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International Finance Trade

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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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Merchandise trade - International Financial Statistics

Answer to the question can be found in the attached data sheets which is the balance of payments data from the IMF's International Financial Statistics Yearbook. GDP and population data are given at the bottom of this page. No additional sources need to the consulted in preparing this assignment. You should explain which data items you are using to answer each question.

1. Merchandise trade plays the most important role in which country?

2. Are the countries net importers or net exporters of services?

3. Which economies earn more from their overseas investments than they pay out to foreign owners (investors) from local earnings?

4. Which countries are usually net savers and which are net investors based on an interpretation of the current account?

5. What types of overseas investments does the country your group is working on typically make? Does any other country we are looking at seem to have a similar pattern? Why do you think so?

6. What categories of investments seem to attract foreign interest in your case-study country? Which of the other countries we are looking at seems to be the least similar to yours on this point? Explain your answer?

7. Which countries normally have to draw down reserves to settle their accounts with the rest of the world?

Canada --- GDP = $714 billion; pop. 31.3 million

China --- GDP = $1,266 billion; pop. 1294.4 million

Israel --- GDP = $103.7 billion; pop. 6.3 million

Italy --- GDP = $1,184 billion; pop. 57.4 million

Japan --- GDP = $3,993 billion; pop. 127.5 million

Russia --- GDP = $346.5 billion; pop. 143.8 million

United States --- GDP = $10,383 billion; pop. 288.5 million

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