Trade Finance & Structured Trade
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Ebele Kemery: Trade finance is the method importers and exporters of commodities and goods use to finance their business. Basically, trade finance has been in existence for many thousands of years - and one can trace the roots of trade finance and structured trade finance right back to the early days of China and the silk route, Mesopotamia and Europe.

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Trade finance structured trade finance importance for importers and exporters of commodities

Trade Finance & Structured Trade

Finance Importance for Importers

and Exporters of Commodities

Ebele Kemery: Trade finance is the method importers and exporters of commodities

and goods use to finance their business. Basically, trade finance has been in existence

for many thousands of years - and one can trace the roots of trade finance and

structured trade finance right back to the early days of China and the silk route,

Mesopotamia and Europe. Trade Finance was around long before Europeans settled

in America and long before the world's stock markets were born!

Today, trade finance is a massive, multi-billion dollar business. As the world trades

more and more goods and commodities are bought and sold, so more and more

banks and financiers are needed to lend money to finance the purchase and sale of

these goods and commodities - right across the global supply chain.

How is trade finance and structured trade finance useful?

Take an example: imagine you are a trader in cocoa beans in Cote d'Ivoire, buying

beans locally and selling them to foreign buyers. To make your purchases, you will

need to have money to buy the cocoa up-country in Africa, prior to their export.

Where will you find money to make these purchases? And supposing you are the

international buyer; the shipper, purchasing from cocoa traders all over West Africa -

how will you finance your transactions, which at any one time may exceed your cash

reserves? What might be supported by your bank who, if they are traditional lenders,

will only lend against your balance sheet?

This is where trade finance and structured trade finance is useful - your business can

grow and develop if you use the services of a specialist trade finance department who

will structure trade finance structures can be tailored to your needs, using the


Trade finance structured trade finance importance for importers and exporters of commodities

collateral of the goods you are trading, rather than your own balance sheet or other

assets.

What is the basis of trade finance and structured trade

finance?

Goods and commodities have an underlying value of their own. For example, if cocoa

beans are worth many hundreds or even thousands of dollars per tonne, then once a

big pile of beans is accumulated in one place; in a warehouse or on a ship, it is worth

a lot of money. A bank may lend money against the total value of the beans, minus

some amount to take account of price and other risks.

It is the same for every commodity or trade good which is resalable. A bank will make

a loan as long as the collateral "adds up" and as long as the bank is comfortable with

the way the deal is structured between both the buyer and the seller. Of key

importance is that if something goes wrong the bank is able to take possession of the

commodities or goods and sell them to realise monies to repay any loan amounts

outstanding.

Basically, when we talk of structured trade finance we are talking of deals whereby

complex arrangements are put in place to ensure a bank can take possession and sell

the underlying capital used for the loan; in this example, the goods and commodities

themselves.

Is trade finance complicated?

No. It is a simple business although the structures used in trade finance in more

complex deals require a lot of work for all of the parties involved. This is why the

total loan amount of a structured trade finance loans must be high enough to warrant

the involvement of highly-paid bankers, lawyers and other advisers.

Ebele Kemery is a Commodities Leader with a track record of consistently profitable

trading efforts and has expanded business through understanding of client needs and

developing customized solutions that leverage a wide variety of techniques and

market intricacies. Ebele is also a Member of the Editorial Advisory Board of the

Global Commodities Applied Research Digest, and full-tuition scholar from top-tier

University possessing a Bachelors of Engineering in Electrical Engineering.

For more details please visit: http://ebelekemery.strikingly.com/


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