays for goods in foreign currency
 If home currency loses value he will make a loss
Counterparty Risk
 Buyer and seller
 Are geographically separated
 Not known to each other
 May talk different languages
 Subject to different legal and political
systems
 Live in different currency areas
Concerns of the parties
SELLER BUYER
 Receiving the Payment  Receiving the Goods
in full  Receiving the Goods in time
 Receiving the Payment  Receiving the Goods of
in time  Agreed Quantity,
 Risk of the ultimate buyer  Agreed Quality,
 Going bankrupt and unable to
pay  Packed properly
 Deliberately refusing to pay for  Insured against the normal risks
goods
 Refusing to accept goods after
shipment
 Raising disputes and
demanding a discount
 Settlement of Trade Transaction
Exchange of goods and money is never simultaneous
 Open Account . Goods supplied first. Sellers’s risk

 Advance payment. Money paid first. Buyers’s risk

Documentary Collections
Documents of title to goods entrusted to a bank which
will deliver them on payment.

Documentary credits/Letters of Credit

Bank acts as intermediary to address the concerns of
both the parties and facilitate the transaction.
INTERNATIONAL TRADE FACILITATORS
 ICC
 PUBLICATIONS/ DISPUTE RESOLUTION
 WTO
 FREE TRADE / MARKET EXPANSION
 GOVERNMENTS
 TRADE POLICIES & PROMOTIONS/ TRADE AGREEMENTS
 EXPORT PROMOTION AGENCIES
 PROMOTIONAL ACTIVITIES
 EXPORT INSURANCE AGENCIES
 RISK MITIGATION / EXPORT FINANCE
 BANKS/ CARRIERS/ GENERAL INSURERS / FACTORS
 UTILITY/FACILITY/FUNDS/RISK REDUCTION
Benefits of International Trade

 Enhances the domestic competitiveness

 Takes advantage of international trade technology
 Increased sales and profits
 Extend sales potential of the existing products
 Maintain cost competitiveness in your domestic
market
 Enhance potential for expansion of your business
 Gains a global market share
 Reduce dependence on existing markets
 Stabilize seasonal market fluctuations
Trade Blocks
 Free trade zones designed to encourage trade activities across nations.
 Involves a number of agreements on tariff, trade and tax.
 importance in the economic and political scenarios of the contemporary
world.

 NAFTA (North American Free Trade Agreement)

 EU (European Union)
 ASEAN (Association of Southeast Asian Nations)
 CEFTA (Central European Free Trade Agreement)
 GAFTA (Greater Arab Free Trade Area)
 SAARC (South Asian Association for Regional Cooperation)
 CEMAC (Economic and Monetary Community of Central Africa)
 East African Community (EAC)
 PARTA or PIF (Pacific Regional Trade Agreement)
 AEC (African Economic Community)
 CACM (Central American Common Market)
TRADE FINANCE
FINANCING IMPORTS & EXPORTS
EXPORT FINANCE
 PRE SHIPMENT / POST SHIPMENT
 IN INR/ FC - PCFC/ EBR
 AGAINST EXPORT ORDER/ LC
 AGAINST DOCUMENTS/ INCENTIVES
 FACTORING / FORFAITING
 ECGC POLICY/GUARANTEE

IMPORT FINANCE
 WORKING CAPITAL /TERM LOAN
 IN INR / FC IN INDIA & IN FC ABROAD
 LC / CC/TL SUPPLIERS CREDIT/ BUYERS CREDIT