Trade Finance

See Also:
Trade Credit
Trade Account
Exchange Traded Funds
Currency Exchange Rates
Currency Swap

Trade Finance Definition

Trade Finance is the movement of assets, transactions, or investments overseas into other markets. To ensure the safety of a purchaser or seller trade finance, banks often provide a needed service to make the transactions as meaningful and as safe as possible.

Trade Finance Meaning

Many transactions among a buyer and a seller result in a prepayment or purchase on credit. This, of course, depends on the terms of the sale. These activities are often more risky for a buyer (importer) or a seller (exporter) because of the international arena in which they operate.
Finance methods often include a bank in transactions to reduce the risk. For example, if a buyer purchases goods on credit, then the seller may want to reduce its overall risk in the receipt of payment by using a trade finance bank. The bank would take part in the transaction by putting up a contract. Whereas, the bank will pay the seller and leave the buyer to pay the bank for the transaction of the goods. If a prepayment occurs, banks can assist in the documentation of the goods to be shipped. This ensures that the buyer is actually purchasing the goods it has paid for.
trade finance

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