International Trade: Goods And Services

International Trade: Goods and Services

Introduction

International trade implies not only the transaction of goods and services;but also capital movements, which are precisely those that give it complexity, meaning and value to the issue of commerce and its relationship with the economy and companies. Hence precisely that international trade becomes relevant for the way this movement of goods, services and capital, helps to growth economies, helps the profitability of companies and the well -being of people. 

It is said that there is not a single country that can be considered self-sufficient and that it does not need the support of other countries. So there is a particularity of cause and effect of economic interdependence between different nations. Indeed, developed countries have technology, production centers, capital and market;But they lack the raw material. 

On the other hand, there are countries with a minimum development, which have little participation within international trade, but that have the raw material;Those who grant it at low prices, and then acquire products made at high prices, which consequently implies delay and inequality in producing countries.

Developing

Risks in international trade

To the extent that many opportunities are presented through international trade, there are also a series of risks that involve selling or buying in other countries;Similarly, there are tools available, of the utmost importance to minimize them.

The greatest risk is that the operation does not end under the conditions agreed by the parties;One of the ways to reduce these risks in foreign trade operations is to use the appropriate means of payment, which will allow exporters to collection their sales abroad and importer to receive their goods or services and make the payment by reducingThe risk involved.

Financial institutions such as Bancoldex, can provide security to the parties involved, at the same time that they can serve as intermediaries between the parties. The greatest risk for an exporter is to receive payment for the goods sold in different conditions to those agreed, or in the worst case never receive it;And for the importer, the greatest risk is to receive the goods is the same factor, receive the goods in unpacked conditions or simply not receive them.

Since working with another country;In addition to the risks of this commercial activity, there are other risks that derive from political factors, the economic situation and regulatory measures, the country risk that is adjusted to the socioeconomic circumstance of that country and the risksfinancial.

In international trade there are a number of related terms to resolve conflicts that may arise between the parties involved in one, operation of the Incoterms, are eleven terms of three letters established by the International Chamber of Commerce, which define the responsibilities of the exporter andThe importer regarding the costs, risks and procedures that involve a sale operation.

Every international commercial transaction is reflected in a sale contract;In this seller and buyer contract they have to establish who takes care of the transport costs, who is responsible for the merchandise in case of deterioration and who is responsible for customs procedures. Incoterms is not mandatory, but its inclusion in the contract of sale is highly recommended;since it unifies the criteria and commercial terminology to be used between the parties. In this way, in case of conflicts, the responsibilities of the parties involved in the operation are clearly delimited.

FINANCING

To talk about international trade financing, it is necessary. Among the main financial agencies are:

• World Bank (BM)
• International Monetary Fund (IMF)
• International Payment Bank (BPI)
• Inter -American Development Bank (IDB)

Within the financing system, the banks of each country with the purpose of promoting the economic growth of their country, have created policies that facilitate business development, benefiting both importers and exporters;Such is the case of Bancoldex in Colombia, a financial entity focused on the Colombian export sector, which has implemented services that benefits both small and already consolidated companies;In addition, to offer business training programs.

Financing is an essential credit tool to grow and expand in international markets;For both exporter and importer, financing is necessary in order to be able to execute the commercial operation.

For export financing there is a double variant, which is prefinancing and postfinance. The prefinancing is required prior anticipation to send the merchandise;that is, it is necessary to equip the resources sufficient for the preparation of the final input. On the other hand, the post financing goes from when the merchandise is delivered until the collection will be made.

For the importer, the period in which it requires being financed is the payment of the purchase, manufacture, sale of the product and collection;The importer can request financing from his bank when he has to pay cash and does not have funds.

In relation to financing situations both export/import, the bank advances the amount determined in the currency that is required with an official price, these procedures are regulated by the International Chamber of Commerce. The main activities of the banks is the intermediation in the payment and collection of operations, intermediation in credit and financing of import and export operations, intermediation as a guarantee of payment and intermediation in the currency regimes of the currency.

According to the WTO (World Trade Organization) between 80 and 90 percent of world trade depends on financing for trade (commercial loans and insurance/guarantees), mostly short -term.

Financial risks

Financial risks are associated with the value of the monetary flow, affecting financial activity. When talking about international trade there is another point, and it is to finance with a different currency, of course incurring or not incurring the risk of change in doing so. Having a financial partner for currency risk management is a factor to consider very important. The correct partner will save time, expand knowledge and mitigate the difficulties that meaning may occur

Exchange rate: the risk is that companies pay their costs in their local currency while the value for the merchandise sold it in a different currency;In this order of ideas the products become more expensive, obtaining less gain for each currency sold, this situation brings implicit consequences at the business level, at the economic and social level, affecting employment and consumption rates;Therefore, it can be determined that a higher price in local currency is a favorable bridge to take advantage of the other’s currency.

Payment methods: When making a commercial operations contract export/import, the choice of means of payment to be used is transcendental;In this process it is important to take into account variables such as costs and expenses that will be assumed, security when receiving the merchandise or collection in the agreed conditions, the guarantees of the Bank of the Buyer and the need for financing by the parties, said criteria ofReliability are those that determine the selection of the means of payment.

Payment methods

• Checks
• Transfers
• Simple roughness
• Documentary remittance
• Letter of credit

The checks, transfers and simple remittance are the most economical means of payments, precisely because it is not necessary that the banks involved in the operation guarantee the payment with commercial documents in the relationship between the exporter and the importer;In this case the banks only warn about the accreditation of the exporter payment.

For its part, the documentary remittance is a means of payment where the exporter sends through its bank the commercial documents that can be accompanied or not of financial documents such as letters or payars;These documents will be delivered to the importer through a financial entity of their country, either at the time of payment, when it is committed to the deferred payment of the roughness or against the acceptance or payment of the financial documents if there were and having rigorously fulfilledThe delivery instructions indicated by the exporter.

In a rough financial institutions act only as intermediaries without assuming the guarantee of the payment of the same;In this sense, trust between the parties is medium, because they do not specify that the banks guarantee payments, but to have control of the documents in the case of the rigor export on the delivery dates by the importer.

conclusion

Documentary credit is a means of payment in which the importer bank guarantees payment to the exporter, if the exporter presents the documents required in accordance with the conditioning of the documentary credit. 

If the exporter wants to eliminate the country risk in the collection, he may request it from his financial entity to add its payment guarantee, that is, confirm it, thus eliminating the country risk and the risk of the issuing bank.

For the importer, it is very important to have a bank that has a solid international reputation, which will give an excellent solvency image.