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TPCC Inter-Agency Trade Officer Training Financing and Risk Management for International Trade Presented by Steven W. Howlett Managing Director Government Agency Funding and Advocacy GE Capital Markets - Corporate September 26, 2012
Training Overview: - Introduction to GE Capital Markets Corporate Function - Spectrum of Risks Associated with International Trade - Private Sector Tools for Mitigating Risks
GE Expertise in Multiple Product Areas Export/ Structured Finance Trade Finance • • • Private Bank guarantees Letters of credit Deferred payments Forfaiting Short-term • Public Sector Buyers (Sovereign, Non- Leasing/ Lending • Financing typically • • Project Finance equipment specific Applicable for more developed markets Financing frequently requires int’l bank support • SPC (special purpose • • • Sovereign, etc. ) Private Sector Buyers ECA loans/ guarantees ECA Co-financing Political Risk MT/LT Insurance (PRI) & Sourcing issues Credit Insurance • Insure against • • expropriation, political violence, currency inconvertibility. etc. Insure against corporate risk credit default swaps company) No guarantees, limited guarantees Financing dependent on cash flows/off-take agreements Frequently requires ECA/MDB support
Spectrum of Certain Risks Associated with International Trade
Spectrum of Risks: The Balance Between U. S. Exporter and Foreign Buyer Exporter High Risk Buyer Consignment Low Risk Open Account Cash Against Documents Letters of Credit Low Risk Cash-in-Advance High Risk Exporter Wants Payment as Soon as Possible at time of Contract Signing or at Time Of Shipment. Buyer Wants to Delay Payment as Long as possible until Sale of Goods, Receipt & Processing of Goods, Collection of Receivables.
Background: Incoterms • The International Chamber of Commerce ("ICC") created “INCOTERMS” in 1936 to uniform global trade. The ICC periodically revises publications of INCOTERMS. The latest version was released in January 2011. • Set of uniform terms applicable to all the various types of purchase agreements and shipping agreements, which also serve as a “global language”. • Defines the responsibility of the Buyer and the Seller - conveys “risk” and “responsibility”; which party is to pay which charges, and where delivery takes place.
Movement of Goods: Scope of Seller and Buyer Responsibilities (Ex Works) (Free Alongside Ship) (Free Carrier) (Free On Board) (Cost & Freight) (Cost, Ins, Freight) (Carriage Paid To) (Carriage & Ins. Paid) (Delivered at Frontier) (Delivered Ex Ship) (Delivered Duty Unpaid) (Delivered Ex Quay (Delivered Duty Paid)
Tools to Mitigate Risks
Document Collection (5) Mail (3) Documents Presenting Bank (4) Exchange Remitting Bank (2) Documents Buyer (6) Seller (1) Shipment of Goods
Open Account vs. Letter of Credit Terms Open Account Exporter Sales Contract Buyer Letter of Credit Exporter + Opening Bank Buyer Letter of Credit Sales Contract Payment risk reduced with a Letter of Credit Buyer
Credit Insurance • Protects U. S. exporters against loss should a foreign buyer default due to commercial or political risks. • Private Sector vs. Public Sector policies (e. g. Ex-Im Bank, OPIC etc. ) • Types: Single Buyer, Multi-Buyer, Lease cover, PRI, etc. • Use Brokers
Summary • There are many risks associated with cross-border transactions (e. g. payment, shipping, foreign exchange, etc. ) • Particularly problematic for low-resource exporters or inexperienced exporters • Key government and private sector institutions and programs are available to deal with these risk issues Take Advantage of What’s Out There!