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Sunday, June 21, 2009

Trade finance

Trade finance is related to international trade. 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, forfaiting and others. in many countries,The trade finance is often supported by quasi-government entities known as export credit agencies that work with commercial banks and other financial institutions.

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