Getting financing for business is very important mainly if it is done for international trading. For example, Dubai is a nation that is famous as a seller of oil to other countries therefore their government should have trade finance procedures that are very operative. Domestic businesses also require financing but not like international ones. Some explanations why this money is vital have been registered below.
Most firms usually require external more than the internal funds for them to cater for the fixed costs. These include the costs such as the payments to the employees. Inventories and input purchases that must be done whether or not the money from the sales comes in.
David Chor, an economist says that trading internationally makes a firm incur more costs than trading domestically. This is as a result of the extra expenditures that are the reason behind the need for external finances. For instance in Dubai, there are many firms that export oil thus they need this financing. For instance they need money to conduct researches about the new oil markets they can venture into.
International dealings also make a business to undergo some additional costs because of the shipping liabilities and also transport insurance. Making a deal across borders also takes a longer span of time compared to local transactions which leads to extra working time for the workers therefore more resources are spent on their salaries. All these factors need to be handled before the revenue is earned therefore the external reserves help a lot.
For this reasons, the government of Dubai and the financial institutions have developed this so called finance. It is very different from trading credit as the credit refers to an agreement between the importers and the exporters to take goods and pay on a later date. They may be described as the financial instruments that are created to favor the exporters.
The percentage of the world international economy that depends on these funds to survive actually exceeds ninety. It is therefore important that these policies are supported because they cater for the economies of entire world. The cater for both the risks that come about in the international economy such as currency rate fluctuations and the working capital that is needed before revenue is earned.
Different businesses can use two different types of tools for trade funding depending on the kind of business they do. There is bill validation and also documentary credit. The latter involves a pledge by a specific financial institution to recompense an exporter in the place of the importer in case they both comply with the rules and conditions set.
Bill validation is where the bank of these buyers guarantee to pay the exporter in case he fails to pay in good time. This is different from the above instrument because it does not allow the important to use their money to cater for other things for a certain period of time.
Most firms usually require external more than the internal funds for them to cater for the fixed costs. These include the costs such as the payments to the employees. Inventories and input purchases that must be done whether or not the money from the sales comes in.
David Chor, an economist says that trading internationally makes a firm incur more costs than trading domestically. This is as a result of the extra expenditures that are the reason behind the need for external finances. For instance in Dubai, there are many firms that export oil thus they need this financing. For instance they need money to conduct researches about the new oil markets they can venture into.
International dealings also make a business to undergo some additional costs because of the shipping liabilities and also transport insurance. Making a deal across borders also takes a longer span of time compared to local transactions which leads to extra working time for the workers therefore more resources are spent on their salaries. All these factors need to be handled before the revenue is earned therefore the external reserves help a lot.
For this reasons, the government of Dubai and the financial institutions have developed this so called finance. It is very different from trading credit as the credit refers to an agreement between the importers and the exporters to take goods and pay on a later date. They may be described as the financial instruments that are created to favor the exporters.
The percentage of the world international economy that depends on these funds to survive actually exceeds ninety. It is therefore important that these policies are supported because they cater for the economies of entire world. The cater for both the risks that come about in the international economy such as currency rate fluctuations and the working capital that is needed before revenue is earned.
Different businesses can use two different types of tools for trade funding depending on the kind of business they do. There is bill validation and also documentary credit. The latter involves a pledge by a specific financial institution to recompense an exporter in the place of the importer in case they both comply with the rules and conditions set.
Bill validation is where the bank of these buyers guarantee to pay the exporter in case he fails to pay in good time. This is different from the above instrument because it does not allow the important to use their money to cater for other things for a certain period of time.
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