On September 15, 2008, Lehman Brothers, the fourth-largest U.S. investment
bank, filed for bankruptcy, marking the largest bankruptcy in U.S. history and
the burst of the U.S. subprime mortgage crisis. Concerns about the soundness of
U.S. credit and financial markets led to tightened global credit markets around
the world. Spreads skyrocketed. International trade plummeted by double digits,
as figure O.1 illustrates. Banks reportedly could not meet customer demand to
finance international trade operations, leaving a trade finance “gap” estimated at
around $25 billion.
The authors study the effect of financial crises on trade credit in a sample of 890 firms in six emerging economies. They find that although provision of trade credit increases right after the crisis, it consequently collapses in the following months and years. The authors observe that firms with weaker financial position (for example, high pre-crisis level of short-term debt and low cash stocks and cash flows) are more likely to reduce trade credit provided to their customers.
Trade finance has received special attention during the financial crisis as one of the
potential culprits for the great trade collapse. Several researchers have used micro level data
to establish the link between trade finance and trade, especially so during the financial crisis,
and have found diverting results. This paper analyses the effect of trade credit on trade on a
macro level through a whole cycle. We employ Berne Union data on export credit insurance,
the most extensive dataset on trade credits available at the moment, for the period of 2005-
Chapter 9 - Short-term debt. The following will be discussed in this chapter: trade credit, bank overdrafts, commercial bills, calculations: discount securities, promissory notes, negotiable certificates of deposit, inventory finance, accounts receivable, financing and factoring.
Learning objectives of this chapter include: Identify the main forms of short-term borrowing by Australian companies, understand the characteristics of trade credit and calculate the implied interest rate, understand the main forms of bank lending and appreciate when each may be suitable to a borrower’s needs,…
This guide explains the different methods of getting paid and the different levels of risks involved.
You should note that none of the methods outlined below will completely eliminate the payment
risks associated with international trade, so you should consider your preferred payment option
with care and hedge the risks along with appropriate credit insurance and credit checks on your
Credit cards are a means of exchange, not a
payment. Ultimate payment by the card user occurs
at the end of the month when a cheques is written or
a bank a/c is debited to settle the outstanding
balance. In that respect, credit cards are akin to
trade credit for the users, and a substitute credit long
extended by retailers to customers.
This revision of the Uniform Customs and Practice for Documentary Credits (commonly called
“UCP”) is the sixth revision of the rules since they were first promulgated in 1933. It is the fruit of
more than three years of work by the International Chamber of Commerce’s (ICC) Commission on
Banking Technique and Practice.
ICC, which was established in 1919, had as its primary objective facilitating the flow of
international trade at a time when nationalism and protectionism posed serious threats to the world
Welcome to the second edition of the Trade Finance Guide: A Quick Reference for U.S. Exporters. This guide is designed to help U.S. companies, especially small and medium-sized enterprises (SMEs), learn the basic fundamentals of trade finance so that they can turn their export opportunities into actual sales and achieve the ultimate goal of getting paid—especially on time—for those sales. This guide provides general information about common techniques of export financing.
The literature on international trade, growth, and development is huge. We do not
pretend to even attempt to cover this large literature in any systematic fashion.
Instead, this book contains essays, written over three decades, focusing on some of
the relatively neglected issues.
Consumer access to credit, housing, insurance, basic utility services, and even
employment is increasingly determined by centralized records of credit history and
automated interpretations of those records.
Credit histories in one form or another have long been an important factor in decisions to
extend or deny credit to consumers
. Historically, such decisions required a skilled,
human evaluation of the information in an applicant’ s credit history to determine the
likelihood that the applicant would repay a future loan in a timely manner.
In this paper we propose a new, information-based approach for
modelling the dynamic evolution of a portfolio of credit risky securities. In our
setup market prices of traded credit derivatives are given by the solution of a
nonlinear filtering problem. The innovations approach to nonlinear filtering is
used to solve this problem and to derive the dynamics of market prices. Moreover,
the practical application of the model is discussed: we analyse calibration,
the pricing of exotic credit derivatives and the computation of risk-minimizing
After studying chapter 11, you should be able to: Understand the sources and types of spontaneous financing, calculate the annual cost of trade credit when trade discounts are forgone, explain what is meant by “stretching payables” and understand its potential drawbacks, describe the various types of negotiated (or external) short-term financing,...
Lecture International trade and investment: Chapter 13 - Export-import management. The main goals of this chapter are to: Describe the ‘nuts and bolts’ of exporting, and how basic export–import transactions work, uderstand the role of INCOTERMS in export–import operations, examine the main methods of payment in an international sale, outline the main form of trade financing techniques (e.g. credit, factoring, forfaiting).
Chapter 11 - Short-term financing. After studying chapter 11, you should be able to: Understand the sources and types of spontaneous financing, calculate the annual cost of trade credit when trade discounts are forgone, explain what is meant by “stretching payables” and understand its potential drawbacks, describe the various types of negotiated (or external) short-term financing,...
After completing this chapter, students will be able to: Calculate single trade discounts with formulas and complements, explain the freight terms FOB shipping point and FOB destination, find list price when net price and trade discount rate are known, calculate chain discounts with the net price equivalent rate and single equivalent discount rate,...
Chapter 13 - Export import management. The main goals of this chapter are to: Describe the ‘nuts and bolts’ of exporting, and how basic export–import transactions work, uderstand the role of INCOTERMS in export–import operations, examine the main methods of payment in an international sale, outline the main form of trade financing techniques (e.g. credit, factoring, forfaiting),...
Lecture Multinational financial management - Topic 8: Carry trade and covered interest arbitrage. In this chapter, students can compute profits from carry trades and covered interest arbitrage, students understand the function and use of a credit default swap (CDS).
Adjusted present value (APV) The net present value analysis of an asset if financed solely by equity (present value of un-levered cash flows), plus the present value of any financing decisions (levered cash flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of other investment tax credits are calculated separately. This analysis is often used for highly leveraged transactions such as a leverage buy-out.