Undecided Research Paper Example | Topics and Well Written Essays - 2250 words

Undecided - Research Paper Example As international trade is complex and requires greater documentation and control, international commercial banks are actively involved in facilitating it by providing financial instruments that cater to exporters and importers. The role of commercial banks in international trade is of utmost important as they provide reliability and assurance to their clients, and provide an easy process to finance trade. This report will cover many aspects of international trade finance. It will focus on the financial instruments that are used to make payment in international trade, the parties involved in international trade finance, and trade finance methods. ... finances the trade cycle from the production till the goods are bought by the buyer and may require financing from the bank to support the production process. In most international trade transactions, the buyer and the supplier have separate banks that act as intermediaries to the transaction. Cash-in-advance The prepayment method involves cash in advance paid by the buyer to the seller. It is a risky and expensive method for the buyer but it may occur in cases where the seller is a long time business partner or a trustworthy party and the buyer is new in the market. In this scenario, the buyer will transfer the payment through his bank to the exporter’s bank account. This is the safest method of financing for exporters as they do not ship the goods till the payment is received from the importer. Letter of Credit A letter of credit is one of the most commonly used financial instruments in international trade. The letter of credit is a document that the importers bank issues pr omising to pay the exporter upon presentation of the relevant shipping documents such as bill of lading or bill of exchange in accordance with the terms agreed. This provides greater guarantee for the exporter as the bank is a more reliable creditor than any importer and it is easier for the importer as the bank will not release payment till the legal documents have been received. Although, this is riskier for the exporter as compared to the prepayment method, it is a secure was of transferring payment. The letter of credit stands even if the importer is unable to make the payment, thus the issuing bank is liable for the payment to the exporter and not the importer under the letter of credit. In cases where the exporter fears that the issuing bank’s guarantee is not sufficient, which could be

Economic analysis Essay Example | Topics and Well Written Essays - 1500 words

Economic analysis - Essay Example Structural constraints faced by the economy have also been highlighted in the economy. 2.0 Introduction The GDP growth in India has been below potential in the last financial year (2012). Real GDP in the country has grown at the rate of 6.5 percent (according to 2012 estimate) (CIA, 2013). In 2011, the rate has been 6.8 percent (CIA, 2013). Hence there has been a 0.2 percent fall in the real GDP growth. According to a report from a leading newspaper of the country, the manufacturing sector is the major factor that is pulling the country’s growth rate downwards. This sector accounts for almost 17 percent of the country’s GDP. In the third quarter of the last year, the manufacturing sector grew by a meagre 0.8 percent. While India is mainly an agrarian economy, agriculture has grown at the rate of 1.2 percent in this quarter. This is definitely a gloomy picture that suggests that the government has a role to play to push the country’s growth status. The government of India has taken expansionary monetary policy to spur economic activities in the country. 3.0 Analysis 3.1 Monetary policy In the last year (2012) the government of India had increased interest rates to control inflationary pressure since rates of consumer price inflation fluctuated around 7.5 percent in the first two quarters of 2012 (Trading Economics, 2012). However, this policy failed to reduce inflation rates to the desirable extent. The most undesirable side effect has been felt on the level of private investment activities; fresh investment (as measured by the Gross fixed capital formation (GFCF)) was found to be only 33 percent of the GDP (Choudhury, 2012). GDP forecast for FY2013-14 has been scaled down from 6.2 percent to 6 percent by international brokerage firm Barclays (Economic Times, 2013a). The government has therefore taken expansionary fiscal policy to boost up investment activities in the country. The reserve bank of India has cut interest rates by 0.25 percent in May 2013, thereby reducing the repo rate from 7.5 percent to 7.25 percent (BBC, 2013). India is the third largest country in Asia and the government has cut interest rates in order to â€Å"stimulate a fresh wave of economic growth† (BBC, 2013). This policy has been adopted in an endeavour to swell money supply in the economy. Thus banks would possess more money for lending out to borrowers (NASDAQ, 2011). Rate of interest â€Å"is the opportunity cost of holding money† (Boyes and Melvin, 2008, 339). Low interest rate can be interpreted in this way; there is little opportunity cost of holding money. Money demand has negative relationship with rate of interest (Walsh, 2003). Therefore the money demand curve has a downward slope. As interest rate shrinks quantity of money demand rises. It is illustrated by the following figure: Figure: Money demand is a negative function of rate of interest (Source: Author’s Creation) As interest rates are reduced, supply of lo anable funds increase. This increases investment and consumption activities in the country. Figure: Lowering of interest rate supply of loanable funds rise (Source: Author’s Creation) Higher availability of lendable funds reduces interest rates from i1 to 12 and quantity of money demanded rises from L1 to L2. Downward trend of inflation in mid 2013