Trade Finance Methods Essay

Trade Finance Methods Essay

Length: 1666 words (4.8 double-spaced pages)

Rating: Powerful Essays

Open Document

Essay Preview

Introduction
This report will review the main trade finance methods and how they affect function legally and practically. The main document used in world trade is the letter of credit and this will reviewed in dept together with the doctrine of strict compliance and autonomy.
Finance Methods
To make trade possible there is a need for capital, which can be used to pay for the goods bought. The capital can come from several sources depending on the scope of the trade. If it is trade of low cost items in small values, it is possible to get credit in a local bank. The complexity becomes larger if the goods are more capital intensive. There might be loans involved, currency needs to be traded (FOREX trade), market swings in the commodity (futures and derivates) and transport risk (insurance) and similar. The finance market can service these issues in several ways. They can also help seller and buyer with the payment involved in a trade.
Bills of Exchange
There are several trade specific financial methods, which are used to service trade. The common form is to issue a bill of exchange where the buyer gives the seller the right to draw his account on a specific date and amount. These bills are most often conditional to some form of duty to be made before the payment goes trough. Further is possible for the buyer to issue document against payment (D/P). This gives the buyer possibilities to retain payment until he receives the documents according to the sales contract. The seller retains the goods until he receives payment. The similar document against acceptance (D/A) also gives the buyer the possibility to retain credit from the bank on the behalf of the seller. The sellers bank is then in charge of collecting the payment. Th...


... middle of paper ...


...d is interested in the commission involved in setting up a letter of credit but they do have a big responsibility to make sure that the LC match the sales documents. If they are neglecting in their auditing of the LC they might be held liable to the buyer and therefore the bank must follow the UCP 600

Conclusion
There are several ways of financing trade, but the most significant in trade between two parties with no history is the letter of credit. The reason being it secures the seller from not being paid and the buyer from not being delivered the goods. However the letter of credit has strict guidelines to how it should comply with the sales contract. Banks uses the UCP600 to assed the LC and a large proportion of the LC rejected. This is an issue and it might make the LC less attractive but then again there are few alternatives, which has the same security.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

The Importance of f International Trade Finance in India, A List of Requirements

- 1. Explain the importance of International Trade Finance in today’s context, with appropriate examples. (In general and with specific reference to India). (It should cover following aspects: Export finance, Import finance, Agencies involved, Eligibility criteria, procedure, rules and regulations, risks associated methods to minimize the impact of these risks etc.) In India any transaction which is denominated in a currency other than rupee or home currency is called as foreign exchange. In India International trade transaction give rise to foreign exchange transaction....   [tags: export, import, finance]

Powerful Essays
1434 words (4.1 pages)

Financing International Trade Essay

- 1. Introduction The MNEs engage in foreign or international trade which involves the exchange of goods and services across national frontiers. Globalization has encouraged more firms to participate in trading at the international level. Financial resources are required to finance this exchange of good and services and the choice of finance depends on the firms and the environment the trade is taking place. 2. Literature Review The choices available to the MNEs in financing international trade include cash in advance, letter of credit, documentary collection and open account terms (Shenkar and Luo, 2008, pp....   [tags: International Trade Essays]

Powerful Essays
557 words (1.6 pages)

Essay about Sources of Finance for a Business Start-Up

- Sources of Finance for a Business Start-Up For this task I will be considering the sources of finance I will need for my company. Why might a business require finance. A business may require finance because they can either: • Be setting up a new business and they do not have enough money to start up. • They may need new equipment to help make the business expand and make more profit. • Or they may even want to replace old machinery. • They may want to move there store to a better location that might benefit there company more....   [tags: Business Finance Capital Entrepreneurship]

Free Essays
1480 words (4.2 pages)

The Three Main Areas of Corporate Finance Essay example

- 1.0 Introduction Finance is a mixture of both economics and accounting. Finance is generally concerned with three main areas which are corporate finance, capital markets and investments. Corporate finance or financial management is related to decisions made by a company which involves what and how much assets should a company attain and secured to maintain the optimum level of performance and maximize the asset's value. Capital Markets refers to the market where the It is very important for the manager of a business to select a suitable source of finance because There are two types of financing, long term and short term to medium term financing....   [tags: capital, invest, banking]

Powerful Essays
1049 words (3 pages)

Essay about Determinants of Financing Choice of Listed Firms the Nigeria Experience

- CHAPTER 1 1.0 Introduction The discussion on how firms raise capital with regards to instruments used to finance investment decisions have generated a lot of academic debate amongst scholar’s in finance in recent past with scholar’s examining plausible reason why listed firms raise capital through primary listing, secondary listing or issuing debt using different combinations of instruments such ordinary equity, debt, hybrid securities such as preference shares, convertible and warrant debt etc....   [tags: Finance ]

Powerful Essays
2447 words (7 pages)

The World Trade Organization Essay example

- ... Each institution plays a separate but necessary role in the group’s collective mission of lessening global poverty and improving living standards throughout the developing world. “Together, they provide low-interest loans, interest-free credits, and grants to governments and the private sector in developing countries for investments in education, health, infrastructure, communications, and many other purposes, as well as services in support of those investments.”[2] The committee of the International Monetary fund has the task to facilitate intergovernmental agreements in relation to building on development issues in poorer countries, as well as to advise the boards of governors of both...   [tags: imf, developing countries, world bank]

Powerful Essays
1703 words (4.9 pages)

The Impact of Globalization on the Modern Methods of Communication. Essays

- ... (Kottak, 26) This system begins to function as a single organism with its own structures and institutions. During this process the problems affecting the foundations of human existence arise, the so-called global problems that cannot be resolved by the local efforts. The process of globalization in the modern civilization has a huge impact on the society in the forms of new values, needs, forms and methods of self-identification of individuals and social groups, the conditions and forms of communications....   [tags: change, cultural innovations, technology]

Powerful Essays
1187 words (3.4 pages)

Essay on Cash Management Techniques And Methods Of Short-Term Financing

- Introduction Proper cash management and efficient short-term financing are both important and beneficial to a company in order to maintain a competitive market share, which will increase profit potential and shareholder value through rising stock. Cash management can be used to lower or eliminate idle cash balances that do not earn revenue, using the freed up cash as sources for short-term financing through interest building securities. Short-term financing allows a company to secure needed funds in order to meet production needs and gain maximum profitability....   [tags: Business Finance]

Free Essays
1243 words (3.6 pages)

The Difference between Organized Crime and Terrorism Essay examples

- September 11, 2001 is a day that many people will never forget. It was the day that the realities of terrorism became apparent to the American public. Several movies were made to honour the heroes of that day and to remember the consequences of terrorism. However, there is more to terrorism that remains unseen in the events of this one day. How do terrorist groups operate. What other activities are they involved in when not violently killing thousands. How does organized crime differ from terrorism....   [tags: same motives, different methods]

Powerful Essays
751 words (2.1 pages)

Program Admission Essay: Henley Business School

- Statement of Purpose I have chosen to pursue graduate studies University of Reading for admission to the MSc Financial Engineering, which is collaborated between Henley Business School and ICMA Centre. I am interested in finance, commodities trading, and derivatives, especially a quantity analysis. Throughout my undergraduate education in Computer Engineering, in Thailand, my coursework involved a mix of subjects between Computer Sciences and Electronics, including computer programming, algorithm design, electronic circuit design, all involving heavy use of applied engineering mathematics such as Probability, Numerical Methods, Discrete Math and Calculus....   [tags: Finance, Engineering]

Powerful Essays
602 words (1.7 pages)