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WAYS TO FINANCE INTERNATIONAL TRADE IN FOREIGN
PRACTICE
Payzieva Komila
Master’s student of The Tashkent State University of Economics
https://doi.org/10.5281/zenodo.14824792
Annotation:
This scientific article shows the role of international trade in
the world economy, and also talks about the origin and definitions of
international trade. Opinions of scientists about international trade are
presented.
Key words:
international trade, financing,
theories,
capital.
International trade is a key factor in the prosperity of economies
worldwide. Common financing methods that help facilitating trade between
buyers and sellers across international borders include working capital
financing, cash-in-advance and open accounts. Each of these methods use a
variety of trade finance products that are available to exporters to increase cash
flow and reduce the risk associated with shipping products overseas.
International trade theories are simply different theories to explain
international trade. Trade is the concept of exchanging goods and services
between two people or entities. International trade is then the concept of this
exchange between people or entities in two different countries.
People or entities trade because they believe that they benefit from the
exchange. They may need or want the goods or services. While at the surface,
this many sound very simple, there is a great deal of theory, policy, and business
strategy that constitutes international trade.
In this section, you’ll learn about the different trade theories that have
evolved over the past century and which are most relevant today. Additionally,
you’ll explore the factors that impact international trade and how businesses
and governments use these factors to their respective benefits to promote their
interests.
“Around 5,200 years ago, Uruk, in southern Mesopotamia, was probably
the first city the world had ever seen, housing more than 50,000 people within
its six miles of wall. Uruk, its agriculture made prosperous by sophisticated
irrigation canals, was home to the first class of middlemen, trade
intermediaries…A cooperative trade network…set the pattern that would
endure for the next 6,000 years.”Matt Ridley, “Humans: Why They Triumphed”
(Wall Street Journal, May 22, 2010, accessed December 20).
In more recent centuries, economists have focused on trying to
understand and explain these trade patterns. In discussion discussed how
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Thomas Friedman’s flat-world approach segments history into three stages:
Globalization 1.0 from 1492 to 1800, 2.0 from 1800 to 2000, and 3.0 from 2000
to the present. In Globalization 1.0, nations dominated global expansion. In
Globalization 2.0, multinational companies ascended and pushed global
development. Today, technology drives Globalization 3.0.
To better understand how modern global trade has evolved, it’s important
to understand how countries traded with one another historically. Over time,
economists have developed theories to explain the mechanisms of global trade.
The main historical theories are called classical and are from the perspective of a
country, or country-based. By the mid-twentieth century, the theories began to
shift to explain trade from a firm, rather than a country, perspective. These
theories are referred to as modern and are firm-based or company-based. Both
of these categories, classical and modern, consist of several international
theories.
Figure 1. Classical or Country-Based Trade Theories
International trade finance refers to the financial instruments and services
designed to facilitate and support international trade transactions. It provides
exporters with the necessary funds and risk management tools to mitigate the
challenges associated with cross-border trade.
International trade finance bridges the gap between the exporter and
importer by providing solutions such as letters of credit, trade credit insurance,
and bank guarantees, which offer security and build trust between trading
partners.
Moreover, it facilitates smoother transaction flows, thereby enhancing the
efficiency and speed of international trade activities. By doing so, it plays a
critical role in the global economy, enabling businesses to expand beyond
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domestic markets and tap into new opportunities in foreign markets. This, in
turn, contributes to economic growth and development on a global scale.
International trade refers to the exchange of goods, services, and capital
between countries. It allows countries to expand their markets for goods and
services, and can lead to increased economic growth and higher living
standards. International trade also allows countries to take advantage of their
relative advantages, such as access to natural resources or a skilled labor force,
which can lead to increased efficiency and competitiveness.
International trade plays a crucial role in the global economy and is a key
driver of economic growth and development. It allows countries to specialize in
the production of certain goods and services, based on their natural resources,
climate, and other factors, and then trade these goods and services with other
countries. This can lead to increased efficiency and productivity, as countries can
focus on producing what they do best, and then trade with other countries for the
goods and services that they need.
International trade finance offers diverse tools, each tailored to support
and safeguard different aspects of cross-border commercial transactions.
1-Table Types of International Trade Finance
(data-driven author development)
Types of International Trade Finance
Letters of Credit (LC)
LCs are a widely used instrument in international trade.
They guarantee payment to the exporter by the importer's
bank, provided the exporter fulfills the agreed-upon terms
and conditions.
Export Credit Insurance
Export credit insurance protects exporters against the risk
of non-payment by their international customers. It
provides coverage for both commercial and political risks.
Export Factoring
Export factoring involves selling accounts receivable to a
financial institution, known as a factor, to obtain immediate
cash. The factor assumes the risk of non-payment from
international customers.
Supply Chain Financing
Supply chain financing solutions help exporters by
providing early payment for invoices or receivables in
exchange for a discount. This helps improve cash flow and
reduces the risk of late payments.
Export Working Capital
Loans
These loans provide exporters with working capital to
finance production, purchase raw materials, and cover
other operational expenses related to fulfilling international
orders.
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International trade is a crucial driver of economic growth, development,
and integration into the global economy. However, trade activities often require
significant financial resources, infrastructure, and risk management tools.
Conclusion
The future of international trade financing is being shaped by technological
innovations and the changing needs of the global economy. The integration of AI
and machine learning will continue to enhance the efficiency, security, and risk
management of trade finance, while digital currencies and blockchain
technology offer new, faster, and more transparent ways to conduct cross-
border transactions.
References:
1.
Vaxabov A.V. va boshqalar Jahon iqtisodiyoti va xalqaro iqtisodiy
2.
munosabatlar. Darslik. Baktria press, T.: 2015.
3.
Krugman P., Obstfeld M., Melitz M. International economics: theory and
policy. 12 th edition. Harlow, Essex: Pearson, 2023, 817p.
4.
Dominick S., International economics. Printed in the USA /. – 13th ed.
2019. 720 p.
5.
Thomas A. Pugel. International Economics. Printed in the USA /. – 18th
Edition. 2024.
6.
https://www.cbu.uz
7.
https://wdi.worldbank.org/tables
Bank Guarantees
This involves a bank offering a guarantee to a seller that it
will fulfill the payment obligations of the buyer in case of
default. It's commonly used in international trade to
provide a sense of security to the seller.
Trade Credit
This is a form of credit extended by the supplier to the
buyer, allowing them to pay for the goods at a later date. It's
a common practice in international trade to help buyers
manage their cash flow
