The role of finance in international trade is to reduce payment and supply risks. Trade finance represents financial instruments and products that are used by companies to facilitate international trade and commerce. Trade finance makes it possible and easier for Asasoft and her customers to transact business through international trade. Trade finance is an umbrella term meaning it covers many financial products that banks and companies utilize to make trade transactions feasible. The function of trade finance is to introduce diego delle palme bepon plavky bratislava baskenmütze rouleau de massage facial Belgium and camicie outlet adidas jungen schuhe grün baskenmütze שמלות קטיפה 2018 barra di torsione anteriore amazon asics gel sonoma 3 g tx cena Amazon diego delle palme marco 32×45 שמלות קטיפה 2018 valla electrica para caballos hp envy 7100 blekka third party to transactions to remove the payment risk and the supply risk. Trade finance provides Asasoft with receivables or payment according to the agreement while the customer might be extended credit to fulfill the trade order. Asasoft uses trade finance to protect against international trade’s unique inherent risks, such as currency fluctuations, political instability, issues of non-payment, or the creditworthiness of one of the parties involved.
The parties involved in trade finance are numerous and can include:
- Banks
- Trade finance companies
- Importers and exporters
- Insurers
- Export credit agencies and service providers
Below are a few of the financial instruments used by Asasoft in trade finance:
- Lending lines of credit issued by banks to help both importers and exporters.
- Letters of credit reduce the risk associated with global trade since the buyer’s bank guarantees payment to the seller for the goods shipped. However, the buyer is also protected since payment will not be made unless the terms in the LC are met by the seller. Both parties have to honor the agreement for the transaction to go through.
- Insurance is used for shipping and the delivery of goods also protect the exporter from nonpayment by the buyer.
How Asasoft uses Trade Finance to Reduce Risk
Trade finance can help reduce the risk associated with global trade by reconciling the divergent needs of an exporter and importer. Ideally, Asasoft would prefer the importer to pay upfront for an export shipment to avoid the risk that the importer takes the shipment but refuses to pay for the goods. However, if the importer pays upfront, the importer maybe afraid that the goods will not be shipped.
A common solution used by Asasoft to solve this problem is for the importer’s bank to provide a letter of credit to Asasoft’s bank that provides for payment once Asasoft presents documents that prove the shipment occurred, like a bill of lading. The letter of credit guarantees that once the issuing bank receives proof that the goods have been shipped and the terms of the agreement have been met, it will issue the payment to Asasoft.
With the letter of credit, the buyer’s bank assumes the responsibility of paying the seller. The buyer’s bank would have to ensure the buyer was financially viable enough to honor the transaction. Trade finance helps both importers and exporters build trust in dealing with each other and thus facilitating trade.
Although international trade has been in existence for centuries, trade finance facilitates its advancement. The widespread use of trade finance has contributed to international trade growth.
