CES Trade Finance & Payment Methods Flashcards

What is the primary purpose of a standby letter of credit in international trade?

Answer: To serve as a payment guarantee if the buyer defaults

A standby LC acts as a backup payment guarantee — it is drawn upon only if the buyer fails to fulfill their contractual payment obligation.

Under a D/P (Documents against Payment) documentary collection, when does the buyer receive title documents?

Answer: Only after making immediate payment to the collecting bank

In a D/P collection, the collecting bank releases shipping documents — including the bill of lading — to the buyer only after they pay immediately.

Which financing option allows a US exporter to receive immediate cash by selling their foreign accounts receivable to a third party?

Answer: Export factoring

Export factoring involves selling foreign receivables to a factor at a discount, providing the exporter with immediate liquidity.

What does 'forfaiting' refer to in export finance?

Answer: Purchasing medium- to long-term receivables at a discount without recourse

Forfaiting is the purchase of medium- to long-term export receivables (often guaranteed by an aval) at a discount on a non-recourse basis.

Which US government program provides working capital loan guarantees to small and medium-sized exporters to help finance export transactions?

Answer: EXIM Bank Working Capital Guarantee Program

The EXIM Bank Working Capital Guarantee Program guarantees lender loans so US exporters can obtain the working capital needed to fulfill export orders.

In international trade, what is 'political risk' as it applies to export credit insurance?

Answer: Risk of non-payment due to war, expropriation, or currency transfer restrictions in the buyer's country

Political risk in export credit insurance covers losses caused by government actions such as war, expropriation, or blocked currency transfers that prevent payment.