Trade Finance relates to the activity of financing by financial institutions for the increase of trading activity between two entities either in the country (domestic) or across borders (international). Unlike the other types of financial services / instruments like overdrafts, cash credits, term loans etc., which can be used for any purpose this particular class of instruments fall under the class of Trade Finance because as explained above they are meant specially for financing trade activities generally between merchants, an agent and a merchant or between agents / brokers.
Let us look at the instruments –
- Letters of Credit (L/C)
- Guarantees
- Bills Discounting / Purchase /Acceptances
- Factoring / Forfaiting
- Pre and Post-shipment Finance
- Buyers and Suppliers Credit
- Structured Financial Instruments like collateralization
We will be looking at each of these in coming articles.
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