Table of Contents

Handbook of International Banking

Handbook of International Banking

Elgar original reference

Edited by Andrew W. Mullineux and Victor Murinde

The Handbook of International Banking provides a clearly accessible source of reference material, covering the main developments that reveal how the internationalization and globalization of banking have developed over recent decades to the present, and analyses the creation of a new global financial architecture.

Chapter 11: The Settlement and Financing of International Trade

Ayse G. Eren

Subjects: economics and finance, financial economics and regulation, money and banking


11. The settlement and financing of international trade Ayse G. Eren 1 INTRODUCTION International trade activities involve such issues as the exchange of goods and services, the activities of exporters and importers, international payments and exchange rates, and the role of international banking and finance. Exporters and importers tend to prevail on their banks to obtain for them the most cost-effective methods of payment and settlement. Banks and other financial institutions play an important role in identifying from the existing financial markets the most suitable instruments that could be used to finance international trade. Export financing, therefore, can be simply defined as a mechanism for financing export sales. On these grounds, the financing of international trade can be considered as an integral element of international banking (see Murinde, 1996, ch. 8). In general, international trade finance refers to the provision of bank credit facilities to meet a company’s borrowing needs in relation to its international trade activities. For example, international trade financing techniques can be used to bridge the funding gap between any credit provided in the trade contract and the need to finance stock and debtors. Historically, within commercial banks in the UK this funding gap has been financed by overdraft facilities. Furthermore, it is fully acknowledged that in many instances traditional internal working capital finance continues to offer a perfectly adequate solution to customers involved in international trade. However, a major advantage of trade finance products and techniques is the additional assurance which banks can...

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