International finance … The Mainstay of international trade

 

With the aid of Globalization, the concept of international finance grew. It fundamentally addresses the issues of monetary interactions among world’s countries. These issues may include currencies exchange rates, global monetary systems, foreign direct investments(FDI) and other important issues involved in international financial management.

On another side, it avails perceiving & maintaining balance of all international organizations fundamentals though no mutual change between them, International finance is considered one of the most vital economical instruments of international trade growth & staving it off from continuous economic fluctuations.

in particular, when concept of lending & borrowing has extended between countries as it may formulate modern secure ways to funding trade which facilitate goods & services circulation among them.

“Banking transfers” is perceived as one of the funding channels that is adopted by states to invest among themselves. It depends on prepayments made by countries with a commitment to pay the balance within the predetermined time interval by the “documentary collection” which the exporter’s bank provides to guarantee the full payment of all financial receivables of the foreign countries.

International finance importance

 

As the international finance plays an effective role in the international trade & exchanging of goods & services, that importance relates to some reasons as follows: –

• International finance is a key indicator to find the exchange rates & identifying the relative values of currencies besides comparing inflation rates for reconciling & eliminating debt securities.
• International finance maintains monetary system equilibrium that ensures peace between nations; otherwise, they will work for their self-interests regardless of others’.
• International finance is constantly reviewing global markets; as the economic factors aid in identifying whether the investors’ money is secured with the foreign debt securities.
• International finance organizations as international monetary fund IMF & world bank are the intermediaries that manage the international financial conflicts.

The parties involved in international trade are:

• Commercial funding corporations
• Insurance companies

• Banks

• Export credit agencies and service providers.

Exporter & importer cycle

The international finance is the third party in the completion of transactions between importer & exporter as it to an extent eliminates the payment risk for both, It also secures the international trade from the risk of currency fluctuations & political instability, It may identify the International currency exchange rates under the broadened lending & borrowing concepts among countries.

Instruments of international finance in international trade consists of: –

1. Banks Issue credit lines to aid both, importer & exporter.
2. Banks use “insurance” for freight & delivery of goods, & so guarantee the exporter’s accounts receivables.
3. The importer bank offers a letter of credit to the exporter bank stating payment when certain documents are provided, as it ensures for the exporter that the importer will commit to payment. In case of acceptance on the conditions listed in the letter; both parties should commit with it to complete the selling process between them.

International finance fences international trade from risks

•  International finance is a cornerstone on which importers & exporters depend to ensure the payment of their accounts receivables & evading risks that may arise from both.
• Consequently, the letter of credit is considered a tool that secures both parties as it guarantees the importer payment to the exporter once the issuing bank receives the proof that the later shipped the goods – as “bill of lading” and the terms of the agreement have been met.
• In the same vein, the buyer’s bank assumes the responsibility of paying the seller. The buyer’s bank would have to ensure the buyer was financially viable enough to honor the transaction. Trade finance helps both importers and exporters build trust in dealing with each other and thus facilitating trade.
• In the business sector, Trade finance allows companies to increase their revenue through trade by the help from private or governmental trade finance agencies; which facilitates getting new business with the aid of the creative financial solutions that trade finance provides.
• And at the other end of the spectrum, the international finance is a supervisor for the companies that lags their payment or may follow up a major customer or supplier that losing him may have some extended consequences. Also, it may avoid companies’ financial risks by providing credit facilities & accounts receivables.