Trade Finance

   ACADEMY OF TRADE FINANCE

Information About Trade and International Trade Finance

Basics of Trade Finance and Introduction to Trade parties involved in International Trade, Risk involve in International Trade and Mitigants, Role of Banks in International Trade, Documents in International Trade, Letter of Credit and types, Methods of Payment, Types of Guarantees, 

INCO Terms 2000. Information About Trade & International Trade Finance

TRADE FINANCE ACADEMY

What is Trade

·        Trade is purchase and sale of goods and services results in the movement of goods from the seller to the buyer for a consideration.  

·        Trade could be domestic or international.

·        Domestic Trade is the purchase and sale of goods within the same country and results in the movement of goods within the country.

·        International Trade is the purchase and sale of goods between two countries and results in the movement of goods from one country to another country.

A country rarely, if ever, produces everything it needs. Climatic conditions, availability of natural resources, availability of labour, cost of production among-st other countries for one or more of its economic requirements of products.

1. Purchase of raw materials for manufacturing of goods

2. Requirement of strategic products (oil, sugar, diamond etc.)

3. Disposal of surplus production (oil, coffee, sugar etc.)

4. Competitive advantage in producing a particular product (low labour cost, availability of abundance raw material at cheap rates, nearness or prors etc.)

5. Access to wider market

6. Spread of risk ( if demand drops in domestic market, the impact will be less due to demand in overseas market )

7. Access to new ideas and technology

When goods move one country to another, the following considerations are to be kept in mind.

1. Physical movement of goods, which involve someone to undertake transportation of the goods

2. Insurance of goods against any damage that may occur during transit. This will require a contract of insurance with an insurer with

and documents evidencing ( insurance policy / certificate that insurance has been affected.

3. Regulations with the importing and exporting countries: licensing requirements, exchange control regulations, tariffs, quotas etc

4. Legal requirements within the countries

In International Trade all or many of the above consideration apply since there is scarcely any face to face contact between the seller and money has to move long distances across natural and artificial barriers.

PARTIES IN INTERNATIONAL TRADE

The various parties involved in any International Trade transactions are:

1. Buyer

2. Seller

3. Manufacture

4. Agents (seller & Buyer)

5. Bank

6. Transporters

7. Insurance Companies

8. Government departments, Embassies, Consulates and Trade Organizations, Central Banks, Customs & Excise, Chamber of Commerce

We will discuss each one of them in the following.

Buyer:

 Needs the goods to satisfy his or the requirements of ultimate consumers.
Finds / locates the person who will be able to supply the goods to him under terms and conditions acceptable to him.
Enters into an agreement (Purchase / Sales Contract) for the supply of the goods with the Seller.

Seller:

·        Produces or manufactures or sources the goods to satisfy the requirements of the buyer?

·        Finds / locates the person who is interested in buying the goods from him.

·        Enters into an agreement (Purchase / sales contract) for the supply of the goods (export of goods) with the Buyer

Manufacturer / Producer:

·        Actually produces or makes the goods ( finished / semi finished )

·        May or may not be the actual seller of the goods to the buyer.

Buyers Agent:

·        The person representing the buyer in the seller's country

·        Responsible for advising the buyer regarding the suppliers of the goods, their credit and trust worthiness, the price, market conditions, terms of payments

·        Responsible to inform the buyer and seller regarding the regulatory requirements in the exporting and importing countries

Seller Agent:

·        The person representing the seller in the buyer's country

·        Responsible for advising the seller regarding buyers of the goods, their credit and trust worthiness, the price, market conditions terms of payment

·        Responsible for informing the buyer and seller regarding the regulatory requirements in the importing and exporting countries.

·        He also acts as the "in case of need" in case the buyer refuses to take delivery of goods, non acceptance / nonpayment for the goods, noting and protesting of unpaid bill of Exchange.

Bank:

·        Understand the sellers / buyers need and provide advice on how best their interest could be protected.

·        Handling documents covering the import / export of goods.

·        Establishes letters of credit.

·        Remitting / receiving payment.

·        Provide finance in respect of the import / export.

Transport Agents:

·        Assists in transportation / movement of goods from the seller's premises to the buyer's premises.