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What is trade finance and export trade finance?

The term trade finance is very general, and the best way to explain it may be to explain which parties participate in international trade transactions and their roles in such transactions.

The parties that participate in trade finance transactions are:

  • Sellers, also called exporters;
  • Foreign buyers, also called importers;
  • Banks;
  • Export credit agencies (ECAs) and private insurance companies;


The above parties have the following roles in trade finance transactions:

  • Sellers sell their products or services to foreign buyers.
  • Foreign buyers buy products or services from sellers.
  • Banks assist sellers and foreign buyers by transferring payments, by providing financing to sellers and foreign buyers in various stages of transactions and by assuming some risks in such transactions.
  • ECAs and private insurance companies insure commercial and political risks connected with trade finance transactions.
  • Factors provide financing to sellers in the period before receiving payment from foreign buyers, which is also called the post-shipment stage.


Export trade finance is actually trade finance, as explained above, but the word export is added to emphasise the international character of such transactions. Some trade finance transactions are even used in domestic transactions between sellers and buyers from the same country, but export trade transactions are usually more complex than domestic transactions. This is because the various risks that arise in international transactions are more difficult to assess and manage than the risks that arise in domestic transactions.

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