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Introduction of Why Would Traders use one over the other
Risk Factors?
From the ancient
days of mankind, people are well aware of the trade and they are using it in
their daily life. In the trade was only the exchanging of the goods and
services between the two parties. With the introduction of currency and money,
evaluation occurred in the trade and people started to sell and buy products or
services for money. Now the major trade used in the world is of the finance
type in which the buyer pays to seller for his services or the products. The
world economy and finance relays upon the trade and business. As the trade is
contiguous with business.
All the activities that are performed for a
specific trade between two or more parties are regarded as a business. The
persons that perform the trade are called traders. There are types of trade
that are currently occurring in the world. Most of all are the international
trade that is occurred between different countries. To regulate the trade
between the international parties there are any of the rules and regulations
that have to be followed by the traders to accomplish their trade out of the
countries. In this report we will discuss, different risks that are encountered
by the traders and how they use the risks over one another.
Documentary
Collections is a sort of trade transaction procedure that is requested by the seller’s
bank to forward these to the buyer’s bank that would include all the detail of
the transitions that would be occurred between both parties. As the trade is
not simple as by its definition, selling and buying the things it is a complex
procedure in which many of the other factors has to be consider. The purpose of
the documentary collection is to ensure the legislation of the finance between
the parties i.e. the seller and the buyer
The origin
of the documentary collection is the seller or the exporter that is selling the
services. The seller instructs his commercial bank to include all the detail of
the services that would be provided in return for the money. Moreover, also the
procedure for the services providing will be included. The documentary
collection is not such easy as the payment received and the payment transferred
by the ordinary banks for a single person. It includes all the detail of the business
and the instructions that are given to the bank by the buyer. The buyer of the
services will instruct the commercial bank of the investor that what we need for
the trade and the bank will create those documents to facilitate the business
and trade
This is the
type of documents that is released by the bank after the payment done by the
importer of the trade. this a safe form of the documentary collection for the exporter
but when the importer cancels it for any reason the bank cannot do anything in
this regard.
This is a safer
type of documentary collection in which the bank releases the payment after the
final acceptance of the goods or the services. If the goods or the services are
rejected by another party, the payment will be safe by the bank and their will
no loss.
As the trade is between the importer and the exporter
for specific services or the goods. For financial purposes, both of the parties
involve their banks in the trade, Thus, there is a total of four factors in the
documentary collection
1. Exporter: The documentary collection started from
the exporter thus the exporter is the originator of the documentary process. It
directs his bank to prepare the documents.
2. The Remitting Bank: It is the second player of
the documentary collection that is paid for the preparation and transferring of
the documents of the trade to the collecting bank on the behalf of exporter
bank.
3. Importer: This is the second part of the
trade that pays for the services or goods. This is the final destination of the
goods. The whole payment is done by the import that seeks services or goods.
4. The collecting bank: This the bank of the importer that
collects the documents sent by the remitting bank on the instruction of the
importer. It pays the money or these documents.
The next
thing comes is the trade finance tool that is the tools and the instruments
used by the traders to ensure the regulator of the goods or services and the
payments. This is an agenda by which the importer and the exporters use the
services of the banks and the other organizations for the easiness and the
regulatory of the trade payments. In the traditional sense, the trade fiancé
was only the advance payments for the services and the goods. This traditional
method includes many of the risks for both parties
The first
tool used for the trade fiancé is the letter of credit by the importer and the
exporter parties. This is the vital element used by the international trading system
for the insured of the services. The services delivered by the exporter will be
done paid by the importer on time and the exact amount. This is the guarantee
from the bank that if the importer does not pay for some reason, the bank will
be responsible for the whole payment.
The next
tool of the international fiancé is the invoice financing by which the payment
for the services is done by the short invoices for your unpaid fees. This is
the technique by which the cash flow is regulated between both parties.
The next
tool in the finance trade is a supply chain that is for the importer to take
the loan form the bank to increase its existing trading system. In this both the
bank and the importer remain beneficial in each way
The most
important thing that is to be considered by the trade is the quality of the
products that re delivered at a specific amount. The importer is much concerned
about the high quality of his service for which he is paying money. After too
many rules and tools for the payment, there are some of the performance and
quality insurance techniques for both of the parties.
The
international trade system involved any of the services that are delivered and
exchanged between the international parties. As there are long distances and each
the country has its specific rules and regulation for the trading system. Many
of the risks are involved in the international trading systems that are
encountered by the traders
The first
one risk that is involved in the international trade system is credit risk. The
expansion of the small business to the international the global market
introduces this risk in the business. This is related to not collecting the
fund or many for the receivable bank. Many of the services are provided by
banks or companies to minimize credit risk. The major tools used by the traders
are to take payment as the full amount and next is the letter of credit that is
issued by the banks.
Each of the
business or the company use different types of strategies and techniques for
their services delivery and the production of the goods. These techniques and
the strategies are beneficial and self-owned as this is the way to remain ahead
of the other parties. Due to some issues of these strategies or the techniques
unrevealed that affect the sales of the companies. It is the 2nd
risk that is encountered by international trade.
The next
risk is the foreign exchange risk that is evolved by international trade
services. As every country has its specific rules and laws for each type of
trade and business. Their external affairs and the exchange policies are also differing
from the home. This issue rises the foreign exchange risk and the trade has to
implement the strategies that only suit the best of the exporter country.
For the trade
and the business between the parties, there are some of the personal norms,
rules, and regulations that are to be considered by both of the parties [.
Social and religious ethics and norms permit traders to do the ethical exchange
of goods.
The traders
considering all the issues risk and the possible solution for their services
they have to choose the best one option for their business if the tread. Many
of the factors are involved in the selection and usage of the different techniques
for the proper management of their trading systems. The main objective of the trade is to earn
more profit in the form of revenue by selling their products at an affordable
price
From this report, it is concluded that trade is the most ancient business of mankind, people exchange goods and services with others. With the evaluation of life, there comes the progress in the business. The trader does the national and the international finance trading for more profit, While the people go for international trade, many of the risk factors came to the screen. For the compensation of the risk factors, the banks and the trading company played their rule for the regulation. That involves documentary collection and finance trade tools. These are for the evaluation of the business in under developing countries. The traders mostly go for the finance trade tools that ensues more safety for their trade at the international level.
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and trade patterns: the impact of human factors. Maritime archaeology and
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Cavusgil, S. T. (2014.). International
business. Australia: Pearson.
Dab, S. S. (2016). The Digital Revolution
in Trade Finance. Boston Consulting Group.
Kuchimov, U. (2011). Payment Methods in
International Trade or Comparison of Commercial Letter of Credit with
Documentary Collection. Available at SSRN .
Meral, Y. (2018.). Documentary Risk in
International Trade." In Strategic Design and Innovative Thinking in
Business Operation. Springer, Cham, 413-431.
Niepmann, F. a.-E. (2017). International trade, risk and the role of banks. Journal of International Economics, 111-126.
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