Course 6: Export Financial Issues

Explain the difference between cash flow and profit, and what is meant by the term, ‘liquidity’. Explain why more businesses fail from cash flow problems than from lack of profitability. Differentiate between short-term, medium-term and long-term export finance. Provide examples of transactions for which short-term, medium-term and long-term finance are most suitable. Differentiate between the pre-shipment and post-shipment phases of an export transaction. Discuss the possible reasons for exporters requiring financing in the pre-shipment phase. Discuss the possible reasons for exporters requiring finance in the post-shipment phase. Compare the various finance facilities offered by banks. Determine the financial assistance offered to exporters by your country’s various government entities.

Define credit insurance. Indicate the circumstances in which an exporter should consider taking out credit insurance. Discuss the relationships between the various players in the export credit insurance industry. Outline the risks covered and the risks excluded under an export credit insurance policy.

Explain the role of reinsurance in export credit insurance. Discuss the respective roles in export credit insurance of the credit insurer, international insurance bodies and the broker. With the use of examples, discuss the significance of the following credit insurance principles:  whole turnover; contribution; limit of discretion; utmost good faith; indemnity; insured percentage; subrogation; and maximum liabilities. Outline the duration and types of credit insurance available, and the risks covered by each type. Discuss the procedures involved in applying for credit insurance. Explain the significance of a credit limit annexure and an export credit insurance declaration. Discuss the roles of the insured and the credit insurer when it comes to following up on overdue payments and claiming compensation under an export credit insurance policy.

Differentiate between a convertible and a non-convertible currency. Discuss the circumstances in which currencies with limited convertibility are used. Briefly discuss the workings of foreign exchange markets. Differentiate between a spot transaction and a forward transaction and explain the circumstances in which each might be used. With the use of examples, explain how a forward exchange contract/forward cover can remove the exchange risk underlying an international trade transaction. Give examples of transactions in which a bank’s selling rate and a bank’s buying rate is used. Discuss the ways in which exchange rates are quoted internationally. Explain why the US dollar forms the cornerstone of the foreign exchange market. Explain how indication rates, firm rates and public rates differ from each other. Explain the purpose of exchange control. Outline the exchange control regulations relating to exports and imports.

List the delivery-related costs to be met by exporter and importer respectively under each Incoterm®. Specify all the non-delivery related costs likely to be for the exporter’s account given specific transaction details. Differentiate between direct and indirect costs and fixed and variable costs. Develop a costing sheet for different types of consignment and modes of transport. Accurately calculate the total cost of an export consignment given a particular Incoterm and transaction details. Keep a record of consignment costings for future reference.