Show Summary Details

Page of

Printed from Oxford Research Encyclopedias, Economics and Finance. Under the terms of the licence agreement, an individual user may print out a single article for personal use (for details see Privacy Policy and Legal Notice).

date: 25 June 2022

Trade Finance and Payment Methods in International Tradelocked

Trade Finance and Payment Methods in International Tradelocked

  • JaeBin AhnJaeBin AhnGraduate School of International Studies, Seoul National University

Summary

International transactions are riskier than domestic transactions for several reasons, including, but not limited to, geographical distance, longer shipping times, greater informational frictions, contract enforcement, and dispute resolution problems. Such risks stem, fundamentally, from a timing mismatch between payment and delivery in business transactions. Trade finance plays a critical role in bridging the gap, thereby overcoming greater risks inherent in international trade. It is thus even described as the lifeline of international trade, because more than 90% of international transactions involve some form of credit, insurance, or guarantee. Despite its importance in international trade, however, it was not until the great trade collapse in 2008–2009 that trade finance came to the attention of academic researchers.

An emerging literature on trade finance has contributed to providing answers to questions such as: Who is responsible for financing transactions, and, hence, who would need liquidity support most to sustain international trade? This is particularly relevant in developing countries, where the lack of trade finance is often identified as the main hindrance to trade, and in times of financial crisis, when the overall drying up of trade finance could lead to a global collapse in trade.

Subjects

  • Financial Economics
  • International Economics

You do not currently have access to this article

Login

Please login to access the full content.

Subscribe

Access to the full content requires a subscription