Introduction to Trade Finance

Overview

Objectives
After going through this presentation you will be able
to:
Explain:
o Trade
o Domestic trade
o International trade
Differentiate between domestic and international
trade
Explain trade finance

Trade
Trade is the exchange of goods, services, and other
resources, including capital.
The ununiform distribution of the following factors
across geographical areas necessitate trade:
Resources
Skills to:
o Produce varied items
o Provide different types of services

Domestic Trade
Domestic trade refers to exchange of goods and
services within the political boundaries of a country. It
is also known as internal trade or home trade.

There are two categories of domestic trade, namely:

Wholesale trade
Retail trade

International Trade
International trade is movement of goods, services,
and other resources across international geographical
borders. International trade has had the following
trend:
International trade is
going on for centuries.

Volume of international
trade is expanding over
the years.

Major Factors Affecting International Trade

Industrialization
Advancement in transportation
Globalization
Multinational corporations
Outsourcing of services

Differences Between Domestic Trade and

International Trade
General principles are same across the two types of
trade. The differences between the two are:
International trade is
Change in legal systems
costlier than domestic
Cultural differences
trade due to:
Climatic differences
o Levy of duties and
Movement of labour and
tariffs
capital
o Time costs due to
border delays
o Cost arising due to
differences in policies
and procedures

Trade Finance
The Trade Finance wing of banks and financial
institutions specialize in financing various activities
relating to trade. Trade finance pertains to both
domestic and international trade transactions.

For a trade transaction, there should be two parties:

Seller is one who sells
the goods or service.

Buyer is one who buys

the goods or uses the
service for a price.

Bankers and Trade Finance

Banks are interested in trade finance because:
it provides:
o a good source for lending and
o scope for:
fee-based and non-interest income,
earning through exchange margins, and
expansion,
there is availability of float funds, and
it is necessary for bankers to provide full range of
products to customers.

Summary
In this presentation you learnt:
Trade
Domestic trade
International trade
Differences between domestic and international
trade
Trade finance