In simple terms, commercial finance is a term used to describe all the strategies involved when conducting international trade transactions. This process may consist of a number of methods including rapid investments, money management and the use of banking services. The main goal is to use all possible resources in order to provide the best financial solution for buyers and sellers.
This form of trade is the oldest known to man and can be dated back as far as the 3rd millennium BC when the Sumerians traded with the Harappa people. It continued throughout the ages until modern Globalization changed the way in which we trade.
Goals of Commercial Finance
It’s main goal is to use various tools and commerce strategies in order to facilitate trade relations and help create a strong and dynamic “Global Economy”. It is aimed at international job creation and the maximum utilization of resources in order to prevent the scarcity of vital resources anywhere in the world.
Free trade is also an essential tactic used to increase contact and communication between nations so that everyone can co-exist in a peaceful and mutually profitable way.
Important Points of Commercial Finance
Risk and profit: Investors are always looking for a way in which they can make the most of their money with the minimum amount of financial risk. In the capital market, the degree of risk is directly proportional to the profit an investor stands to gain. Although the risk might be high, the rewards are equally as high and the finance market is subsequently volatile.
Decreasing value of money: As time goes by, the rates of commodities are increasing and the value of money is decreasing. In trade finance, the value of goods also needs to be adjusted every so often in order to protect both buyers and sellers against inflation.
Supply and demand: This is a basic commercial finance concept. Basically if the demand for a product is high and the availability (supply) is low, the value of the product will increase. Likewise, if the roles are reversed, the price will decrease.