Financing Foreign Trade
For foreign trade to occur, there needs to be a buyer to buy the goods and a seller to sell the goods. There are various ways to finance foreign trade including discounting, bankers' acceptances, forfaiting, and factoring. With discounting, a financial institution takes exporters' drafts and converts them to cash less the discounted interest and fees. A banker's acceptance is a promised upcoming payment that's guaranteed by a bank. Forfaiting involves the purchase of receivables from exporters by a forfaiter. The forfaiter earns a fee for taking on all the risks that come with the receivables. With factoring, a company sells accounts receivable at a discount to another company which is known as the factor. The factor assumes all the payment risk.
Klapper, L.F. (2005, June 24). The role of factoring for financing small and medium enterprises. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=748344.
Mann, R.J. (2000, March 31). The role of letters of credit in payment transactions. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=214633.
How can the Export-Import Bank help to facilitate international trade?
There are several ways that the Export-Import Bank can help facilitate international trade and this include the following:
1. As mentioned, foreign trade parties need access to special financing such as accounts receivable ...
How can the Export-Import Bank help to facilitate international trade is determined. The factors that assume all the payment risks are given.