CE CE Export Financing & Risk Management 2 — Questions and Answers
Question 1: What is 'country risk' in the context of export financing?
- The probability of financial loss due to political or economic instability in the buyer's country (Correct answer)
- The cost of shipping to distant markets
- The tariff rate applied by the importing country
- The exchange rate between two countries
Correct answer: The probability of financial loss due to political or economic instability in the buyer's country
Country risk encompasses political instability, currency inconvertibility, war, and government actions in the buyer's country that may prevent payment.
Question 2: Which SBA program provides loan guarantees specifically to small businesses seeking to export goods or services?
- SBA Export Working Capital Program (Correct answer)
- SBA 7(a) Standard Loan
- SBA Disaster Loan Program
- SBA Microloan Program
Correct answer: SBA Export Working Capital Program
The SBA Export Working Capital Program guarantees up to 90% of loans for export-related working capital, helping small businesses finance export transactions.
Question 3: What is forfaiting in international trade finance?
- The purchase of medium-term receivables from exporters at a discount on a non-recourse basis (Correct answer)
- Abandoning an export shipment at the border
- A penalty for late delivery
- Forfeiting export rights to a licensee
Correct answer: The purchase of medium-term receivables from exporters at a discount on a non-recourse basis
Forfaiting involves a financial institution purchasing export receivables at a discount without recourse to the exporter, transferring all risk to the forfaiter.
Question 4: Which payment term carries the MOST risk for the U.S. exporter?
- Open account (Correct answer)
- Cash in advance
- Confirmed letter of credit
- Documentary collection (D/P)
Correct answer: Open account
Open account terms mean the exporter ships goods before receiving payment, bearing all credit risk if the buyer fails to pay.
Question 5: What does 'recourse' mean in export factoring?
- The factor can return unpaid receivables to the exporter if the buyer defaults (Correct answer)
- The exporter can cancel the sale after shipping
- The buyer has the right to return defective goods
- The bank can seize the exporter's assets
Correct answer: The factor can return unpaid receivables to the exporter if the buyer defaults
In recourse factoring, if the buyer doesn't pay, the factor can demand the exporter repurchase the receivable, leaving credit risk with the exporter.
Question 6: Which EXIM Bank product is best suited for a small U.S. exporter needing to cover a single large export transaction against buyer default?
- Single-buyer export credit insurance (Correct answer)
- Multi-buyer umbrella policy
- Working capital loan guarantee
- Direct loan to foreign buyer
Correct answer: Single-buyer export credit insurance
Single-buyer export credit insurance from EXIM Bank covers a specific transaction with one overseas buyer, protecting against commercial and political risks.
CE CE Export Financing & Risk Management 2
What is 'country risk' in the context of export financing?