financing Chapter 1: Background of the Study
1.1 Introduction
The international trade activities are grown day by day. This trend is attributable to the increased globalization of the world economies and the availability of trade payment and finance from the international banking community.

Although banks also finance domestic trade, their role in financing international trade and payment system is more critical due to the additional complications involved. First, the exporter might question the importer’s ability to make payment. Second, even if the importer is creditworthy, the government might impose exchange controls that prevent payment to the exporter. Third, the importer might not trust the exporter to ship the goods ordered. Fourth, even if the exporter does ship the goods, trade barriers or time lags in international transportation might delay arrival time. Financial managers must recognize methods that they can use to make payment and finance international trade so that they can conduct exporting or importing in a manner that maximizes the value of a business.

In any international trade transaction, credit is provided by the exporter, the importer, one or more financing institutions, or any combination of these. The supplier may have sufficient cash flow to finance the entire trade cycle, beginning with the production of the product until payment is eventually made by the buyer. In some cases, the exporter may require bank financing to augment its cash flow. On the other hand, the supplier may not desire to provide financing, in which case the buyer will have to finance the transaction itself, either internally or externally, through its bank. Banks on both sides of the transaction can thus play an integral role in trade payment and financing.

Exports and imports play an important role in the economy of every country, rich and poor alike. Rich