Ali ihsan Ozeroglu
(Faculty of Administrative Sciences, Istanbul Arel University, Turkey)

 

Abstract: Purpose of Study: Financing is more likely to be required in international trade than in purely domestic transactions. Part of the reason is that the time elapsing between production and payment is likely to be far greater, because of the longer distances involved in shipping goods and in moving payments through financial channels. That, in turn, is related to the increased complexity and extensive documentation typical of international trade. Payment may take a lot longer, because there is a greater possibility of error and delay. The costs of sales are higher in international trade than in domestic trade. There are packing and labeling costs, shipping costs, the costs of hiring freight forwarders, insurance costs, customs remittances, and payments to various agents, distributors and other intermediaries. All of these add up. And many of those providing such services expect payment within 30 to 120 days, whether or not the shipment has reached its destination or has been accepted at the other end. In large international transactions the costs add up quickly, and they can be covered in the short-term only through some form of financing. A separate expenditure in international trade is the cost of protecting a company against specific risks, such as default in payment by a buyer or a sudden unfavorable fluctuation in exchange rates. Establishing credit ratings for foreign companies is often both difficult and costly; so is taking out insurance against payments in default. Hedging against exchange rate fluctuations also costs money, and this is usually payable up front. The purpose of this study is to lead in experienced companies to prepare for a financially strong export performance by making them familiar with both classical and new financial techniques.

 

Key words: international trade finance; financing technique; finance for foreign trade

JEL codes: F34