The trade finance terms inter-bank market, and parallel market are of added meaning to every regular importer of goods and services. What really is parallel market? How does the parallel market work? How does the parallel market benefit your importation business? In this article, I will be discussing how the parallel market can help you speed up things in international logistics trading.
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WHAT IS TRADE FINANCE?
As regards international trade, various institutions may come in the way of mediating for payment of goods. such institutions as the importer’s commercial bank, the exporter’s commercial bank, other financial institutions, mediate payments. The primary purpose of involvement of these institutions is that of risks reduction or mitigation. Therefore, the seller of goods is wants to make sure of payment on the items sold. Similarly, the importer of such commodity wants to be sure of paying exact amount.
In the Nigerian trading space, the options usually listed for trade finance are as follow:
A BILL FOR COLLECTION
This is useful trade finance where the exporter willingly dispatches goods based on an agreed credit period to the importer. Bill for Collection pay option, requires that applicable shipping documents be sent by the exporter to the importer through a bank. The exporter’s bank forwards documents and a collection order to the importer’s bank for release to the importer against acceptance of the bill of exchange.
An advance payment, mostly called advance, is the part of the transaction cost, which is paid or in in view for goods or services, with the balance to follow delivery of such goods and services. Therefore, clear agreement is needed as to how this balance could be remitted.
Not-Valid-for-Forex option does not permit funds sourcing from the bank. As a result, the importer uses his domiciliary accounts to pay for such transactions.
TRADE FINANCE AND THE PARALLEL MARKET
Sometimes, the importer does not want to go through the rigors involved in trade finance arrangement. Some other time, it may be that time constrain is the sole determinant of importation speed. Or the item of import is clearly banned from any form of inter-bank foreign exchange like the 41 items in Nigeria. Read Also: HOW TO PAY FOR YOUR IMPORTS TO NIGERIA. If these conditions are the case, then the parallel market or black market becomes a good option.
WHAT IS THE PARALLEL MARKET?
Some call it parallel market. Others call it black market. Yet, others use terms like hidden market or grey market etc.. While some people see it as illegal trading of currency and articles, parallel market is not completely illegal. In some growing economies, it is a good source of funds for foreign trade. In Nigeria for example, the economy is oil dependent, and fluctuates regularly. Even more, high rate of inflation also makes the black market popular.
Furthermore, parallel market is that semi-legal and unofficial market in currency or goods. Approach those men at the ports and buy the currency of interest, and consequently facilitate trade.