Question

In addition to commercial bank letters of credit what is another method to finance international trade? Consider new FinTech companies, Cryptocurrency (such as Bitcoin), governmental entities, or other organizations.

Answer 1

Answer:

International trade financing is required especially to get funds to carry out international trade operations. Depending on the types of financing, there are five major methods of transaction and finance normally utilized in international trade and investment operations.

Types:

1. Account receivable financing : It is special type of asset-financing arrangement. in such an arrangement, a company utilize the receivable - the money owed by the customer as a collateral in getting a finance. it is also sometimes, referred to as "Factoring"
2. Banker's Acceptance: A banker's acceptance (BA) is a short term debt instrument that is issued by a firm that guarantees payment by a commercial bank. BAs are used by firms as a part of the commercial transaction. These instrument are like T-Bills and are often used in case of money market funds.
3. Working Capital Finance: It is a process termed as the capital of a business and is used in its daily trading operations. It is calculated as the current asset minus the current liablities.
4. Forfaiting: Forfaiting is the purchase of amount importers owe the exporter at a discounted value by paying cash. The forfaiter that is the buyer of the receivable then becomes the party the importer is obligated to pay the debt.
5. Counterable: It is the form of international trade where goods are exchanged for other goods, in place of hard currency. Counterable is classified into three major categories:

• Barter
• Counter-purchase
• Offset.