overview of international trade
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8/7/2019 Overview of International Trade
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OVERVIEWOVERVIEW
OFOF
INTERNATIONAL TRADEINTERNATIONAL TRADE
ANDANDTRADE FINANCETRADE FINANCE
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TRIVIA DARE
WHAT IS THE QUANTUM OF
INTERNATIONAL TRADE?
USD 25000 BILLION approx WHAT IS INDIA'S SHARE IN WORLD
TRADE?
1.87 %( 2010)
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WHAT ARE THE TWO MAIN ACTIVITIES IN A TRADE TRANSACTION?
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International Trade transaction
BUYER (Importer)
SELLER (Exporter)
CARRIER GOODS
BANK PAYMENT
WHAT ARE THE RISKS ?
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International trade - risks
Market risk
Country risk
Currency risk
Counterparty risk
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Market risk
Normal risks in the trade
Fall in sale price
New products coming to market
Change in trends Environmental developments
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Country R isk
& War, other security concerns
& Civil strife, political instability
& Externalisation risk
& Regulatory risk
o Risk of non- renewal of import and exports licenses
o Risk of the imposition of an import ban after the delivery of the goods
o Surrendering of political sovereignty
o Changes in the policies of the government
o Exchange control regulations
o Trade embargoes
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Currency risk
Exporter
Receives payment in foreign currency
Incurs expenses are in home currency
Long delay between order and payment
Incurs a loss if foreign currency loses value
Importer
Incomes are in home currency Pays for goods in foreign currency
If home currency loses value he will make a loss
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Counterparty R isk
Buyer and seller
Are geographically separated
Not known to each other
May talk different languages
Subject to different legal and political
systems Live in different currency areas
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Concerns of the parties
SELLER Receiving the Payment
in full
Receiving the Payment
in time
Risk of the ultimate buyer Going bankrupt and unable to
pay
Deliberately refusing to pay for goods
Refusing to accept goods after shipment
Raising disputes anddemanding a discount
BUYER Receiving the Goods
Receiving the Goods in time Receiving the Goods of
Agreed Quantity,
Agreed Quality,
Packed properly
Insured against the normal risks
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Settlement of Trade Transaction
Exchange of goods and money is never simultaneous
Open Account . Goods supplied first. Sellers¶s risk
Advance payment. Money paid first. Buyers¶s risk
Documentary Collections
Documents of title to goods entrusted to a bank which
will deliver them on payment.
Documentary credits/Letters of Credit
Bank acts as intermediary to address the concerns of
both the parties and facilitate the transaction.
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INTERNATIONAL TRADE FACILITATOR SINTERNATIONAL TRADE FACILITATOR S
ICC
PUBLICATIONS/ DISPUTE RESOLUTION
WTO
FREE TRADE / MARKET EXPANSION
GOVERNMENTS
TRADE POLICIES & PROMOTIONS/ TRADE AGREEMENTS
EXPORT PROMOTION AGENCIES
PROMOTIONAL ACTIVITIES
EXPORT INSURANCE AGENCIES
RISK MITIGATION / EXPORT FINANCE BANKS/ CARRIERS/ GENERAL INSURERS / FACTORS
UTILITY/FACILITY/FUNDS/RISK REDUCTION
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Benef its of International Trade
Enhances the domestic competitiveness
Takes advantage of international trade technology
Increased sales and profits
Extend sales potential of the existing products Maintain cost competitiveness in your domestic
market
Enhance potential for expansion of your business
Gains a global market share Reduce dependence on existing markets
Stabilize seasonal market fluctuations
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Trade Blocks
Free trade zones designed to encourage trade activities across nations.
Involves a number of agreements on tariff, trade and tax.
importance in the economic and political scenarios of the contemporaryworld.
NAFTA (North American Free Trade Agreement) EU (European Union)
ASEAN (Association of Southeast Asian Nations)
CEFTA (Central European Free Trade Agreement)
GAFTA (Greater Arab Free Trade Area)
SAARC (South Asian Association for Regional Cooperation)
CEMAC (Economic and Monetary Community of Central Africa)
East African Community (EAC)
PARTA or PIF (Pacific Regional Trade Agreement)
AEC (African Economic Community)
CACM (Central American Common Market)
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TRADE FINANCETRADE FINANCE
FINANCING IMPORTS & EXPORTSEXPORT FINANCE
PRE SHIPMENT / POST SHIPMENT
IN INR/ FC - PCFC/ EBR
AGAINST EXPORT ORDER/ LC AGAINST DOCUMENTS/ INCENTIVES
FACTORING / FORFAITING
ECGC POLICY/GUARANTEE
IMPORT FINANCE WORKING CAPITAL /TERM LOAN
IN INR / FC IN INDIA & IN FC ABROAD
LC / CC/TL SUPPLIERS CREDIT/ BUYERS CREDIT
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