32
purchasing of bill of exchan ge. There are
many more
inherent
risks
in
buy ing and sell ing goods
overseas
than loca lly.
Online publication
by Euromoney
Inst it utional Invest or
P
LC
(2011) said
via
t
radefinancemagazine.com,
t
hat
t
rade finance is “ quit e a
precise
science mana gin g
t
he
capit al
required
for
int ernational t rade t o
flow . Yet wit hin
this science
t
here are a w ide
range
of t ools
at the
financi ers’
disp osal, all
of
which
det ermine
how
cash,
credit,
investment s
and ot her asset s can be ut iliz ed for t rade.” In a simp le form,
a
t
rade finance
act ivit y is defined as shipping
goods
w
ith prep ay
from
t
he
imp ort er,
in
which
t
he
import er
is
(nat urally)
going t o reduce
risk
by
asking the
exp ort er
t
o
document
that
t
he
goods
have been
ship p ed;
the
import er’s
bank assist s by
providing a let ter of credit t o the exp ort er's
bank p roviding
for
pay ment upon
p
resentat ion
of cert ain document s,
such as
a
bill
of
lading; then
t
he
exporter's bank
may make a
loan
t
o
t
he
exp ort er
on t he
basis of the exp ort
cont ract .
2.4. 1. Ba sic
Trade Fina nce Bu siness M odel
There are t wo typ es
of t rade finance business
mode l
in
gen eral : Let ter of Credit (L /C)–based
and Docu ment ary
Collect ion.
Not
all business models
are t he same: trade f inance business model
in
banks
d
iffer
fro m one
t
o
anot her,
but
bas ical ly a t rade finance
business model can be illustrat ed as t he following di agrams:
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