In a typical commodity trade transaction, a buyer may not wish to, or cannot, pay for the goods purchased from a seller until after the same goods have been resold to an ultimate purchaser. In this situation, the buyer may consider obtaining an import loan from a financial institution against a trust receipt, also known as a trust receipt loan.
A pledge and trust receipt form is therefore a classic trade finance instrument for a financial institution to release documents of title to the goods to the buyer exclusively for the purpose of taking delivery of and reselling the goods in order to use the sales proceeds to repay the loan. But how exactly are financial institutions' interests protected when goods are released to their customers for such purpose?
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