Questions and Answers
Which of the following risks is classified as a commercial risk in export credit insurance?
What does the co-insurance ratio indicate regarding export credit insurance?
Which service is NOT typically provided by an export credit insurer?
What could happen if an importer refuses to accept or take delivery of goods?
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In the context of export credit insurance, what type of risk is primarily associated with bankruptcy of the foreign importer?
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What does open account trade primarily rely on?
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In open account transactions, what is the primary obligation of the buyer?
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Which aspect distinguishes open account trade from cash in advance transactions?
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What is the primary role of export credit agencies (ECAs)?
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What role do finance providers play in supply chain finance (SCF) transactions?
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How do ECAs assist companies in international trade?
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Which of the following best describes the parties involved in supply chain finance (SCF)?
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What types of services do export credit agencies typically provide?
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What characterizes the techniques of supply chain finance?
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Why are ECAs considered important in international trade?
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Which of the following represents a fundamental characteristic of open account trade?
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What aspect of international trade do ECAs help companies to manage?
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Why might trading on open account terms be favored over cash in advance?
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In what way can ECAs contribute to corporate social responsibility?
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What is one of the critical resources provided by ECAs for companies?
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What is the relationship between goods and services traded between countries called?
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What percentage of total claims does the insurer pay in a 90 percent co-insurance policy?
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What is the primary purpose of a deductible in insurance policies?
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What portion of loss does the exporter absorb under a 90 percent co-insurance policy?
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In what circumstance would an exporter typically need to issue letters of guarantee?
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Which of the following best describes the term 'wrongful call insurance'?
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What is required by banks to secure their position when exporters seek financing?
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How does the export guarantee program offered by ECAs benefit exporters?
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What does wrongful call insurance protect against?
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What is one major area that export credit agencies (ECAs) support regarding international business activity?
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What is one effect of ECAs' guarantees on exporters' cash flow?
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For how long can foreign investment insurance typically be secured through ECAs?
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Which of the following is NOT a benefit of the export guarantee program?
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What risk does foreign investment insurance cover?
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Study Notes
Importance of Export Credit Agencies (ECAs)
- ECAs are government agencies aimed at promoting exports by providing financial support.
- They help mitigate commercial risks, making international trade more attractive to businesses.
- Offer financing options, various types of risk insurance, and guarantees for exporters.
- Significant resources for market intelligence on countries and industries, enhancing strategic decision-making.
Export Promotion and International Trade
- Exports involve goods and services produced in one country and sold to buyers in another.
- International trade comprises both exports and imports, encompassing a wide range of financing techniques and risk management strategies.
- Open account trade occurs when sellers and buyers complete transactions without banking instruments; payment terms depend on invoices.
Supply Chain Finance (SCF)
- SCF involves collaboration between buyers and sellers to optimize cash flow along the supply chain.
- Risks covered by export credit insurance include political and commercial risks, and the co-insurance ratio between insurer and insured is a key factor.
- Specific factors to consider in export credit insurance include risks covered, insurer services, and deductible amounts.
Risks Covered by Export Insurance Policies
- Commercial Risks: Include importer insolvency, contractual defaults, and refusal to accept goods.
- Insurers typically cover significant portions of claims, such as 90% in a co-insurance arrangement, with the exporter absorbing some loss.
ECA Products and Services
- Guarantees: Banks often require 100% collateral from exporters; ECAs provide guarantees that reduce this burden, enabling increased international contracts and better cash flow management.
- Wrongful Call Insurance: Protects exporters from unsubstantiated calls on letters of guarantee by clients, ensuring financial security against arbitrary actions.
Foreign Direct Investment Insurance
- ECAs support foreign investments, providing insurance for risks like war, expropriation, and nationalization for terms up to 15 years or more.
- This insurance is critical for reducing risks associated with international business activities and investments.
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Description
This quiz explores the holistic concept of finance, focusing on established and evolving techniques for managing risk. It specifically highlights the open account trade system, where transactions are executed without banking support. Test your knowledge on these important financial mechanisms.