Financing for trades is very important especially in international economics. A country like Dubai which is one of the major exporter of oil and other products need to have effective trade finance for their business to be successful. This does not mean that this financing is not important for domestic trade only that it is more significant when practicing international transactions. The following are some of the roles of trade financing.
For a business to succeed, the fixed costs must always be catered for regardless of the position the firm is in. These are costs such as employee payments, purchase of inputs and inventories. Many businesses usually need external income even more than the internal revenue to cater for these costs. If the fixed costs are not handled in time, a business is likely to fail.
David Chor, a certain economist said that trading across many countries makes a business incur more costs compared to trading locally. This is because of the extra expenses that are the main reason behind the requirement of external finances. For example Dubai has several firms that sell oil therefore they require this financing to survive. For instance they require money to conduct studies about the new markets they can speculate.
Exporting activities also have extra costs that are brought about by the shipping duties of the products and also freight insurance. In addition to that, transactions across the boarder usually take longer than the domestic ones therefore they require more resources dedicated to labor. Some of these things are incurred before the revenue is acquired thus the external funds come in handy.
Because of details above, financial bodies and the statute of Dubai really require support for this specific finance for international economics provide for a big portion of their income. Trade credit must not be mistaken for the above policy as it refers to a deal between the buyers and sellers to do their transactions and the payments be done later. They are normally created in favor of exporters.
The percentage of the world international economy that depends on these funds to survive actually exceeds ninety. It is therefore important that these policies are supported because they cater for the economies of entire world. The cater for both the risks that come about in the international economy such as currency rate fluctuations and the working capital that is needed before revenue is earned.
Different firms can rely on two types of instruments for trade financing depending on the type of business they are involved in. They are bill validation and documentary credit. Documentary credit involves a commitment by a particular financial institution to pay an exporter on behalf of the importer if they both agree with the terms and conditions set.
Bill validation is where the bank of these buyers guarantee to pay the exporter in case he fails to pay in good time. This is different from the above instrument because it does not allow the important to use their money to cater for other things for a certain period of time.
For a business to succeed, the fixed costs must always be catered for regardless of the position the firm is in. These are costs such as employee payments, purchase of inputs and inventories. Many businesses usually need external income even more than the internal revenue to cater for these costs. If the fixed costs are not handled in time, a business is likely to fail.
David Chor, a certain economist said that trading across many countries makes a business incur more costs compared to trading locally. This is because of the extra expenses that are the main reason behind the requirement of external finances. For example Dubai has several firms that sell oil therefore they require this financing to survive. For instance they require money to conduct studies about the new markets they can speculate.
Exporting activities also have extra costs that are brought about by the shipping duties of the products and also freight insurance. In addition to that, transactions across the boarder usually take longer than the domestic ones therefore they require more resources dedicated to labor. Some of these things are incurred before the revenue is acquired thus the external funds come in handy.
Because of details above, financial bodies and the statute of Dubai really require support for this specific finance for international economics provide for a big portion of their income. Trade credit must not be mistaken for the above policy as it refers to a deal between the buyers and sellers to do their transactions and the payments be done later. They are normally created in favor of exporters.
The percentage of the world international economy that depends on these funds to survive actually exceeds ninety. It is therefore important that these policies are supported because they cater for the economies of entire world. The cater for both the risks that come about in the international economy such as currency rate fluctuations and the working capital that is needed before revenue is earned.
Different firms can rely on two types of instruments for trade financing depending on the type of business they are involved in. They are bill validation and documentary credit. Documentary credit involves a commitment by a particular financial institution to pay an exporter on behalf of the importer if they both agree with the terms and conditions set.
Bill validation is where the bank of these buyers guarantee to pay the exporter in case he fails to pay in good time. This is different from the above instrument because it does not allow the important to use their money to cater for other things for a certain period of time.