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International Finance Trade

Due to the difficult financing conditions prevailing in the international credit markets and increased risk aversion by the lending, gross inflows of short-term trade credit to India declined in 2008-09 and this trend continued in 2009-10.

Use India as an example and learning tool to appreciate the complexities of international trade financing.

What would your biggest concerns be if you were financing trade with India?

What could be done to minimize the risks?

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Challenges of Financing International Trade

The financial crisis which began in 2007 still has ongoing impact on the world. The difficult financing conditions prevailing in the international credit markets and increased risk aversion by the lending had adverse impact on several economies including India, where gross inflows of short term trade declined in 2008-09 and continued to do so in 2009-10. The financial crisis has given one of the most important lessons in international trade. It is the role of trade finance as enabler of cross border commerce. In fact, part of the contribution to financial crisis was from finance trade given that a majority of world trade relies on finance trade. When banks were hit by liquidity crisis, trade finance became expensive. The pricing reached a level of 400-500% of normal. Difficulty to obtain pre-export finance resulted in significant drop of trade flows from Asian countries like India to Europe and the Americas. While the trend has stabilized over years, the linkage between trade finance and trade flows has gained importance among senior business and political leaders ...

Solution Summary

challenges of trade finance with India as example are provided along with risks associated with financing trade

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