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Export Credit Agency Essay

720 words - 3 pages

SPECIALIZED BANKING BUSINESSESAssignmentCase study: EXPORT FINANCEStudent: TRAN LE THUClass: MMBF2Student's number: 20130217Email address: lethu.tran144@gmail.comQuestion 1 (Written assignment for T to Z): What is your opinion on the "export credit agencies" (ECA). To what extent do you agree with the contents of the reading "Globalization's most perverse secret: the role of export credit and investment insurance agencies".Ha Noi - September 2014ANSWERIn my opinion, ECAs are major players in international trade and investment, providing state backing for exporting business. Their mandate responsibility is to promote their own countries' exports. I will analyze more details about the operation of ECAs to show main advantages and main disadvantages of this organization.Main advantages:ECAs take an important role in enhancing the international trade, with three basic functions. First, ECAs provide financing to foreign buyers when private lenders cannot or will not finance those export sales. Second, ECAs help exporters meet officially financial support through direct loans or guarantees. Third, ECAs take risks beyond those that can be taken by private lenders. ECAs do not compete with private financial institutions, and they enhance the ability of their country's lenders to compete internationally.ECAs address two fundamental risks involved in an export transaction. The first is political risks, which refers to those events that occur due to political actions taken by the government that impact payment by the buyer. These may include transfer risk (inability to exchange the local deposit to that of the ECA country), expropriation, war risks, cancellation of an existing import and export license, and/or political violence. The second risk ECAs address is commercial, which refers to nonpayment as a result of bankruptcy, insolvency, protracted default, fluctuation in demand, unanticipated competition, shifts in tariffs, and/or failure to take up goods that have been shipped according to the supply contract and other factors not covered under political risks.The three forms of support from ECAs come as: insurance; guarantees; and loans/credit facilities. By limiting the risk inherent in international lending, ECAs enable lenders to assist their current customers with international sales they otherwise would be unable to finance. These products help lenders develop new relationships with exporters and foreign buyers that...

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