GTFO Full Form , what is full form of GTFO

GTFO Full Form



International trade allows countries to expand their markets and access goods and services that otherwise may not have available domestically. As a result of International trade, the market is more competitive. This ultimately results in more competitive pricing and brings a cheaper product home to the consumer. Trade finance represents the financial instruments and products that are used by companies to facilitate international trade and commerce. Trade finance makes it possible and easier for importers and exporters to transact business through trade.


How Global Trade Finance Works

The function of global trade finance is to introduce a third party to transactions to remove the payment risk and the supply risk. Trade finance provides the exporter with receivables and payments according to the agreement while the importer might be extended credit to fulfill the trade order.
The parties involved in trade finance are numerous and can include-:

  •  Banks
  • Trade Finance Companies
  •  Importers and Exporters
  •  Insurers
  •  Export Credit Agencies and Service Providers

Trade financing is different from conventional financing and credit issuance. General financing is used to manage solvency and liquidity, but trade financing may not necessarily indicate a buyer’s lack of funds or liquidity. Instead, trade finance may not be used to protect against international trade’s unique inherent risks, such as currency fluctuations, political instability, issues of non-payment, or the creditworthiness of one of the parties involved.
Below are a few financial instruments used in trade finance-:

  • Lending lines of credit can be issued by banks to help both importers and exporters.
  • Letters of credit reduce the risk associated with global trade since the buyer’s bank guarantees payment to the seller for the goods shipped. However, the buyer is also protected since payment will not be made unless the terms in the LC are met by the seller. Both parties have to honor the agreement for the transaction to go through.
  • Factoring is when companies are paid based on a percentage of their account’s receivables.
  • Export credit or working capital can be supplied to exporters.
  • Insurance can be used for shipping and the delivery of goods and can also protect the exporter from non-payment by the buyer.

Note- Although Global trade has been in existence for centuries, trade finance
facilities its advancement. The widespread use of trade finance has contributed to
international trade growth.