Edited by Andrew W. Mullineux and Victor Murinde
Chapter 11: The Settlement and Financing of International Trade
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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