Trade Finance in a Liquidity Crisis

The paper discusses the reasons for supporting international trade finance during a liquidity crisis. Targeted interventions are justified when prices are rigid and sellers insist on immediate payment due to fears of strategic default. In this case...

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Bibliographic Details
Main Authors:	Ellingsen, Tore, Vlachos, Jonas
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ADVANCED ECONOMIES ALTERNATIVE SOURCES OF FUNDING ALTERNATIVE USE ARBITRAGE ASYMMETRIC INFORMATION BALANCE SHEET BANK CREDIT BANK LENDING BANKS BOND BOND MARKETS BORROWER BORROWING BORROWING COST BUSINESS RISK COLLATERAL COMMERCIAL TRANSACTIONS COMPARATIVE ADVANTAGE CONTRACT ENFORCEMENT CORPORATE FINANCE COST OF FUNDS CREDIT CONSTRAINTS CREDIT CONTRACT CREDIT CRUNCH CREDIT EXTENSION CREDIT FACILITIES CREDIT FACILITY CREDIT MARKET CREDIT MARKETS CREDIT POLICIES CREDIT PROVISION CREDIT SUBSIDIES CREDIT WORTHINESS CREDITWORTHINESS CULTURAL BIASES DEBT DEFLATION DOMESTIC BANK DOMESTIC SUPPORT DURABLE DURABLE GOOD DURABLE GOODS ECONOMIC ACTIVITY ECONOMIC CRISIS ECONOMIC INTEGRATION ECONOMIC OUTLOOK ECONOMICS LITERATURE EQUITY MARKET EXCHANGE RATE EXPECTED RETURN EXPORT MARKET EXPORTER EXPORTERS EXPORTS EXTENSION OF CREDIT FINANCIAL CRISES FINANCIAL DEVELOPMENT FINANCIAL MARKETS FOREIGN BANK FOREIGN BUYER FOREIGN BUYERS FOREIGN DIRECT INVESTMENT GOVERNMENT GUARANTEES GOVERNMENT INTERVENTIONS HOLDING HOST COUNTRY ILLIQUID ASSETS INDUSTRIALIZED COUNTRIES INFORMATIONAL ASYMMETRIES INPUT PRICES INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL TRADE INTERNATIONAL TRANSACTIONS INVESTMENT STRATEGIES LDCS LENDERS LETTERS OF CREDIT LIBERALIZATIONS LIQUIDITY LIQUIDITY CONSTRAINTS LIQUIDITY CRISES LIQUIDITY CRISIS LOAN MARKET INTEREST MARKET INTEREST RATES MORAL HAZARD MULTINATIONAL MULTINATIONAL COMPANIES MULTINATIONALS OPPORTUNITY COST OPTIMAL INTERVENTION OUTPUT OUTSTANDING CREDIT PERISHABLE GOODS PLEDGES POLICY RESEARCH PRICE DISCRIMINATION PRODUCTION COSTS RECESSION RESERVES RETURN RETURN ON INVESTMENTS RETURNS SOCIAL NETWORKS SOCIAL VALUE SUPPLY CHAIN SUPPLY CHAINS TAX TECHNOLOGY TRANSFER TERM CREDIT TRADE CREDIT TRADE FINANCE TRADE FINANCING TRADING TRANSACTION TRANSITION COUNTRIES UNIFORM PRICE VALUATIONS WORLD ECONOMY WORLD TRADE
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20091118121945 http://hdl.handle.net/10986/4328

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Summary:	The paper discusses the reasons for supporting international trade finance during a liquidity crisis. Targeted interventions are justified when prices are rigid and sellers insist on immediate payment due to fears of strategic default. In this case, buyers who reject the seller's offer fail to internalize the seller's benefit from additional liquidity. A general infusion of credit will not facilitate the beneficial transaction, but an infusion targeted at the buyer's bank's trade finance supply will do so. Since there is a need for interventions in one country to benefit actors in another, international coordination is called for.

Trade Finance in a Liquidity Crisis

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