...Export Credit Insurance: A literature review Name: Jordi van Dijk, ANR number: 361473 Course: Finance for Premasters 1 INTRODUCTION 1.1 INTRODUCTION 1.2 RESEARCH QUESTIONS 1.3 INDUSTRIAL REVOLUTION AND INTERNATIONAL TRADE 1.4 RELATION CREDIT INSURERS AND OPEN ACCOUNT TRANSACTIONS 3 3 3 3 4 2 BUSINESS ON OPEN ACCOUNT: WHAT ARE THE REASONS? 2.1 TRADE CREDIT INSTEAD OF BANK LOANS 2.2 TRADE CREDIT AS A SECURITY 2.3 TRADE CREDIT AS A SUBSTITUTE OF BANK LOANS 4 4 4 5 3 THE RISE OF EXPORT CREDIT INSURANCE 3.1 UNITED KINGDOM INITIATOR OF EXPORT CREDIT INSURANCE 3.2 HISTORY OF EXPORT CREDIT INSURANCE IN THE U.S. 3.3 THE RISE OF PRIVATE CREDIT INSURERS 5 5 6 7 4 CREDIT INSURANCE AND OTHER CREDIT RISK MITIGATION TECHNIQUES 4.1 AVAILABLE COVERAGE’S IN THE CREDIT INSURANCE MARKET OF THE NETHERLANDS 4.1.1 Commercial risk 4.1.2 Political risk 4.1.3 Fabrications risk 4.2 INTRODUCTION OTHER TECHNIQUES TO MITIGATE CREDIT RISKS 4.2.1 Letters of ...
Words: 6782 - Pages: 28
...INSURANCE: AN INTRODUCTION Insurance may be described as a social device to reduce or eliminate risks of loss to life and properly. It is a provision which a prudent man makes against inevitable contingencies, loss or misfortune. Once Frank H. Knight said "Risk is uncertainty and uncertainty is one of the fundamental facts of life." Insurance is the modern method by which men make the uncertain certain and the unequal; equal. It is the means by which success is almost guaranteed. Through its operation- the strong contribute to the support of the weak and weak secure, not by favor sent by right duly purchased and paid for, the support of the strong (Calvin Coolidge.) Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. As in private life, in business also there are dangers and risks of different kinds. The aim of all types of insurance is to make provision against such dangers. The risks which can be insured against include fire, the perils of sea (marine insurance), death (life insurance) and, accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus, collective bearing of risks is insurance. Definition Insurance in its basic form is defined as “ A contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money...
Words: 5286 - Pages: 22
...MCMXXIV Export-Import Bank of the United States 1998 Annual Report C H A I R M A N ’ S L E T T E R s the Export-Import Bank of the United States (Ex-Im Bank) enters its 65th anniversary year, it faces more challenges than perhaps at any other time in its history. These chal lenges are related to the economic turmoil experienced in developing mar kets such as Asia and Russia during the past year. I am proud that Ex-Im Bank responded quickly and effec tively to the economic downturn that continues to threaten the growth and prosperity of much of the developing world. It was a difficult year for Ex-Im Bank, U.S. exporters, and their customers, but by working together, we were able to maintain vital export flows. A Expertise and Innovative Programs During the past 65 years, Ex-Im Bank has been recognized for its expertise in helping U.S. businesses compete against tough for eign competition in the developing world. Our ability to manage the political and com mercial risks associated with international trade in emerging markets helped meet the need for export financing in the markets affected by world economic difficulties in 1998. For example, Ex-Im Bank initiated export credit programs for Korea, Thailand, and Indonesia. We estimate that the shortand medium-term portion of the Korean program alone will result in approximately $3 billion in exports of U.S. goods and ser vices over a two-year period — U.S. exports that would not have been sold without...
Words: 8141 - Pages: 33
...6.0 INTERNATIONAL TRADE FINANCE Learning Objectives: At the end of the subject coverage learners should be able to: • Explain the ways in which international trade is undertaken, settled and financed; • Identify the types of customers engaged in international trade and their needs; • Explain the features and benefits of services provided by banks and other financial institutions in facilitating international trade; • Explain international payment systems and regulations that are in place and the procedures adopted. CONTENTS 1. Introduction to International Trade Finance • The meaning of international trade. • Major parties in international trade. • Reasons for international trade. • Advantages of international trade. • International trade barriers. • The role of banks and financial institutions in international trade. 2. The Foreign Exchange Market • The meaning of foreign exchange market. • Participants in the foreign exchange market. • Functions of foreign exchange market. • The mechanism of foreign exchange transfer. • Relationship between foreign exchange market and money market. • Systems and procedures for inter bank foreign exchange trading. 3. Exchange Rates • Definition of exchange rate. ...
Words: 1327 - Pages: 6
...Learn how international trade alters both the supply chain and general value chain of the domestic firm, thereby beginning the globalization process in the trade phase. ◆ Consider what the key elements of an import or export transaction are in business. ◆ Discover how the three key documents in import/export, the letter of credit, the draft, and the bill of lading, combine to both finance the transaction and to manage its risks. ◆ Identify what the documentation sequence is for a typical international trade transaction. ◆ Learn how the various stages and their costs impact the ability of an exporter to enter a foreign market and potentially compete in both credit terms and pricing. ◆ See what organizations and resources are available for exporters to aid in managing trade risk and financing. ◆ Examine the various trade financing alternatives. The purpose of this chapter is to explain how international trade, exports and imports, is financed. The contents are of direct practical relevance to both domestic firms that just import and export and to multinational firms that trade with related and unrelated entities. The chapter begins by explaining the types of trade relationships that exist. Next, we explain the trade dilemma: exporters want to be paid before they export and importers do not want to pay until they receive the goods. The next section explains the benefits of the current international trade protocols. This is followed by a section describing the elements of a trade transaction...
Words: 14018 - Pages: 57
...Import Export Pakistan Legislation Terms and Definition Posted on June 19, 2008 by Imran [pic][pic][pic] Bill of Lading for Import Export Pakistan A bill of lading (also referred to as a BOL or B/L) is a document issued by a carrier , e.g. a ship’s master or by a company’s shipping department, acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified. Care (Customers Administrative) for Import Export Pakistan Care stands for Customs Administrative Reforms and it is a project of the Central Board of Revenue overseeing reforms in Pakistan Customs. The project was initiated in February 2002. Since its inception CARE has carried out research and development work to enhance the efficiency of the department. Cost and Freight (CFR) for Import Export Pakistan Cost and Freight (CFR) means that the seller pays for transportation to the Port of Loading (POL), loading and freight . The buyer pays for the insurance and transportation of the goods from the Port of Discharge (POD) to his factory . The passing of risk occurs when the goods pass the ship ’s rail at the port of shipment which means that this term cannot be used for airfreight or land transport and also is inappropriate for most containerised sea shipments. Cost, Insurance and Freight (CIF) for Import Export Pakistan Cost, Insurance and Freight (CIF) is a common term in a sales contract that may be encountered in international...
Words: 7147 - Pages: 29
...develop Malaysian exports by providing insurance cover against certain types of risk in relation to international trade and giving guarantee in support of Malaysian exports. The following are the insurance policies that provided by MECIB to insure the international trade between exporters and importers. Types of risks covered 1) Commercial or credit/ buyer risks - For example, buyer’s insolvency, buyer’s payment default and a general unwillingness of the buyer to pay or accept goods which have already been shipped/ delivered which is not due to quality dispute. 2) Non-commercial - Transfer or economic and political risks. For example, blockage or delay in the transfer of payment/ remittance, imposition of import restrictions in the buyer country after the goods have been shipped/ delivered, cancellation or non-renewal of export license, war between buyer’s country and Malaysia, revolution and other disturbances in the buyer’s country, default by the government and other causes of loss outside Malaysia beyond the exporter’s and buyer’s control. Insurance Policies Comprehensive Policy (Shipments) - A comprehensive shipment policy will cover exports which have been wholly or partly manufactured in Malaysia. Shipments will be covered irrespective of whether the payment terms are on an open account basis, a collection or letter of credit. This policy covers non-payment resulting from commercial/ country risks in respect of goods and commodities exported on credit terms of not more...
Words: 675 - Pages: 3
...Risk and Insurance in International Trade AMB 302 ACeL Amity University Risk refers to a situation where outcome are uncertain. In other words risk occurs whenever there is a variation in the actual outcome and expected value. In Business if there is a variation between the actual and the expected value, business suffers a loss, therefore the term risk is also used to describe the expected losses or the variation from the actual outcome. Course Objectives: The course aims at making the students conversant with risk of cross border business (Trade, Investments and Long Term Projects) and the techniques available for mitigating those risks. The role of Insurers and the products and services offered by them would be gone in detail to equip the students with decisions making tools. Learning Outcomes: At the end of the course, the student will be able to: understand the concept of risk in business management learn various techniques available to assess and mitigate those risks develop strategic alternatives evaluate different kinds of risks and their impact on different areas Table of Contents Course Objectives: ........................................................................................................................................ 2 Learning Outcomes: ...................................................................................................................................... 2 Chapter 1: Concept of Risk ................................
Words: 11816 - Pages: 48
...harsh to say they don’t trust one another, each has perfectly valid reasons for being very cautious in dealing with the other. Because of the distance between the two, it is not possible to simultaneously hand over goods with one hand and accept payment with the other. 2. Basic documents of trade. What are the three basic documents used in trade with unrelated parties? The fundamental dilemma of being unwilling to trust a stranger in a foreign land is solved by using a highly respected bank as intermediary. A greatly simplified view is described in Exhibit 23.3. In this simplified view, the importer obtains the bank’s promise to pay on its behalf, knowing that the exporter will trust the bank. The bank’s promise to pay is called a letter of credit. The exporter ships the merchandise to the importer’s country. Title to the merchandise is given to the bank on a document called an order bill of lading. The exporter ask the bank to pay for the...
Words: 5877 - Pages: 24
...Homework Ch.16 1. Exporter should hire an experienced export consultant to help identify opportunities and navigate the paperwork and regulations. Also, it often makes sense to initially focus on one market and to enter a foreign market on a small scale to reduce the cost of any subsequent failure. Exporter needs to recognize the time and commitment involved in building exports sales and should hire additional personnel to oversee this activity. And the last, it is important to devote a lot of attention to building strong and enduring relationships with local distributors and customers. 3. For Machine tools from New York to Ukraine I would rather use export credit insurance because it provides coverage against political risks in the countries. To export yacht from California to Canada I can just use a letter of credit for exporting. In the U.S., export credit insurance is provided by the Foreign Credit Insurance Association (FICA). FICA provides coverage against commercial risks and political risks. A letter of credit stands at the center of international commercial transactions. Issued by a bank at the request of an importer, the letter of credit states the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. 4. There can be several reasons for a nation to choose counter trade over cash import and exports. Some of them are: Money: sometime the shortage of cash resources leads nation towards...
Words: 414 - Pages: 2
...international trade—exports and imports—is financed. The contents are of direct practical relevance to both domestic firms that merely import and export and to multinational firms that trade with related and unrelated entities. The chapter begins by explaining the types of trade relationships that exist. Next we explain the trade dilemma: exporters want to be paid before they export and importers do not want to pay until they receive the goods. The next section explains the benefits of the current international trade protocols. This discussion is followed by a section describing the elements of a trade transaction and the various documents that are used to facilitate the trade’s completion and financing. The next section identifies international trade risks; namely, currency risk and noncompletion risk. The following sections describe the key trade documents, including letters of credit, drafts, and bills of lading. The next section summarizes the documentation of a typical trade transaction. This section is followed by a description of government programs to help finance exports, including export credit insurance and specialized banks such as the Export-Import Bank of the United States. Next, we compare the various types of short-term receivables financing and then the use of forfaiting and countertrade for longer term transactions. The mini-case at the end of the chapter, “Crosswell International’s Precious Ultra-Thin Diapers,” illustrates how an export requires the integration...
Words: 15834 - Pages: 64
...Guide to International Trade Supporting your global ambitions Contents Foreword Section 1: Section 2: Section 3: RBS: Supporting your business Research insights Overview to trade International trade explained A guide to transportation A guide to trade documentation A guide to payment methods A guide to bonds and guarantees A guide to foreign exchange What the experts say Overcoming the barriers to foreign trade – top tips from RBS UK Trade & Investment (UKTI) – why businesses should look to export British Chambers of Commerce – finding new markets British Exporters Association Key contacts Supporting your international trade ambitions, whatever your business Index 1 3 7 13 14 19 22 28 32 34 37 39 42 45 48 51 52 55 Section 4: Section 5: Section 6: Foreword The current economic environment has certainly presented UK businesses with some challenges, but it has also offered immense opportunity as well. The appeal of overseas markets has never been greater and, for British companies looking to buy or sell outside the UK, now is undoubtedly the time to explore that opportunity. That’s why I’m delighted to share this Guide to International Trade with you. It contains a wealth of useful information about how to trade internationally, including insights into research we have conducted among UK businesses, and informative articles from prominent trade bodies such as UK Trade & Investment, the British Chambers of Commerce and the British Exporters Association. Our recent...
Words: 15736 - Pages: 63
...Growth of International Trade & its Financing in Bangladesh (This dissertation has been submitted for the partial fulfillment of the 6th term MBM Program) SUBMITTED BY: Mukti Chakraborty MBM 10th Batch Roll No. 100616 SUBMITTED TO: MBM PROGRAM OFFICE CENTER FOR POST GRADUATE STUDIES (CPGS) BANGLADESH INSTITUTE OF BANK MANAGEMENT MIRPUR-2, DHAKA-1216. January, 2008 Acknowledgement At the beginning, I would like to express my sincere gratitude to the God most merciful and beneficiary for empowering me conduct the report within scheduled time. I would like to express my profound gratitude and wholehearted respect to my research Guide Dr. Toufic Ahmad Choudhury, Professor and Director, Center for Post Graduate Studies (CPGS), BIBM, Dhaka for his inspiring guidelines, valuable suggestions, constructive criticism and constant help throughout the research work and in preparation this report. I am deeply indebted to Dr. Bandana Saha, Professor and Director (Research, Development and Consultancy) and Dr. A.S.M. Ahsan Habib, Associate Professor of BIBM, Dhaka to allow me to work on my desired dissertation topic and their consistent valuable suggestion, active inspiration and constant help to construct and illustrate this work. Indeed I am grateful to all faculty members of BIBM from whom I was inspired and supported in various ways during the research and at the time of study. I am also indebted to the entire library officers and staffs of BIBM...
Words: 21075 - Pages: 85
...methods are, and be prepared to make some adjustments and/or changes to the product to cater to the target market they are entering. Some of the challenges involved with exporting are advantages and disadvantages. It is up to the firm to decide which outweighs the other before moving forward with the decision. Advantages include the ability to diversify the client base and create new opportunities for sales. When a firm becomes saturated in their current market, they might hit a plateau. One of the ways around that is to go to a new market. There is an increase in sales and profits by selling goods and services to a market the company never had before boost sales and increases revenues. In addition, foreign sales over the long term, once export development costs have been covered, can increase overall profitability. Firms can also benefit with lower costs per unit. The foreign market will allow the firm to expand production to meet the new demand. The increase in production can offer lower cost per unit and lead to greater use of existing capacities. A firm can also experience a potential company expansion. Firms who venture into the exporting business usually have to have a presence or representation in the foreign market. This might require additional personnel which would lead to an...
Words: 1411 - Pages: 6
...party to a transaction • Discuss the importance of export credit agencies and international financial institutions in international trade • Describe the importance of adequate planning relative to the financial aspects of international trade 10/20/2015 TF 1-2 An Introduction to Trade Finance The bottom line of global business Dollars and cents of import and export • Some complexity in arranging payment cross-border, while assuring delivery of goods as agreed • Evolution: partly technology, partly changing global practices • Effective financing solutions key to competitiveness and profitability • Due diligence • Gradual shift from paper-based to Internet-based efinance • Financing timelines: Short term—up to 2 years Medium term—2 to 7 years Long term—7+ years, extending 15-20 years TF Ch 1-4 The four pillars of trade finance 1. Payment 2. Risk Mitigation 3. Financing 4. Information TF Ch 1-5 A business of relationships • Domestic vs. international business lines/entities: • Banking and financial institutions • Arrange and manage as separate units or as an integrated whole Single/primary provider of financial services (including trade finance), or multiple relationships? Each has advantages Solid relationships are a key lifeline of the business TF Ch 1-6 Financing needs by segment...
Words: 872 - Pages: 4
