Financing for trades is very important especially in international economics. A country like Dubai which is one of the major exporter of oil and other products need to have effective trade finance for their business to be successful. This does not mean that this financing is not important for domestic trade only that it is more significant when practicing international transactions. The following are some of the roles of trade financing.
For a venture to do well, the fixed costs should always be satisfied regardless of state of the firm. Examples of these costs are employee expenses, acquisition of inputs and catalogs. Many trades usually need external revenue even more than internal ones to pay for these expenses. If the fixed expenses are not dealt with in time, a venture is likely to collapse.
Some economists like David Chor say that export trades usually required extra expenditures compared to the domestic trades. These expenditures may require a firm to rely on external funding to stay in business. Dubai is a leading exporter of oil therefore the firms there really need external funds to stay in the business. Extra money may be needed for instance to research the new available markets for their exports.
International transactions also make a firm to undergo some extra costs as a result of shipping duties and also transportation insurance. Making a transaction across a border is likely to take a longer period of time than local transactions which calls for extra working hours for the workers thus more resources spent on their wages. All these things are needed before the income is collected thus the external funds help a lot.
For this reasons, the government of Dubai and the financial institutions have developed this so called finance. It is very different from trading credit as the credit refers to an agreement between the importers and the exporters to take goods and pay on a later date. They may be described as the financial instruments that are created to favor the exporters.
The total percentages of the entire world international economies that depend on these reserves for survival actually surpass ninety. It is hence significant that these strategies are supported for they provide for the economy of whole world. They provide for both the perils that are associated with international trades like currency rate variations and the working money that is required before profits are earned.
There are two types of trading finance instruments that firms can use. One of them is through documentary credit and the other is bill validation. In documentary credit, the financial institution involved takes up the responsibility to pay the beneficiary in this case being the exporter on behalf of the buyer who is the importer in this case. This is valid if only they comply with the terms and conditions of the contract.
Bill validation alternatively is dissimilar as it fails to permit the buyer to spend their resources on other issues for a while before they can make payments to the sellers. This instrument only assures payment for the products taken by the buyer if he does not pay.
For a venture to do well, the fixed costs should always be satisfied regardless of state of the firm. Examples of these costs are employee expenses, acquisition of inputs and catalogs. Many trades usually need external revenue even more than internal ones to pay for these expenses. If the fixed expenses are not dealt with in time, a venture is likely to collapse.
Some economists like David Chor say that export trades usually required extra expenditures compared to the domestic trades. These expenditures may require a firm to rely on external funding to stay in business. Dubai is a leading exporter of oil therefore the firms there really need external funds to stay in the business. Extra money may be needed for instance to research the new available markets for their exports.
International transactions also make a firm to undergo some extra costs as a result of shipping duties and also transportation insurance. Making a transaction across a border is likely to take a longer period of time than local transactions which calls for extra working hours for the workers thus more resources spent on their wages. All these things are needed before the income is collected thus the external funds help a lot.
For this reasons, the government of Dubai and the financial institutions have developed this so called finance. It is very different from trading credit as the credit refers to an agreement between the importers and the exporters to take goods and pay on a later date. They may be described as the financial instruments that are created to favor the exporters.
The total percentages of the entire world international economies that depend on these reserves for survival actually surpass ninety. It is hence significant that these strategies are supported for they provide for the economy of whole world. They provide for both the perils that are associated with international trades like currency rate variations and the working money that is required before profits are earned.
There are two types of trading finance instruments that firms can use. One of them is through documentary credit and the other is bill validation. In documentary credit, the financial institution involved takes up the responsibility to pay the beneficiary in this case being the exporter on behalf of the buyer who is the importer in this case. This is valid if only they comply with the terms and conditions of the contract.
Bill validation alternatively is dissimilar as it fails to permit the buyer to spend their resources on other issues for a while before they can make payments to the sellers. This instrument only assures payment for the products taken by the buyer if he does not pay.
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