Question

Q 5 Describe the mechanisms for financing export and imports. Do you believe that the complexity of export financing deters small firms from becoming involved in exporting? Explain your answer.

Answer 1

A5. The Rate of Country's Export and Import constitutes the major role in earning more foreign exchange reserves. Economic and Development of both developing and developed countries lies with the optimum level of Balance of Payments. The more exports will leads to more prorgressive GDP in all the countries.

The above discussed part are nominal in nature. But obviously Favorable Balance of Trade will be possible only when firms which have sound financial source. The Financial Sources are utilized by the Traders in the form of following Mechanisms of sources like Bill of Lading, Letter of Credit, Bill of Exchange and other source of means. The Bill of Lading refers to the legal documents issues by the carrier (Exporter) for the Shipment charges up to reaching the goods up to destination point. Through the Bill of Lading (BoL) through Sea transport ensures the full safety for the Goods. The Letter of Credit (LoC) is the provision provided by the Banker to the Importer. The LoC is the purchase Agreement between the Buyer and the Exporters in which Concerned Banker who will makes payment on behalf of the Importer. Bill of Exchange is the trade draft in which importer can make payments to the exporter through it. The Bill of Exchange is signed by the issuer (Importer or seller). It is form of Contract binded Trade payments. Other financial needs of trade payment are pooled through Export and Import Bank of America and the World Bank.

Resourcing the Finance for the Export-Import Activities is not a easy task in the World of Commerical Trade. The above discussed description of financial sources are really are playing a very stupendous task to support Business Trade Firms who involve in Overseas Export and Overseas Import. But the financial stability was an important condition needs to be more attention in the business trade. Due to the following reasons, Small Traders faces a problem in involving in the export. Many Small Exporters not aware of increasing demand for their goods. In Different Countries, the different goods may be demanded. But Proper Market Research need to be analyzed by the Traders before carrying out the activities of Exports. And the Act of Red Tapism entirely restrict the new entrants in exports. This is due to unlawful act of Countries which have Bureaucratic Power in their hands. And also the Trade War involved with this strict rules and regulations was very shocking one. For example recently, China charged heavy Tariff on Goods which are exported by US. It affected mostly the New Traders and the Small Traders who have limited source of Finance are affected. In order to avoid heavy loss they are forced to sell their products in the China without making any Compromise. This Situation aroused around Jan-Mar 2019. Another factor is that fluctuating situation of the Value of the Currency in all developing and in the all developed countries, The small traders are not able to save the amount earned through exports in one cycle. In another trade cycle, the small trader again need to pool the sources by borrowing the money in the Banks with high rate of interest leading to bear heavy loss in Exports. So this situation of complexity deters small firms from becoming involved in exporting.