Question

International trade poses risks for both exporters and importers. Exporters run the risk of not receiving payment after their products are delivered. Importers fear that delivery might not occur once payment is made for a shipment. Describe different export/import financing methods designed to reduce these risks.

Answer 1

Some export/import financing methods designed to reduce these risk are mentioned below -

1. Letter credit - It is a method when the importer's bank guarantee about the payment of the specific amount which agrees between the exporter and the importer after completing all the terms and conditions. The bank works as an intermediary between them which ensure both of them.

2. Promissory note - the important can issue a promissory note to the exporter in which they guarantee payment after some period of time after the delivery of the goods. The exporter can sell the note to the bank.

3. Documentary collection - the documentary collection is a method in which exporters entrust the collection of the payment in the exporter's bank through the importer bank.

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