Structured Trade & Commodity Finance
Encyclopedia
International financial transactions
are based upon several financing philosophies, whose application is affected by the course of economic growth
and development
within an individual national economy. This is inter alia demonstrated and evidenced by the evolution of the financing technique known as International Structured Trade & Commodity Finance (“STCF”).
STCF is “…cross-border trade]] finance in emerging markets
where the intention is to get repaid by the liquidation
of a flow of commodities.”
In order to better understand the various STCF financing constructions and techniques, which are to be found with greater frequency in actual financing situations, a STCF modular system can be used. The STCF modular system consists in several levels, which identify the typical stages of each STCF transaction: a pre-export financing, a warehouse
and transport
financing, a tolling financing and an accounts receivables financing.
When considering a STCF financing technique, in addition to defining and categorizing the commodity
type and its trading practices, a detailed analysis of the specific risks involved, including the allocation of risk and the mitigation and avoidance of such risk, as these risks might be specifically applicable and appropriate to STCF financing techniques and transactions
, shall be considered.
The concentration on all aspects of risk leads to the specific STCF relevant risk themes, such as performance risk analysis, commodity hedging as well as collateral evaluation, assessment and development of an appropriate risk early warning system.
STCF transactions still represent a thoroughly unexplored sphere in the given literature, although they occur very often in practice.
International finance
International finance is the branch of economics that studies the dynamics of exchange rates, foreign investment, global financial system, and how these affect international trade. It also studies international projects, international investments and capital flows, and trade deficits. It includes...
are based upon several financing philosophies, whose application is affected by the course of economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
and development
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
within an individual national economy. This is inter alia demonstrated and evidenced by the evolution of the financing technique known as International Structured Trade & Commodity Finance (“STCF”).
STCF is “…cross-border trade]] finance in emerging markets
Emerging markets
Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. Based on data from 2006, there are around 28 emerging markets in the world . The economies of China and India are considered to be the largest...
where the intention is to get repaid by the liquidation
Liquidation
In law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...
of a flow of commodities.”
In order to better understand the various STCF financing constructions and techniques, which are to be found with greater frequency in actual financing situations, a STCF modular system can be used. The STCF modular system consists in several levels, which identify the typical stages of each STCF transaction: a pre-export financing, a warehouse
Warehouse
A warehouse is a commercial building for storage of goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial areas of cities and towns. They usually have loading docks to load and unload...
and transport
Transport
Transport or transportation is the movement of people, cattle, animals and goods from one location to another. Modes of transport include air, rail, road, water, cable, pipeline, and space. The field can be divided into infrastructure, vehicles, and operations...
financing, a tolling financing and an accounts receivables financing.
When considering a STCF financing technique, in addition to defining and categorizing the commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
type and its trading practices, a detailed analysis of the specific risks involved, including the allocation of risk and the mitigation and avoidance of such risk, as these risks might be specifically applicable and appropriate to STCF financing techniques and transactions
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
, shall be considered.
The concentration on all aspects of risk leads to the specific STCF relevant risk themes, such as performance risk analysis, commodity hedging as well as collateral evaluation, assessment and development of an appropriate risk early warning system.
STCF transactions still represent a thoroughly unexplored sphere in the given literature, although they occur very often in practice.