CE Export Financing & Risk Management Flashcards

What is the purpose of a standby letter of credit in export transactions?

Answer: To serve as a backup payment guarantee if the buyer fails to fulfill contractual obligations

A standby letter of credit is a secondary guarantee that the bank will pay the beneficiary (exporter) if the buyer defaults on the primary obligation.

Which organization provides the Coface Country Risk ratings used by exporters to assess buyer country creditworthiness?

Answer: Coface (Compagnie Française d'Assurance pour le Commerce Extérieur)

Coface is a global credit insurer that publishes country and sector risk assessments used by exporters to evaluate the risk of doing business in specific markets.

What is political risk insurance and which U.S. government agency offers it to American exporters?

Answer: Insurance against losses from government actions in foreign countries, offered by OPIC/DFC

Political risk insurance, offered by the U.S. International Development Finance Corporation (DFC, formerly OPIC), covers expropriation, currency inconvertibility, and political violence.

When a foreign buyer requests extended payment terms of 180 days, what financing technique allows the exporter to receive immediate cash?

Answer: Discounting the trade receivable with a bank

An exporter can discount (sell at a reduced price) a trade receivable to a bank or factor to receive immediate cash while the buyer retains the extended payment period.

What is the key difference between documentary collection (D/C) and a letter of credit (L/C)?

Answer: An L/C provides a bank payment guarantee while D/C relies on the buyer's willingness to pay

A letter of credit commits the bank to pay the exporter upon compliant document presentation, while documentary collection merely routes documents through banks without a payment guarantee.

Which U.S. federal program offers grants and cost-sharing to help small U.S. businesses participate in international trade shows to find export buyers?

Answer: Market Development Cooperator Program (MDCP) / State Trade Expansion Program (STEP)

The State Trade Expansion Program (STEP) provides grants to small businesses to attend foreign trade shows, conduct market research, and develop export marketing materials.