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Money and credit - Ivanov V.M.


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 foreign contact is called a correspondent bank. So, one clearing bank may have over 10 thousand such contacts in more than 150 countries.

A bank may have accounts with many of its correspondent banks. In turn, banks may have accounts with a foreign bank. Each other’s account management system allows firms to:

• make payments abroad;

• receive payments from abroad.

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

1. The provision of foreign currency:

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

• provision of a loan in foreign currency;

• issuance of travel checks, cards to their customers traveling abroad.

2. Collection and transfer of funds . Banks can participate on behalf of customers in collecting payments from abroad and in customer payments to individuals or firms abroad. Services include:

• transfer payments in foreign currency on behalf of customers;

• crediting payments received from abroad to the credit of the accounts of their customers or to the credit of the accounts of customers of other bank branches;

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

3. The provision of banking services for international trade:

• maintaining customer accounts;

• maintaining own accounts in correspondent banks abroad;

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

• provision of documentary letter of credit services;

• accounting for transferable bills payable abroad or checks;

• Acceptance of bills of exchange within the framework of services under the accept credit.

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

• reports on the financial position of suppliers or customers;

• assistance in finding foreign distributors;

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

Clearing banks have expanded their influence on international trade by:

• opening of branches abroad;

• acquisition of a share in foreign banks;

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

• the provision of specialized services by registering their branches as trading banks.

International trade poses higher risks for both the buyer and seller compared to domestic trade. To reduce them, many different services have been developed for exporters and importers, and banks play a major role in providing most of these services.