Money and credit - Ivanov V.М.


20.1. The role of banks in international trade

Banks play a key role in international trade. Each clearing bank maintains many contacts with banks of other countries. A bank with which there is a foreign contact is called a correspondent bank. So, one clearing bank can have over 10 thousand such contacts in more than 150 countries.

The bank can have accounts in many of its correspondent banks. In turn, banks can have accounts in a foreign bank. The system of keeping accounts with each other allows firms:

• make payments abroad;

• receive payments from abroad.

The main functions of the foreign branch of the clearing bank:

1. Provision of foreign currency:

• selling foreign currency to customers and buying it from them;

• provision of loans in foreign currency;

• issuing traveler's checks and cards to his clients traveling abroad.

2. Collection and transfer of funds . Banks can participate on behalf of clients in the collection of payments coming from abroad, and in the payments of customers to individuals or firms abroad. Services include:

• transfer of payments in foreign currency on behalf of clients;

• crediting of payments coming from abroad to credit of their customers 'accounts or to credit of customers' accounts of other branches of banks;

• execution of documentary collection on behalf of the exporter or foreign buyer abroad.

3. Provision of banking services for international trade:

• Customer accounts management;

• maintaining own accounts in correspondent banks abroad;

• provision of overdrafts or loans to customers and banks abroad in foreign currency;

• provision of services under a documentary credit;

• accounting for bills of exchange payable abroad or checks;

• Acceptance of bills of exchange within the framework of acceptance loan services.

4. Providing information to clients for more effective implementation of international trade:

• reports on the financial situation of suppliers or customers;

• assistance in finding foreign distributors;

• general information on the economic situation in a particular country and on any export, import regulations in that country.

Clearing banks have expanded their influence on international trade by:

• opening branches abroad;

• acquisition of a stake in foreign banks;

• opening of subsidiaries for specialization in leasing and sale on credit or in factoring, etc .;

• providing specialized services by registering their branches as commercial banks.

International trade generates higher risks for both the buyer and the seller as compared to intra-country trade. To reduce them, many different services have been developed for exporters and importers, and banks play a major role in the provision of most of these services.