In: Categories » Legal and finance » Market and Finances » Importance of Trade Finance and Structured Trade Finance for Importers and Exporters of Commodities
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Trade finance is the method importers and exporters of commodities and goods use to finance their business. Basically, trade finance has been in existence for many thousands of years - and one can trace the roots of trade finance and structured trade finance right back to the early days of China and the silk route, Mesopotamia and Europe. Trade Finance was around long before Europeans settled in America and long before the world’s stock markets were born! How is trade finance and structured trade finance useful?
Take an example: imagine you are a tra der in cocoa beans in Cote d’Ivoire, buying beans locally and selling them to foreign buyers. To make your purchases, you will need to have money to buy the cocoa up-country in Africa, prior to their export. Where will you find money to make these purchases? And supposing you are the international buyer; the shipper, purchasing from cocoa traders all over West Africa - how will you finance your transactions, which at any one time may exceed your cash reserves? What might be supported by your bank who, if they are traditional lenders, will only lend against your balance sheet? What is the basis of trade finance and structured trade finance?
Goods and commodities have an underly! ing valu e of their own. For example, if cocoa beans are worth many hundreds or even thousands of dollars per tonne, then once a big pile of beans is accumulated in one place; in a warehouse or on a ship, it is worth a lot of money. A bank may lend money against the total value of the beans, minus some amount to take account of price and other risks Is trade finance complicated? No. It is a simple business although the structures used in trade finance in more complex deals require a lot of work for all of the parties involved. This is why the total loan amount of a structured trade finance loans must be high enough to warrant the involvement of highly-paid bankers, lawyers and other advisers. Where can I find out more about trade finance and structured trade finance? Day Robinson Group has offices in London and New Delhi and is one of the world’s foremost providers of training in the trade finance sector. For more information, you can visit our site at: http://www.dayrobinson.com or you can contact the author of this article, Dan Day-Robinson at Day Robinson International in the UK (ddr@dayrobinson.com). Daniel John Day-Robinson is working as a trade finance consultant from lastmore than a decade and with t his he is the Director of Day Robinson Internationalin! UK deal ing in structured trade finance, structured commodity trade finance, trade finance advice, trade conference show etc.
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