Free Online Course in International Business

Knowledge Statement

Knowledge of Mitigating Techniques: Credit Risk Insurance

Activities

Task 1

Visit the Ex-Im Bank and SBA website. Evaluate the current mitigating techniques available to US exporters. Discuss the options and determine the best option for each of the following circumstances:

1.                     You are a small US company that assembles products made from imported materials.

2.                     You are a large US company that has been involved in the export market for 15 years. You have just received a US$30 million order from new customer in Singapore. The order needs to ship in nine months.

3.                     You are a medium-sized foreign company with offices located in the US. You have just received an order for your US products from your long-time customer in Germany. You require working capital to produce the products

Task 2

Visit the exim.gov website and

1.                     check the country limitation schedule.

2.                     download an application form for the appropriate export credit insurance cover.

Assessment

1.                     A common technique to avoid payment risk is to

a.      complete a thorough credit check on new customers.

b.      request bank support for customers.

c.       sell to customers where credit risk insurance is available.

d.      insist that customers wire funds in advance of shipment.

2.                     The decision as to when to utilize techniques to mitigate payment risk is

a.      determined by the contract signed by the importer.

b.      determined by the exporter’s desire to reduce its risk.

c.       determined by the exporter’s country law.

d.      provided by the sales department who know their customers.

3.                     A common technique of transference of payment risk is

a.      countertrade.

b.      purchasing credit insurance.

c.       forfaiting the receivable.

d.      requiring a letter of credit.

4.                     Credit insurance can be purchased from

a.      Ex-Im Bank.

b.      the SBA.

c.       local banks.

d.      the Chamber of Commerce.

(Correct answers: 1=d, 2=b, 3=c, 4=a.)