Chapter Summary Trade finance is a critical element of the pursuit of

Chapter summary trade finance is a critical element

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Chapter Summary Trade finance is a critical element of the pursuit of opportunities in international trade. Ensuring the delivery of the expected goods or service and assuring timely payment are of fundamental importance to importer and exporter. The techniques of trade finance have evolved to successfully and securely facilitate global trade under every imaginable condition, over hundreds of years. Trade finance effectively combines risk-mitigation capabilities with global payment facilitation, a wide range of financing techniques, and the ability to provide very detailed information about the status of payment and the status of a given shipment.
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36 INTERNATIONAL TRADE FINANCE While trade finance is changing both in terms of the nature of its transactions, and increasingly, the nature of the providers of trade finance, its fundamental function and value proposition remain unchanged (though increasingly, broadened), and its importance is undisputed. Venturing into international markets to conduct trade without at least a basic appreciation for the principles, practices and techniques of trade finance has been a costly mistake for many otherwise experienced and expert executives and companies. An understanding of the basic concepts has also saved countless deals and entire commercial ventures. A glossary of selected terms is included in Appendix A at the back of this textbook. 2 Analyzing and Managing
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Risk Maximizing the potential for success Chapter objectives Identify risk elements in international trade for the importer and exporter • outline resources and tools for assessing risk • describe the basics of foreign exchange and demonstrate an awareness of • options in managing the associated risk explain the relationship between risk and the choice of payment • instruments and settlement methods 37 © FITT
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38 INTERNATIONAL TRADE FINANCE overview This chapter outlines and explains the major risks inherent in international trade for both the exporter and the importer, and discusses how to identify, assess and manage these risks, including understanding and managing foreign exchange risk. It also describes the impact of risk on international trade and explains the differences between commercial, country and foreign exchange risks. There are several possible responses to risk, or strategies/objectives in dealing with risk, which include • elimination of risk, a theoretical objective at best, • risk mitigation, • risk optimization, and • the dangerous “do nothing and hope for the best” strategy of risk Risk is a reality of business, and engaging management. in international business, while challenging and rewarding, involves special risks. Regardless of risk Eliminating risk is generally not possible, and even when it is an option, tends to be prohibitively expensive and unrealistic. Risk mitigation is often referenced as an appropriate strategy, but in itself, fails to recognize that risk and return exist together, and that there is a balance to be struck between the two. mitigation tools and measures taken,
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