Export import finance basically refers to the funds that is used to conduct or facilitate finance. The concept of import and export finance basically came to origin to facilitate international trade. It helps to provide funds to the parties involved in trade.
Export financing is primarily the financial aid or help that is provided or offered by financial institutions like banks to traders in the international market and to firms and business houses for the purpose of making the goods ready for sale, packaging and enabling the shipment of goods that are to be sold to a party in a different region of a country or to a different country. Finance for exports is a boon to businesses as it allows them to venture out into new zones of the market and expand their work at a global level. Banks or other financial institutions extending the service of export import financing require the exporters or the importers to submit certain documents related to trade in order to make sure that the money would be utilized for the right purpose. There are various levels and stages in the process of trade where the service of export & import finance can be availed. It is not necessary to avail the service right at the initial stage.
Finance for import or import financing basically is the capital or money that can be availed and utilized to bring in the goods and assets from a different region or country into the domestic nation. The task to import goods can be hectic one and a difficult decision to be made by an importer primarily due to the amount of cost and risks involved. Import financing techniques and services are a boon to the importers as it brings down the cost and risks involved in international business. Increased liberalization and globalization have enhanced the destinations for trade in the world and hence has raised the number of destinations to buy and import goods. Importing goods and assets many a times turns out to reduce cost and provides better quality goods. It might also extend first mover’s advantage to businessmen in their domestic markets.
Since the nature of international trade is such that there is a great chance of the parties not knowing each other, there are increased risks like the risk of fraud or non-compliance of contract by the other party. It is difficult to obtain information about the stranger party involved in trade. There also might be difficulties and hindrances due to the different laws and customs and procedures of business dealings in various nations. Import export finance thus provide assistance in dealing with these risks.
There are various instruments today that enable export and import finance to be conducted some of them being bills of exchange, drafts, letter of credit and bill of lading.
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