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Trade Finance - Week 7-1
Trade Finance - Week 7-1
Trade Finance - Week 7-1
1. What are the differences between documentary collection and letter of credit?
2. What are the risks associated with bank transfer payment? How to minimize
the risks?
3. Why is counter-trade important?
4. What are the differences between L/C and standby L/C?
5. Why should we consider Export Credit Agency if we have had access to
guarantees from banks and private insurance companies?
What has been done?
• International Trade Finance: types of risks
• Methods of payment
• Guarantees
• Currency risk management
• Export credit insurance
IBUS 3530:
International Trade Finance
Trade Finance
Objectives
• Trade finance
• Trade finance alternatives
• Pre-shipment
Trade finance
• Financing of fluctuating working capital for single or bulk transactions.
• often secured by export goods and/or future receivables or other trade debt
instruments such as bills of exchange
• self-liquidation: more secure for lender higher lending ratio & better terms
• Buyer often prefers instalments over longer periods for capital goods
• machinery and installations with a considerable lifespan
• Buyer’s cooperation:
• agreeing to an L/C or transferable L/C
• advance payment: pre-delivery part-payment
• secured by a conditional bank guarantee (seller fulfils contractual obligations)
Pre-shipment finance
Working capital insurance/guarantee
• Both private insurers and ECAs may offer pre-delivery cover based on the
sales contract.
• The credit insurance will increase the security of the transaction and will have
a strong influence on the bank’s decision on additional finance.
• This interaction between the seller, the insurer and the bank (ongoing during the entire
negotiation process with the buyer) may be the key for securing additional pre-finance needed for
the transaction.