The Importance of f International Trade Finance in India, A List of Requirements

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1. Explain the importance of International Trade Finance in today’s context, with appropriate examples. (In general and with specific reference to India).

(It should cover following aspects:

Export finance, Import finance, Agencies involved,

Eligibility criteria, procedure, rules and regulations, risks associated methods to minimize the impact of these risks etc.)

In India any transaction which is denominated in a currency other than rupee or home currency is called as foreign exchange. In India International trade transaction give rise to foreign exchange transaction. Following two steps have to be undertaken to complete a foreign exchange transaction

• Transfer of funds from one country to another

• Conversion of one currency to another

Trades Surplus exist when export is greater than import and trade deficit occur when imports are greater than exports. Receipt in foreign exchange (exports) is cash inflow and a payment in foreign exchange (Imports) is cash outflow. Balance of trade of a country is the difference between receipts in foreign exchange from visible exports and payment in foreign exchange towards visible imports during a particular year. India is 0.95% of world’s export, and 16% world exports in by Japan. Less percentage of exports by India due to

• Delivery time problem

• Price

• Quality of goods

International Trade finance as an integral part of global trade today it includes activities like Lending, Issuing letter of credit, export credit and insurance, Import credit and insurance. The companies that are associated with trade finance consists of importers and exporters, banks and financiers, Insurers and export credit agencies as well as others that provide the service in the process. Tra...

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• Acquire sufficient knowledge in document preparation to mitigate against documentation risk.

• Acknowledge and respect cultural differences with the buyer.

• Buy and sell in same currency to minimise foreign exchange risk. Alternatively, the buyer can hedge against foreign exchange risk by entering a forward or option foreign exchange contract with a bank.

• If financing is needed, enter into a fixed interest rate loan or interest rate swap agreement to mitigate against interest rate risk. sufficient insurance coverage against transit risk.

• Engage a representative in the buyer’s country to deal with the goods or relevant parties in

• case of non-payment or non-acceptance by the buyer.

• Always have a contingency plan against unfavourable event. http://www.uob.com.sg/assets/pdfs/corporate/corporate/TradeTutorials_RisksinInternationalTrade.pdf

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