Financing Foreign Trade

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Financing Foreign Trade

Financing Foreign Trade


Finance is concerned broadly with the generation, allocation, and management of monetary resources for any purpose. It includes personal finance , whereby individuals save, invest, and borrow money to conduct their lives; corporate finance , whereby business organizations raise capital, mainly through the issue of stocks and bonds, and manage it to engage in economic production; and public finance , whereby governments raise revenue by means of taxation and borrowing and spend it to provide services for their citizens. This financial activity is facilitated by financial markets, in which money and financial instruments are traded, and by financial intermediaries, such as banks and other financial service providers, which facilitate financial transactions. This paper discusses financing foreign trade in a concise and comprehensive way.

Financing Foreign Trade in Ethiopia

Ethiopia, one of Africa's most populous countries, is still failing to win the broad confidence of trade finance and insurance markets, in spite of its good payment record and commitment to an IMF-supported economic reform program that is heavily supported by donors. The country's poverty and bureaucratic financial system dissuade underwriters and banks from operating on any but the most cautious terms.

Gultung (2006) mentions that private Banks are now beginning to appear in a local finance sector formally dominated by the state, but they are still at an early stage of development. The government still seems cautious about foreign investment in strategic sectors. Foreign exchange reserves were in the $700 million to $900 million range for most of last year, but this year they slipped sharply, before settling safely above the $500 million mark.

The business climate in countries such as Angola, Ghana, Nigeria, South Africa, and Libya is relatively positive, whereas the range of social and economic problems in Ethiopia produces an atmosphere where business ethics are secondary to the instinct of base survival. To reiterate, laws, codes, regulations, and minor “norms of behavior” need to be considered in a local setting, each being cross-referenced to norms constructed by the family, the community, and “the state.” This to a larger extent would determine the success or failure on the part of a business on its ability to adjust to Africa's dynamic market (Gultung, 2006).

What Would Your Biggest Concerns Be If You Were Financing Trade With Ethiopia?

If I were conducting financial trade with Ethiopia the biggest concerns would be the human oriented concern because as we figured Ethiopia is ...
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