The major gain of international trade is that it has brought about increased prosperity by allowing nations to specialize in producing those goods and services at which they are relatively efficient. The relative efficiency of a country in producing a particular product can be described in terms of the amounts of other, alternative products that could be produced by the same inputs. When considered this way, relative efficiencies are described as the comparative advantages. All nations can do simultaneously gain from exploiting their comparative advantages, as well as from the large-scale production and broader choice of products that are made possible by the international trade. Suppose that Japan is relatively more efficient in producing steel than food and the United States is relatively more efficient in producing food than steel. So we can expect food to be cheap relative to steel in United States, and steel to be cheap relative Continue reading
International Trade Finance
What is Euromarket?
Euro is the currency used by the European Union (EU) countries, so, the market the Euro is used for, can be named Euromarket. It has in view all the transactions done by the banks in Euro currencies, Euro notes, Euro commercial papers, Euro bonds. It is a market that has developed itself in Europe. The market deals with US dollars as well and it can be named Euro dollar market. Currency is borrowed and lent by institutions located in different countries, there is a capital flow which seems to be uncontrolled. Theoretically, it cannot be a national control over this market. From the practical point of view, the market forces dictate the lending rates; the rates do not diverge from the domestic lending ones, it happens only for short interval of time. The international banks are the main operators; financial institutions are also allowed to enter the market. The Continue reading
Export Pricing
Pricing for export is different than domestic pricing. Additional consideration needs to be given to the cost of modifying product or support materials for the foreign market, the logistics of getting the product to the foreign market, insuring the product, financing costs, transportation and other costs unique to exports such as long-distance communication costs and exchange rates. As pricing strategy is a key component of an export-marketing plan, the pricing structure has to be an integral part of the marketing objectives. These will vary depending on the target overseas markets. For example, a firm might regard the foreign market as a secondary market and consequently have lower expectations regarding market share and sales volume. Pricing decisions are naturally affected by such views. An exporter must thoroughly evaluate all the variables that have a bearing on the price for the product/service may not sell. On the other hand, too low a Continue reading
Export Financing Programmes Provided by EXIM Bank India
EXIM INDIA offers a range of financing programs that match the menu of Exim Banks of the industrialized countries. However, the Bank is atypical in the universe of Exim Banks in that it has over the years evolved, so as to anticipate and meet the special needs of a developing country. The Bank provides competitive finance at various stages of the export cycle covering: EXIM INDIA operates a wide range of financing and promotional programs. The Bank finances exports of Indian machinery, manufactured goods, and consultancy and technology services on deferred payment terms. EXIM INDIA also seeks to co finance projects with global and regional development agencies to assist Indian exporters in their efforts to participate in such overseas projects. The Bank is involved in promotion of two-way technology transfer through the outward flow of investment in Indian joint ventures overseas and foreign direct investment flow into India. EXIM INDIA Continue reading
The concept of Forfeiting in Export Finance
Forfeiting is a mechanism of financing exports. By discounting export receivables Evidenced by bills of exchange or promissory notes Without recourse to the seller (viz. exporter) Carrying medium to long term maturities On a fixed rate basis (discount) Upto 100 percent of the contract value. The word `forfeit’ is derived from the French word `a forfeit’ which means the surrender of rights. Simply put, Forfeiting is the non-recourse discounting of export receivables. In a forfeiting transaction, the exporter surrenders, without recourse to him, his rights to claim for payment on goods delivered to an importer, in return for immediate cash payment from a forfeiter. As a result, an exporter in India can convert a credit sale into a cash sale, with no recourse to the exporter or his banker. Concept of forfeiting: 1. What exports are eligible for forfeiting? All exports of capital goods and other goods made on medium Continue reading
Factoring Concept in Export Finance
What is Factoring? Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business. Factoring differs from a bank loan in three main ways. First, the emphasis is on the value of the receivables (essentially a financial asset), not the firm’s credit worthiness. Secondly, factoring is not a loan – it is the purchase of a financial asset (the receivable). Finally, a bank loan involves two parties whereas factoring involves three. The three parties directly involved are: the one who sells the receivable, the debtor, and the factor. The receivable is essentially a financial asset associated with the debtor’s Liability to pay money owed to the seller (usually for work performed or goods sold). The seller then sells one or more of its invoices (the receivables) Continue reading