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JP Morgan’s New Derivatives for Trade Finance | Banking Insight

BEIJING, CHINA - SEPTEMBER 22:  Chinese Premie...

BEIJING, CHINA - SEPTEMBER 22: Chinese Premier Wen Jiabao greets a China-India Exchange Delegation at the Great Hall of the People on September 22, 2011 in Beijing, China.(Image credit: Getty Images via @daylife)

Trade Finance could be a new money spinner for banks as the business volumes of traditional products keep growing at more than 30%. For example China’s import bill alone is $150 bln in a single month and that for a much lesser active India $40 bln. Similarily, exports from China make $150-$160 bln and and India a $25 bln every month. US and Europe , the former growing, and the latter reducing its global trade have historically managed a monthly global trade of a order of magnitude higher.

Trade Finance relies on a bank for each part of the trade transaction and both supp,liers and buyers need access to credit and FX terms in $ trillions of deal value even when business is conducted in local currency as China now prefers to increase the substantive trunk of each tree in this wildly growing forest that deludes urbanisation of the globe. India’s trade volume will grow to $1 Tln, China to $4 tln in the next 10-15 years and banks like HSBC, SCB and maybe the new china banks in Middle East and Latin America will get most of this business. HSBC’s global Trade finance report suggests the business pressure on Financing to scome from an increase in the order of magnitude in Global wholesale trade thru Asia, MENA (Middle East and North Africa) and of course US stands tallw ith a $5 bln in global trade even now and will remain an important strategic partner for everyone.

JP Morgan’s new derivatives for the Trade business thus at once shore up Trade finance business volumes from Europe and US while giving the participating banks extra power in garnering a business share of the global segment as global corporations increasingly rely on centralised Treasury operations for both payroll and trade finance obligation in the growing Transaction banking mandates for Asia and Europe

As the Bankwatch puts it, the Traditional channels of Trade Finance may hit Basel 3 limits sooner as interbank lending as a channel is blocked by new regulation while Institutional investors and the “on watch” shadow banking majors be able to monetise their interest in global trade directly thru the use of these new Trade finance swaps and other derivatives as Global Trade is likely to be worth $20 tln from $10 tln now in just the major economies and even emerging economies increase a global trade base denomination of a larger order of magnitude esp in years when resource trade grows in non Oil businesses.



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