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A description of foreign trade transaction

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- Describe a typical foreign trade transaction.

- How can forfeiting be used for trade finance?

- What is Eximbank and how can it help with trade transactions?

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The solution provides a description of foreign trade transaction. How forfeiting be used for trade finance is discussed.

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? Describe a typical foreign trade transaction.
I am giving an example of typical foreign exports of Automobiles from US to India. Suppose the GM is exporting 100 automobiles to Indian buyer. The sales price per automobile is $20000, hence in Indian Rs it will be $20000*43 =Rs 860,000. Here the foreign exchange rate of IUS$ =INR 43. (x-rates, 2007)

Thus the total value of transaction in US Dollar is $20000*100= $20, 00,000 and in INR it will be 2000000*43= INR 8, 60, 00,000. Hence it's a transaction of US exports to India.

? How can forfaiting be used for trade finance?
Forfaiting is a mechanism of financing exports by discounting export receivables evidenced by bills of exchange/ promissory notes without recourse to the exporter. Under this scheme the exporter after finalization of the sale with a prospective buyer furnishes all necessary details regarding the contract to the Bank through which the ...

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