- Trade finance
Trade finance refers to the various forms of financial support and financial transactions used in
international trade. [http://www.investopedia.com/terms/t/tradefinance.asp] Trade finance uses a range of instruments to provide finance to exporters and importers, including documentary credits such as letters of credit.
While a seller (the exporter) can require the purchaser (an importer) to prepay for goods shipped, the purchaser (importer) may wish to reduce risk by requiring the seller to document that the goods have been shipped.
Banks may assist by providing various forms of support. For example, the importer's bank may provide a letter of credit to the exporter (or the exporter's bank) providing for payment upon presentation of certain documents, such as a bill of lading. The exporter's bank may make a loan (by advancing funds) to the exporter on the basis of the export contract.
Other forms of trade finance can include export credit insurance, export
factoring, forfaitingand others. In many countries, trade finance is often supported by quasi-government entities known as export credit agencies that work with commercial banks and other financial institutions.
[http://www.trade.gov/media/publications/pdf/trade_finance_guide2007.pdf Trade Finance Guide: A Quick Reference for U.S. Exporters, U.S. International Trade Administration] [http://www.tradefinancemagazine.com/ Trade Finance magazine]
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