Trade Finance Can Help Countries with Foreign Currency Shortages - Chennai

It is commonly known that trade finance can help businesses continue to conduct trade without any issues. But trade finance can do so much more. One area in which trade finance helps countries and their economies is by helping them with foreign currency shortages. Foreign currency is regularly needed to complete global trade, but sometimes a company does not have it at hand. This can be particularly problematic at times when a port only accepts their own country's currency. A company that does not have the foreign currency available may have to wait longer to receive that product, thereby slowing the entire trade and supply process. International trade financing companies can help trading businesses maintain the necessary foreign currency when needed to complete an exchange.

Why Would Countries Need Foreign Currency?

In order to conduct trade in another country, you typically need to be equipped with the currency from that country when purchasing goods. On the other end of the transaction, trading companies generally receive payments in their own currency from the end-user. In this situation, the company would need to convert the money to a foreign currency to complete the trade cycle. This is time-consuming and actually costs money to convert. Nonetheless, the currency allows the trading company to continue business as normal.

How Trade Finance Helps Produce Foreign Currency

Here is the scenario. The trading company is attempting to pick up shirts from a port in Singapore to deliver to several stores that are paying for the products. The problem is the trading company does not have the foreign currency to purchase those shirts from Singapore. The company cannot complete the purchase promptly because it has to dock and find a location to exchange money and secure the necessary foreign currency.

Had it used some form of supply chain financing, the firm would be able to ask for the financing in foreign cash in the right currency. As a result, the transaction would occur in a timely manner, and the end-user would be able to continue selling the shirts as promised without lacking inventory.

How Trade Financing Helps Keep Trade Working Business as Usual

The company from the same scenario above now must wait for payment from their end-user. The purchaser is not a slow payer, necessarily, but does not pay early, either. As a result, they may make the payment sixty days after reviewing the invoice.

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