Financial Services In Global Trade

The efficient management of cash, assets, credit, and financial instruments to conduct international trade is trade finance. Trade finance is the process by which working capital is provided to ensure smooth movement of trade. There are a number of financial instruments utilized in trade finance like letters of credit or L/C, bill of exchange, guarantees, trade credit insurance, and documentary collection.

Why Use A Letter Of Credit?

In a letter of credit, the bank acts as a mediator between the importer and exporter. The letter of credit is issued by the bank to the exporter guaranteeing to pay the money when he meets the criteria laid out in the letter of credit. The duration of the letter of credit is for the length of the transaction and ends when the money is paid to the exporter or the seller. The L/C does not protect the beneficiary from the loss that he may have to endure if the deal does not go through. The letter of credit can be used not only in the selling of goods but also of services. The buyer sends the letter of credit from his bank to the exporter’s bank thereby making the buyer’s bank responsible for timely payment of his money.

Common Financial Instruments

Bank guarantee is also another financial instrument in which the bank guarantees to pay the beneficiary in the event the buyer defaults on the payment. The difference from a letter of credit is that the bank guarantee comes into play only when the buyer defaults. Another financial instrument used commonly is documentary collection wherein the seller forwards the sale documents to the buyer’s bank with conditions attached as to when it can be released for collection of goods from the shipper. A bill of exchange acts like a cheque or demand draft and is a promise to pay the said sum of money at a prearranged date to the person or company mentioned in the bill of exchange. Trade credit insurance guarantees protection from defaulting buyers and an unstable political situation.

The Need For Financial Services

The financial services provided by the different financial agencies are many. The various sectors under the financial industry are mainly the banks, the insurance companies, private bankers, credit card companies, investment funds, brokerage firms, wealth management services, hedge fund management, mortgage services, the list is limitless. These financial services are needed to help you to manage your funds wisely. All of us work hard to make sufficient money to meet our needs and to save for our old age. Financial services help you to invest this money wisely and according to the rules of the land, so that they are available to you when needed. It helps you to actually sit down and study your financial picture and make realistic plans for the future.

Selling Your Financial Services – How Fear Works to Your Advantage

The credit markets have dried up and even our largest banks are teetering on the brink of disaster. Add in the uncertainty in the stock market and the AIG bailout and you’ve got a group of panicked investors. Does that mean you can’t sell?

No, now is probably one of the best selling opportunities you may ever have in your lifetime. That is, if you know how to handle a very dicey emotion. That dicey emotion is the fear created by uncertainty.

If you’re calling people on the phone and asking them to invest with you I wouldn’t be surprised to learn you have recently had some rather traumatic ear damage. Imagine your surgeon looking down at you over his surgical mask and asking if you would like him to make another incision without anesthetic. Yipes.

That approach won’t work because you are picking the scab on your prospects fear and making it bleed.

When it comes to fear too much fear paralyzes you and prevents you from taking any action. A reasonable amount of fear motivates you to do something to avoid or stop whatever is causing the fear. A small amount of fear is more of an annoyance than something you intend to do anything about.

How that fear is directed makes a tremendous difference in perceived impact. When you ask your prospects and clients to do more of something they already don’t want any part of it shouldn’t be surprising when you get a negative reaction. You are helping your prospects focus on what they don’t want rather than on a way to get out of what they don’t want, and into what they do want.

They don’t want increased risk and uncertainty. That’s exactly what the current financial industry is serving up. You need to present an opportunity to remove risk and eliminate uncertainty. You need to offer an opportunity for a certain future with known outcomes.

When you do your prospect will be all ears and eager to learn more. That’s because your offer presents the three keys to selling your financial services when your prospects are scared out of their gourds. Your offer is

  • Relevant to an urgent need
  • Something they are already looking for
  • Essential to their desired future

Information Technology and Integrated Financial Services

Financial institutions are on the verge of needing a major face-lift and can benefit immensely when they forge partnerships with Information Technology (IT) firms, enabling both service providers to provide quality, top-notch service. The existing financial institutions are forced to spend large fortunes to get the latest technologies in areas such as enterprise performance management, corporate banking and treasury management.

Importance of Integrating IT and Financial Services:

In order for these financial institutions to grow, they need the proper IT infrastructure to give value added services to existing clients, thereby creating new growth from the existing client base. They have to integrate IT with their services logistically and strategically to be successful. Together with the IT industry, they have to create partnerships that will enable them to have excellent insight in marketing and risk and performance management. They have to devise techniques where they can keep operating costs low while maintaining the capacity and techniques implemented to generate growth.

This is especially true for banking sectors in Western Europe and North America. Good IT infrastructures are essential to achieving the goals of the financial institutions. Using the latest advances in information technology, financial institutions can become established leaders in emerging markets such as the Far East. With the right IT infrastructure, financial institutions can deal with more sophisticated and demanding customers with ease and agility. This process will be even easier when the IT industry is integrated with the financial institution.

IT and Integrated Financial Services:

Combining these disciplines can also be very useful while taking into consideration compliance issues. There are so many compliance regulations, such as Basel II, accounting standards such as IAS, IFRS and the famous (or infamous) Sarbanes-Oxley act, that financial institutions have realized the importance of IT regarding compliance issues. They have also realized how the IT sector aids in their growth and makes day-to-day functions easier to manage. Integrated systems can help key management personnel make important decisions based on the results of the accurate reports produced by the various IT systems used.

Banking and insurance intuitions are involved in the process of turning valuable information into revenue and much-needed profits. Both sectors are concerned with and demand good IT systems to provide adequate security to ensure fraud prevention, and good techniques to safeguard sensitive information.

The financial institutions have to clearly identify their IT needs, form partnerships with appropriate providers and use the IT infrastructure in an effective way. They must ensure that their goals are reached with no compromises, as well as ensure that they follow all rules and regulatory compliance issues by having their IT infrastructure partner or provider follow those rules while managing and storing essential data. Therefore, the concept of IT and integrated financial services has to be studied carefully.

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