01698cas a2200241 a 4500 AALejournalIMF011389 230101c9999 xx r poo 0 0eng d 5.00 USD 9781463924607 1018-5941 BD-DhAAL BD-DhAAL Ahn, JaeBin. A Theory of Domestic and International Trade Finance / JaeBin Ahn. Washington, D.C. : International Monetary Fund, 2011. 1 online resource (35 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper provides a theory model of trade finance to explain the "great trade collapse." The model shows that, first, the riskiness of international transactions rises relative to domestic transactions during economic downturns, and second, the exclusive use of a letter of credit in international transactions exacerbates a collapse in trade during a financial crisis. The basic model considers banks' optimal screening decisions in the presence of counterparty default risks. In equilibrium, banks will maintain a higher precision screening test for domestic firms and a lower precision screening test for foreign firms, which constitutes the main mechanism of the model. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2011/262 Full text available on IMF http://elibrary.imf.org/view/journals/001/2011/262/001.2011.issue-262-en.xml IMF e-Library