INTERNATIONAL TRADE AND FINANCE

A lot of people all over the world are involved in the international trading
business and earn a living through this business. Trading internationally can
provide a lot of profits and is considered to be one of the most lucrative
businesses out there. However, despite being one of the most lucrative
businesses out there, international trading has its own set of challenges. The
biggest challenge that almost every business face in international trading is
arranging the proper finances.
You see, businesses that are involved in international trade need a lot of
funds to run their day-to-day operations. However, most businesses do not
have an unlimited amount of funds to run international trade and finance all
their day-to-day operations. Due to the lack of proper cash, a lot of trading
businesses comes to the verge of collapsing.
However, thanks to many international financial institutions and their
support, most trading businesses can operate just fine. These international
financial institutions can be banks, trade finance companies, insurers, and
various export credit agencies. International trade financing is vastly
different from regular financing or credit issuance.
With the help of international financial institutions, traders can arrange the
funds for their international trade and finance all of their day-to-day
activities. There are various kinds of financial instruments that are used to
finance international trade and two of the most common types of financial
instruments are letters of credit and bills of exchange.
The need for international trade arises because countries have demand for a
good or service which they are unable to produce or is able to be produced
at a much lower cost in another country, resulting in a lower price.
Generally speaking, international trade is beneficial for consumers as it
increases the variety of goods and services available whilst also providing
more business opportunities for firms.
Goods/Commodities:
Raw materials (e.g. minerals, agricultural products, oil, gas)
Manufactured goods (e.g. machinery, electronics, vehicles, textiles)
Consumer products (e.g. food, beverages, household items)
Luxury goods (e.g. jewelry, art, antiques)
Services:
Tourism and travel services
Financial services (e.g. banking, insurance, investments)
Professional services (e.g. consulting, legal, accounting)
Transportation services (e.g. shipping, logistics, air travel)
Telecommunications and IT services
Investments:
Foreign direct investment (FDI) in companies and assets
Portfolio investment in stocks, bonds, and other financial instruments
International trade and finance are deeply intertwined, with finance enabling
trade through risk mitigation and credit provision, while trade patterns also
shape financial development. They work together to facilitate the exchange
of goods and services globally, allowing countries and companies to
capitalize on their comparative advantages while managing the risks
involved.
These financial instruments and services help mitigate various risks for both
importers and exporters in international trade, such as payment risk, political
risk, and currency risk. They facilitate smoother cross-border transactions by
providing payment guarantees, credit insurance, and financing options. This
enables companies to engage in international trade with greater confidence
and security.
Hong Kong contributed the highest to the total export value
By major trading partner, exports to Hong Kong comprised the highest
export value amounting to USD 1.03 billion or a share of 16.5 percent to the
country’s total exports in April 2024.
Completing the top five major export trading partners for this month with
their export values and percent shares to the total exports were:
a. United States of America (USA), USD 948.43 million (15.3%);
b. Japan, USD 823.27 million (13.2%);
c. People’s Republic of China, USD 702.02 million (11.3%); and
d. Republic of Korea, USD 314.59 million (5.1%). (Figure 5 and Table 9)
Outline for Video Reporting
overview
domestic trade- refers to the supply and demand of goods, services, and
securities within a single country. It involves the buying and selling of
commodities between different regions or provinces within a nation.
wholesale-the buying and selling of goods and services in large quantities for
the purpose of resale or intermediate use.
retail-to the selling of goods and services directly to consumers.
comparative advantage-key principle in international trade that explains why
countries can benefit from specializing in goods they can produce most
efficiently and trading for other goods.
absolute advantage-refers to a country's ability to produce a good more
efficiently than another country using the same amount of resources. A
country with an absolute advantage can produce more of a certain good in
less time or with fewer resources than another country.
another example of international trade
International transport
As a first step the company has to consider all part of their project, firstly, it
is important what has to be distributed including size, weight and which type
of goods. For example, for the transportation of foods or fruits, speed is
important and it’s important to choose the shortest and quickest way.
Sending cost is another element very important and depends on the agency.
Destination, countries’ law, value of goods, risk of transport are other
elements to be considered and depend on company, country of destination
and customers’ requirements.
for road transport- Road transport advantages: Low cost. Extensive road
networks. Possibility to schedule transport and tracking the location of
goods, Safe and private delivery.
Importance of international trade
economic growth-Studies have consistently shown that countries that are
more open to international trade tend to experience higher economic growth
rates over the long run. International trade is a fundamental driver of
economic growth. It enables countries to specialize in the production of
goods and services in which they have a comparative advantage, which
results in increased efficiency and productivity. This, in turn, leads to
increased competitiveness, job creation, and higher standards of living for
citizens.
access to resources- International trade allows countries to access
resources that are not available domestically. For example, countries with
limited natural resources can import them from other countries, which helps
to fuel their economies. It also allows countries to diversify their sources of
raw materials, reducing their dependence on a single supplier.
increased innovation-International trade is a key driver of innovation.
International trade promotes innovation, as it provides companies with
access to larger markets, and exposure to new technologies, ideas, and
business practices. This creates competition, which drives innovation and
encourages companies to develop new and better products and services.
geopolitical benefits- International trade can have geopolitical benefits, as
it promotes peace and stability between nations. Countries that trade with
each other are less likely to engage in conflicts, as they have a mutual
interest in maintaining economic ties.
consumer benefits- international trade benefits consumers, as it provides
them with access to a broader range of products and services, often at lower
prices. This increases competition, which drives down prices and improves
the quality of goods and services.
Disadvantage of international trade- Dumping, the practice of selling
goods in a foreign market at prices below the cost of production, can pose a
significant threat to the development of infant industries in developing
countries. Sometimes certain nations will use trade to cheapen the value of
their products by dumping them on those of other countries. lead to collapse
of infant industries. Reliance on foreign countries is indeed a significant
disadvantage of international trade. When countries become heavily
dependent on imports for essential goods and resources, it can undermine
their national sovereignty and autonomy, leaving them exposed to political
and economic instability in other nations Overproduction- One of the key
disadvantages of international trade is that it can lead to overproduction and
excessive waste. This is because the increased production and transportation
of goods across borders often results in higher carbon emissions,
deforestation, and environmental degradation. Legal inconsistency is a
significant disadvantage in international trade. Differences in laws
between countries can lead to complications in international business
contracts. When different laws are applied, results may be inconsistent and
substantive rights may depend on whose law applies. Intellectual property
rights are territorial and only enforceable within the country or region where
they were granted. The wider a product is distributed, the more likely it may
be illegally copied by a competitor in another country

Barriers of international trade

Differences in currency- most countries use different currencies, and the
values of currencies around the world change constantly. This can make it
very difficult for a country to accurately predict and monitor finances.
Language Barriers-. The ability to communicate is critical in all business,
including international transactions. The Indian and US citizens are often at a
disadvantage because they are generally fluent in English, while European
and German people are usually fluent in several languages including English.
Cultural differences: Every country has unique cultural heritage that shape
values and influence the conduct of business. Even within geographic
regions that are considered relatively homogeneous, different sub-cultures
are prevailing. International companies have to cope with these differences
and adopt to the culture and sub-culture of the countries,where they operate

International Trade AGREEMENT- Trade agreements are a crucial aspect

of international trade, as they establish the terms and conditions of trade
between countries. These agreements can be bilateral or multilateral and are
designed to promote trade by reducing trade barriers such as tariffs, quotas,
and regulations. The impact of trade agreements on international trade is
significant, as they can increase trade volumes, boost economic growth, and
create new opportunities for businesses.
CASH IN ADVANCE- WIRE TRANSFER(The buyer transfers funds directly
from their bank account to the seller's account. This is a secure and fast
option).

Future of international trade

1.The Importance of Digitalization in International Trade:
One of the most significant trends that will shape the future of international
trade is digitalization. The use of digital technologies has already
transformed many industries, and international trade is no exception.
Digitalization has the potential to make international trade more efficient,
transparent, and accessible. For example, digital platforms and marketplaces
can connect buyers and sellers from all over the world, making it easier for
small and medium-sized businesses to participate in international trade.
2. The Role of Sustainability in International Trade:
Another important trend that will shape the future of international trade is
sustainability. As the world becomes more aware of the environmental and
social impacts of economic activity, there is a growing demand for
sustainable products and practices. This trend is particularly relevant in the
context of international trade, where products are often sourced from
different parts of the world. Consumers are increasingly demanding products
that are produced in an environmentally and socially responsible way, and
businesses that fail to meet these demands risk losing market share.
Therefore, it is important for businesses to adopt sustainable practices in
order to remain competitive in the global marketplace.
3. The Impact of Geopolitical Developments on International Trade:
Geopolitical developments can have a significant impact on international
trade. For example, trade tensions between the United States and China
have led to a reduction in trade between the two countries. Similarly, Brexit
has created uncertainty for businesses that rely on trade between the United
Kingdom and the European Union. These developments highlight the
importance of diversifying trade relationships and reducing dependence on a
single market. Businesses that are able to adapt to changing geopolitical
conditions will be better positioned to succeed in the global marketplace.
4. The Need for Collaboration and Cooperation:
Finally, the future of international trade will depend on collaboration and
cooperation between governments, businesses, and other stakeholders.
International trade is a complex and multifaceted activity that involves a
wider range of actors. Therefore, it is important for these actors to work
together to address the challenges and opportunities presented by
international trade. For example, governments can work together to create a
more predictable and transparent regulatory environment for international
trade. Businesses can collaborate to develop sustainable supply chains that
meet the demands of consumers. By working together, stakeholders can
create a more sustainable and prosperous future for international trade.
intro for international finance- International finance is a crucial field that
examines the dynamics of the global financial system, international
monetary systems, balance of payments, exchange rates, foreign direct
investment, and how these topics relate to international trade. International
finance has grown in importance due to globalization, as it helps maintain
discipline and balance among nations in their financial interactions. It
provides an expanded opportunity for businesses to raise funds at a lower
cost of capital.

Scope of International Finance

1.foreign exchange markets- This determines exchange rates between
currencies. market for Euros, the Euro is being bought and sold, and is being
paid for using another currency, such as the yen.
2. Exchange Markets- The rate at which one currency can be exchanged for
another, which can be fixed or floating.
3. Balance of Payments- The record of all economic transactions between a
country and the rest of the world, including trade in goods and services,
investments, and money transfers. Imagine a fictional country called
"TradeLand" that exports toys and imports electronics. When TradeLand sells
toys to other countries, it earns money, which goes into its current account.
When it buys electronics from other countries, it spends money, which also
affects the current account. The capital account reflects the sale or purchase
of assets like real estate, while the financial account covers investments and
loans. By tracking these transactions, the balance of payments offers a clear
picture of TradeLand's economic health and its relationship with the global
economy.
4. International Trade- The exchange of goods and services between
countries, which is affected by exchange rates and other international
financial factors
5. Foreign direct investment - The purchase of assets by foreigners to
generate income or capital gains.
6. Multinational corporations- Large companies that operate in multiple
countries and engage in cross-border activities.
cash in advance explain- first there should be a contract between The two
countries to negotiate payment terms, including the amount to be paid
upfront. This can be a partial payment, with a specified percentage paid
initially and the remaining balance. next, the parties agree on the specific
cash in advance payment to be used such as wire transfer, credit card. in
this example wire transfer is used because it allows quick payment
processing. after. the parties discuss the warranty or guarantee for the
goods to protect the buyer if the delivered products do not meet agreed-
upon standards, Once the payment is received and verified, the exporter is
instructed to ship the goods. The buyer has a predetermined amount of time
to inspect the goods upon delivery.

significance of international finance

An international finance system maintains peace among the nations. Without
a solid finance measure, all nations would work for their self-interest.
International finance helps in keeping that issue at bay. Without international
finance, chances of conflicts and thereby, a resultant mess, is apparent.
International finance helps keep international issues in a disciplined state.
Thus, international finance plays a critical role in international trade and
inter-economy exchange of goods and services.

International Financial Institutions (IFIs) play a crucial role in supporting

economic development and stability around the world. It Provides financial
assistance to member countries, especially developing nations, to help ease
balance of payments issues and support economic reforms.

CHALLENGES IN INTERNATIONAL FINANCE

For example, assume a U.S. car company receives a majority of its business
in Japan. If the Japanese yen depreciates against the U.S. dollar, any yen-
denominated profits the company receives from its Japanese operations will
yield fewer U.S. dollars compared to before the yen's depreciation. Foreign
exchange risk typically affects businesses that export and/or import their
products, services, and supplies.
Some governments will request additional funds or tariffs in exchange for the
right to export items into their country. Tariffs and quotas are used to protect
domestic producers from foreign competition. This also can have a huge
effect on the profits of an organization because it either cuts revenues from
the result of a tax on exports or restricts the amount of revenues that can be
earned.
Economic instability in foreign markets can significantly disrupt international
business operations and profitability. For example, a recession in a country
where a company has significant operations can lead to reduced demand for
the company's products or services, lower sales, and decreased profits.
Inflation in a foreign market can erode the purchasing power of consumers
and increase the company's costs, putting pressure on profit margins.
Economic shocks, such as a sudden drop in commodity prices or a financial
crisis, can also destabilize foreign economies and negatively impact
international businesses
One example of reduced transparency contributing to financial instability is
the turbulence in securitization markets following the global financial crisis.
The lack of reliable valuation frameworks and inadequate transparency of
complex structured finance products, such as different types of asset-backed
securities (ABSs), led to a virtual disappearance of liquidity in both primary
and secondary securitization market