Euro_Exim_bank

Technology has evolved the world into a better place. Careers have also experienced a change in their protocols of working. Technology’s role gets highlighted and vivid when we think about Trade Finance as a career.  

Recently, trading has magnified its reach and simplified working, which was not the case before. Though everything seems pretty simple yet, it has challenges to tackle and situations to conquer, making it onerous as a job role. 

Trade Finance deals with financing for trade, where importers and exporters are the medium and concerns domestic and international transactions. 

Skills required for the career, Trade Finance 

1. The participants should understand international trade thoroughly.  

2. The candidates need to understand the different challenges or issues occurring between businesses globally, including risks related to currency, economic issues, political risks, and cultural differences. 

3. Fluency in foreign languages will add an edge to your Curriculum Vitae because this job requires good communication skills, both verbal and written.  

4. Any prior experience of dealing with foreign clients or companies will make you stand out because you would be aware of the working style.  

Descriptive Job Role 

There are three main categories, wisely catering to the descriptive role of the job as follows: 

1. Securing the Trade 

It is the first category with the utmost importance. This job role revolves around the clients allowing their products to sell by enabling the export and import of the products to understand and assurance that banks will be acting as guarantors for secure transactions. It is carried out through products like Standby Letters of Credit etc. 

The specialist of trade’s role includes selling and negotiating products to clients. 

It is not too complex to handle but certainly requires attention because of the high transactional services. If there are too many clients, you will be settler improvising issues between different countries, things and laws getting tough sometimes. 

2. Funding Trade 

It is the part of a role where the financing for trade comes into the limelight. It is a transactional process where finances and details are discussed at the deal’s commencement. 

3. Structured Trade Finance 

This part is quite interesting because it deals with more complex transactions. Structured Trade Finance also defines Bespoke Trade Deals, which require complex working and coordination in a teamwork setup. Sometimes, this can call for a structured plan to work by integrating various products to create custom solutions for clients to trade. 

Career Paths 

Trade Finance is a good option from a career perspective. With tons of growth opportunities to the working hours and salary, everything seems quite impressive. The more expert you are at your job, the more excellent future you will have.  

1. Organic Growth 

Get more experience, work along the vertical chain, practice with full potential, and you’ll be fetching more clients with an increase in your revenue. Eventually, this will attract huge bonuses and salary increments as an award to your hard work with smartness. You will also begin handling teams and even rise to head positions from regional to global trade.  

Organic growth is easy to obtain in Trade Finance if you are equipped with knowledge regarding regulations and products. 

2. Moving up the Value Chains 

In this, you have the choice of growing segment by segment. You start by handling the SME segment where the revenue and the product working is limited. After you feel you have enough experience, and when you start getting more clients, you can choose to work in large client segments. Always remember, in the banking work structure, it’s believed the more you bring revenue, the high you get paid. Therefore, increase your knowledge, handle clients, and grow with the bringing revenue. 

3. Corporate Jobs 

Many clients have personal trade teams that help them with imports and exports. If you are too skilled, there are chances of recruitment or an offer letter. You can switch your company if you are looking for a change and a handsome salary. The best part is you are appointed at the position that suits your skillset, which generally isn’t provided otherwise in companies for the excellence you deliver. 

4. Opportunities Internationally 

The best reason to opt for Trade Finance is, it brings you many opportunities to work overseas. These opportunities will help you grow in your native and foreign countries, providing an edge to your working profile. You will also have a profound knowledge of various trade and regulatory laws of different countries. It will make you highly competent for any head position.

Investing money has always been a concerning element due to the lack of proper information and tools reflecting the market’s accuracy.  

Finance is… 

The word finance deals with managing money with a goal in mind. Finance also highlights the importance of planning before investing. As a term, finance has a broad spectrum which is categorized in three levels, ranging as: 

1. Personal Level talks about managing money for personal benefits, including how, where, and when to invest money. It also dictates how to earn money with guidelines on putting in savings, uses, and borrowing. 

2. Government Level deals with generating revenue for the government. It includes the formation of budget, amount of taxes to ask for, any governmental debt, total spending by the public, distribution, and production of public goods is all taken care of under this category.  

3. Business Level deals with finance in real terms. It is believed that business can make you more knowledgeable about finance. This level believes in the power of decision as you need to focus on what and hows. For example, you need to decide how you can raise and manage money for investment and short term cash flows. Also, it requires you to choose the medium of what possessions you are ready to invest with, and if you are willing to expand your business, then how to reinvest in it. 

Trade Finance is… 

Trade Finance deals with trade transactions for both the international and domestic type and, it also concerns the financing required for the trade.  

The Four Pillars 

1. Payment  

Trade Finance is responsible for carrying mechanisms that facilitate and enable secure, timely, and verified payments across the globe’s routes in exchange for trades. /p>

We are aware that all monetary institutions and banks are part of SWIFT as members. 

SWIFT stands for Society for Worldwide Interbank Financial Telecommunication, enabling registered members worldwide to share the financial transaction information through receiving and sending either side in a reliable, secure, and trusted environment.

It is a member-based organization responsible for the information based on transactions, following the standard format, and transmitting instructions for payments and text messages. It is responsible for carrying out simple electronic fund transfers to the most complex finance trade instruments. 

Trade Finance tools deal with the transmission of payments and are responsible for defining prearranged conditions to avoid future possible risks or troubles between importers and exporters. 

2. Risk Mitigation 

Trade finance tools are well equipped and can reduce extreme risks in adverse conditions. There are a few risks that are commonly faced. The instruments involved in the process assist exporters and importers with risk mitigation techniques. The risks are: 

1. Commercial Risk involves non-performance of either parties or the bank. 

2. Country Risk involves revolution, civil unrest, financial crises faced by the other side. 

3. Currency Risk involves the fluctuation in exchange rates, which can destroy any profit into a loss deal.  

3. Financing 

The instruments are versatile and flexible. Funds can be borrowed or structured under contract. The trade of financial instruments include: 

1. Open Account 

2. Supplier Credits 

3. Advance Payments 

4. Loans are direct 

5. Credits documentation 

6. Collections Documentation 

7. Export Credit Agency Lending 

8. Factoring 

4. Provision of Information 

It is the final pillar of trade finance and the most important. It helps in providing accurate information necessary to carry out various trade functions. Any business requires a detailed analysis of the movement of goods per transaction flow, which allows them to lessen risk factors from arising shortly and maintain their competitive edge. 

Introduction 

• International trade can prove to be extremely complicated due to its intricacies and tricky regulations 

• The situation has become even more complex after the arrival of COVID-19, as exporters are now expected to comply with even stricter guidelines 
• The time taken to ship products has also gone up, as has the cost 

• These factors are proving to be detrimental for new players who are looking to enter the export market 
• Even though exporting is quite hard, there are ways in which the entire process can be simplified 
• This blog discusses the key aspects that make exporting such a tricky task. At the same time, the blog also focuses on potential solutions that could reduce these complicacies to an extent 

The Complicacies of Exporting 

• There are several reasons why exporting is so hard. Some of these have been discussed below: 

• The first and foremost reason is that exporting requires you to deal with a counterparty that is not located near you. Exports are typically done to countries that are located thousands of miles away from you. In such a case, it can be tricky to keep track of shipments and payments 
• Secondly, there are also language and culture barriers to overcome. Since your counterparty is located in a different country, it is not always easy to understand their language and their way of thinking. This could result in misunderstandings and conflicts 
• Thirdly, each country has its own sets of rules and regulations. You must be fully compliant with all of these regulations if you are to ensure a smooth transaction. Exporters can find it hard to keep track of all these regulations  
• Further, exporters should also be aware of the different terminologies that are used in the field of trade. This is extremely important in order to make sure that both parties are on the same page 
• Despite the above complicacies, exporting can be worth it if you make smarter decisions. Here are a few pointers that could help you in doing so: 

• The most important factor is to choose the right partner. Even if you are located thousands of miles away, you must find a counterparty that is honest and transparent 
• Further, you could also make your life easier by taking the help of industry experts. Trade finance institutions could help you in minimising the risks associated with exports by providing certainty of payment under all circumstances 
• Another step that could help you in simplifying exports is to keep reading about the rules and regulations. If you remain updated about export laws of different countries, then you will be able to meet the compliance requirements without any issues 
• Thus, if you do follow the above steps, then you will be in a much better position. If executed in the right manner, then exporting is totally worth it. You just need to ensure that you are mitigating all types of risks before proceeding 

Conclusion 

• To conclude, exporting can appear to be quite hard at first glance. However, if you take the right approach, then these complicacies can certainly be overcome. In case your organisation is unclear about any aspects of business, you can always reach out to the experts. Institutions such as Euro Exim Bank offer customised support to traders in the form of financial instruments and bespoke trade advisory services. Euro Exim Bank offers financial instruments such as Bank Guarantees and Letters of Credit (LCs). Further information about Euro Exim Bank and its key product offerings is available here. 

Introduction 

Importers and exporters around the world are expected to comply with regulations related to sanctions 

However, these are not the only parties that must be careful with their international dealings

Trade finance institutions are also supposed to meet all the criterion related to international sanctions on certain nations

The inability to meet these rules could result in massive fines for these institutions 

One such case has emerged in recent times, as Union de Banques Arabes et Françaises (UBAF), a that provides trade finance services, has been fined for breaching sanctions related to Syria 

The penalty was as high as $8.5 million, indicating the seriousness of the offence in the eyes of the regulators  

This blog discusses the key aspects of this penalty and analyses its implications for the wider trade finance industry 

Trade finance lender hit with $8.5mn penalty  

The Office of Foreign Assets Control (OFAC) investigated the transactions undertaken by UBAF over the past few years 

The investigation revealed that this bank processed as many as 127 transactions on behalf of Syrian finance companies between the years 2011 and 2013 

The total value of all these transactions was as much as $2 billion, indicating the severity of the breach

It was also found that UBAF had issued 13 letters of credit to its clients in Syria. All of these were clearly in breach of the rules laid down by OFAC

The US had placed additional sanctions on Syria in 2011 and clearly indicated that banks are not allowed to indicate with Syrian parties 

The bank was also found to be engaged in USD clearing for financial institutions in Syria, something that is prohibited under the regulations of OFAC 

The final penalty imposed on the bank was $8.5 million. This penalty was lowered by OFAC because the bank cooperated with the investigation and provided transaction details voluntarily 

This case indicates the potential dangers faced by trade finance institutions. Dealing with foreign parties is always a complicated task, and these institutions must carry out complete due diligence before proceeding 

In the absence of such due diligence, the repercussions could be severe

It is also important to note that financial institutions can be penalised by the US even if they do not have a presence in the US market 

This is because the sanctions are applicable on a global level  

Conclusion 

To conclude, this development highlights the need for lenders to be extremely careful while dealing with overseas clients. In case your organisation is unclear about any aspects of business, you can always reach out to the experts. Institutions such as Euro Exim Bank offer customised support to traders in the form of financial instruments and bespoke trade advisory services. Euro Exim Bank offers financial instruments such as Bank Guarantees and Letters of Credit (LCs). Further information about Euro Exim Bank and its key product offerings is available here.

The International Chamber of Commerce, in its 2017 Trade Register report revealed that trade finance is a low-risk asset class. The 2017 Trade Register is based on USD 10.5 trillion worth of exposures and more than 20 million trade finance transactions occurring between 2008 and 2016. The products covered included import/export letters of credit (LCs), export/import loans, and performance guarantees. Subsequent reports in 2018 and 2019 also show a similar trend, further reaffirming the low-risk nature of trade finance.

These reports reveal that potential losses for trade finance compare favorably against similar asset classes, such as large corporate and small/medium enterprise lending. From 2008 to 2016, obligor-weighted default rates are low across all products and regions. Just 0.38% for import LCs on average and 0.05% for export LCs, 0.8% for export/import loans and 0.47% for performance guarantees. In addition to the low-risk nature of the asset class, trade finance also sees very short times to recovery, which is favorable for lenders.

Overall, the reports from the ICC find that, based on the previous 10 years of data, trade finance products provide favourable conditions for banks and other lenders. These include short average maturities, low credit risk, low default rates, and low loss rates.

Of course, the 2020 report is likely to reflect the disruptions in international trade due to the global pandemic. This will likely add to trends that we have already seen emerging in the recent past when studying the ICC reports. These trends include:

Trade Slowdown – Global trade has been slowing for some years now, however, this could be exacerbated by the events of 2020.

Bank Risk Appetite Low – Banks are becoming risk-averse and this may only increase in the atmosphere of the global pandemic.

Open Account is Growing – Large companies, in particular, are moving more towards open account. It is difficult to say how the pandemic will affect this, but trade finance providers must be aware. It is possible for this trend to continue or reverse post-2020.

Regulatory Challenges – Increased regulation is a mounting challenge. While necessary, it can become a significant inhibitor for banks.

Falling Margins – With margins low, banks must drive for operational efficiency to ensure viability.

Overall, these figures are healthy and promising for trade finance, particularly post 2020, when it will play a crucial role in rebuilding and reinvigorating global trade against a backdrop of mass disruption.

In international trade transactions, financial instruments such as letters of credit (LC), demand guarantees, and performance bonds are used to limit the risk of one or more parties to the trade deal. Such instruments, LCs in particular, are often regarded as equivalent to having a security deposit in cash. This is because of national and international regulations and laws, such as those laid down by the ICC, that mandate the settlement of dues to holders of LCs and similar documents. However, here are a few tips to help ensure you can readily exercise your LC at any time. 

Have the original with you or know where it is

If your LC is not in electronic form, then you need to present the original when you make the demand for payment. If the document is lost or unavailable, there is no obligation for the issuing bank to provide a replacement, unless stipulated. Therefore, always know where your document is and make sure you can access it.

Know who the right signatory is and if/how they are available

The pandemic continues to cause disruptions. The authorized signatory for your document may not be available or may be available at an alternate location. Keep track of these things and the logistics that may be involved in getting to them if necessary. 

Is the LC in the right place to serve?

LC’s will usually specify where they are to be presented for payment and you need to comply with this. But with travel restrictions and courier delays, what used to be a simple process can quickly get out of hand. So, know where you have to serve the document and make sure that alternate arrangements for getting the document to that location, such as electronic alternatives, are in place.

Is the bank open?

If the last day for the presentation is a bank holiday, usually you can still present the document on the next working day. If the bank is closed on a working day, depending on the rules governing your LC, you may be able to present the document during an extended window after that date. Be aware of the rules governing your LC.

When you cannot present the document for whatever reason

In such an event, make sure to document your efforts carefully to show that you have complied with the terms and requirements of the LC. This will work in your favor as you try to resolve the issue. 

As we properly head into 2021, we thought it would be a good time to examine some of the key economic risks that the world faces this year. Some are longer-term and far-reaching while others may soon subside or never materialize. 

A Global Food Crisis 

Unfortunately, it seems that this risk may already be unfolding as the UN predicts that we are about to witness the greatest global food crisis in 50 years due to COVID-19 supply chain disruptions. Even more alarmingly, UN figures indicate that more people will die of COVID-19 related malnutrition than of the virus itself. Parts of Africa, South America, and the Middle East are at particularly high risk. 

Low Oil Prices Ravage Middle Eastern Economies 

Due to reduced demand and increased supply, oil prices may remain depressed for some time to come. This will have a significant economic impact on oil-dependent economies in the Middle East and North Africa. However, some economies will work to adapt and diversify and this may lead to more trade opportunities in the region.  

A Cyber Black Swan Event 

As more and more of the world relies on the internet and digital technology, a global cyberattack or the occurrence of rare natural phenomena, such as solar storms, could take down the internet and send the global economy reeling. With the potential booties from cyberattacks only increasing in value, criminals are choosing to work from home too. 

Another GFC Driven by COVID-19 Debt 

Emergency spending has sent government debt skyrocketing in the wake of the pandemic. Worldwide debt rose by more than 15 trillion US dollars in 2020. All this unchecked debt will likely come back to bite at some point and could trigger another global financial crisis, especially if governments insist on continuing draconian pandemic measures. 

US-China Flare-up Over Taiwan 

Taiwan is a hotspot for US-China tensions and the two regularly engage in military displays, creating a volatile situation that could erupt at any moment. Having said that, this has generally been the status quo ever since tensions began. Thus, while outright conflict is unlikely, the situation is incredibly strained and any flare-up could hurt global supply chains and send shock waves throughout the world economy. 

Vaccines Become a Disaster 

The slow rollout or outright failure of the global COVID-19 vaccination drive could send the world’s economy into a depression, leaving us with more economic chaos than anyone would like to imagine. 

Although 2020 threw the world into chaos and economic turmoil, 2021 could see many positive developments and trends take hold. In this article, we will look at some of the top economic trends that we are likely to see emerge and or grow stronger.  

Online Boom 

Let us get the obvious one out of the way. Online businesses are going to enjoy a boom for quite a while to come. This will provide plenty of opportunities and room for innovation and competition, all of which will ensure that the consumer emerges as the winner. 

Growth in Global Trade 

2021 will likely see significant growth in global trade as supply chains normalize and new opportunities emerge. Also, a more trade-friendly US administration, along with China now championing free trade for its own survival, could potentially work to accelerate this trend.

Increased Inflation 

Governments around the world have been borrowing and spending money like there is no tomorrow to help battle the global pandemic. Such liberal increases in the money supply will likely lead to increased inflation over 2021.

Interest Rates May Rise 

As unbelievable as it may seem, all the cash that is sloshing about in the global financial system will ultimately force central banks to increase interest rates in order to prevent economies from overheating or currencies from collapsing.

Drooping Dollar 

The dollar’s days may be numbered. Russia is flush with foreign exchange and gold, the same with China and, while the US and the EU have been floundering about, Asia has been working towards liberalizing trade and driving economic growth. Thus, it is likely that we will soon see the decline of the dollar. While tales of overnight collapse are popular and make for excellent dinner party conversation thrills, the dollar is more likely headed the way of the pound sterling after the collapse of the British Empire.

A Commodities Boom & Stock Market Slump 

As the world economy recovers, we will likely see increased demand for raw materials, food, energy, and precious metals. Along with this, we will probably see presently massively overbought stock markets going in for a correction. The recent chaos with GameStop and other “stonks” in the USA and globally will soon cause market shifts that will potentially spur much-needed corrections and reality checks in the world’s equity markets.

Innovation Creates New Breed of Entrepreneurs 

The pandemic has created many problems to solve and put many in challenging economic circumstances. These are the drivers of innovation and we are likely to see a new breed of entrepreneurs emerge out of this crisis. 

Free trade agreements promote trade and peaceful economic cooperation between two or more countries. See our article here about “Free Trade Agreements and How They Work”. These treaties bring many benefits to participants, but they can also have some downsides. However, when properly and fairly implemented, the upsides of free trade agreements usually far outweigh any potential downsides.  

In this article, we will look at some of the major pros and cons of free trade agreements. 

The Upsides 

Enhanced Economic Growth – Free trade promotes increased levels of commerce and business activity, resulting in enhanced economic growth. In an atmosphere of free trade, countries can focus their resources on their strengths and increase their presence and competitiveness in the global marketplace. Reduced costs associated with tariffs and regulatory compliance may also potentially reduce prices and spur demand. 

Reduced Government Spending – Maintaining restrictions, enforcing quotas and providing subsidies is costly. Free trade agreements reduce or eliminate a lot of this, freeing up government money so that it may be better utilized elsewhere.  

Increased FDIs – When a nation is open to free trade, trade partners will be happy to supply foreign direct investment. The benefits of this are many including healthy foreign exchange inflows, improved infrastructure, more jobs and overall increased economic activity.

Technology, Expertise & Knowledge Sharing – As trade partnerships flourish, technology, expertise and knowledge sharing occur, creating new opportunities and potential for further growth both on a social and economic level.  

The Downsides 

Excessive Job Outsourcing – Free trade agreements can cause jobs to be outsourced from developed countries to emerging markets. We see this with NAFTA and how US companies have outsourced jobs to Mexico, China and India.

Abuse of Workers & The Environment – Because emerging and frontier markets may have less robust regulations concerning labour and the environment, there is potential for irresponsible and unethical business practices, which is why some trade agreements and programmes, such as those with the EU, require the other parties to conform to certain norms with regard to these issues.

Unfortunately, as trade is never 100% free and likely never will be, imbalances will always occur within trading relationships. Furthermore, politics and public opinion will only ensure that the goal of true free trade is never fully attainable. In these circumstances, and depending on macroeconomic factors, some will appear to win or lose more than others from every free trade agreement. 

In this article, we will look at some of the major pros and cons of free trade agreements. 

The Upsides 

Enhanced Economic Growth – Free trade promotes increased levels of commerce and business activity, resulting in enhanced economic growth. In an atmosphere of free trade, countries can focus their resources on their strengths and increase their presence and competitiveness in the global marketplace. Reduced costs associated with tariffs and regulatory compliance may also potentially reduce prices and spur demand. 

Reduced Government Spending – Maintaining restrictions, enforcing quotas and providing subsidies is costly. Free trade agreements reduce or eliminate a lot of this, freeing up government money so that it may be better utilized elsewhere.  

Increased FDIs – When a nation is open to free trade, trade partners will be happy to supply foreign direct investment. The benefits of this are many including healthy foreign exchange inflows, improved infrastructure, more jobs and overall increased economic activity. 

Technology, Expertise & Knowledge Sharing – As trade partnerships flourish, technology, expertise and knowledge sharing occur, creating new opportunities and potential for further growth both on a social and economic level.  

The Downsides 

Excessive Job Outsourcing – Free trade agreements can cause jobs to be outsourced from developed countries to emerging markets. We see this with NAFTA and how US companies have outsourced jobs to Mexico, China and India.

Abuse of Workers & The Environment – Because emerging and frontier markets may have less robust regulations concerning labour and the environment, there is potential for irresponsible and unethical business practices, which is why some trade agreements and programmes, such as those with the EU, require the other parties to conform to certain norms with regard to these issues.

Unfortunately, as trade is never 100% free and likely never will be, imbalances will always occur within trading relationships. Furthermore, politics and public opinion will only ensure that the goal of true free trade is never fully attainable. In these circumstances, and depending on macroeconomic factors, some will appear to win or lose more than others from every free trade agreement.