Trade Credit Insurance, Export Credit Agencies and Structured Trade

Introduction and context

International trade creates a distinctive credit problem: goods, services, or commodities may be delivered before payment is received, while the seller and its financing bank remain exposed to commercial, political, legal, and operational risks. Trade credit insurance, export credit agencies (ECAs), political-risk insurers, and structured-trade techniques are mechanisms for transferring, sharing, or controlling those risks.

These instruments are not interchangeable. Private credit insurance generally addresses non-payment arising from commercial causes and, subject to policy wording, political events. ECAs support national exporters through insurance, guarantees, direct lending, or refinancing. Political-risk insurance focuses on sovereign or quasi-sovereign events such as currency inconvertibility, expropriation, war, and government payment default. Structured trade finance reduces risk through transaction-specific controls over cash flows, inventory, receivables, contracts, and collateral.

The central managerial task is not simply to obtain insurance. It is to design a legally enforceable and economically coherent risk structure in which:

• the insured event is clearly defined;
• the creditor’s security and control rights are effective;
• claims can be evidenced and settled;
• recoveries are allocated fairly;
• risk participation is understood by every financier; and
• the resulting risk treatment is reflected correctly in pricing, provisioning, capital, and liquidity decisions.

Learning objectives

By the end of this chapter, the reader should be able to:

1. Distinguish private credit insurance, ECA support, political-risk insurance, and multilateral guarantees.
2. Evaluate policy scope, exclusions, waiting periods, deductibles, limits, and claims procedures.
3. Structure buyer credit, supplier credit, insured receivables, commodity-backed facilities, and borrowing bases.
4. Analyse subrogation, recovery, risk participation, and concentration risk.
5. Explain how guarantees and insurance may affect expected loss, capital allocation, and transaction pricing.
6. Identify legal, ethical, regulatory, and governance risks in insured trade finance.

1. The risk architecture of cross-border trade

A cross-border receivable is exposed to several layers of risk.

Credit insurance is a contingent risk-transfer contract, not a substitute for underwriting. The insured must usually continue to manage the buyer prudently, comply with reporting requirements, avoid unauthorized credit extensions, and preserve rights against the debtor.

1.1 Commercial and political risk

Commercial risk concerns the buyer’s financial condition and conduct. Insolvency and protracted default are common insured causes, but coverage may distinguish between formal insolvency, judicial proceedings, failure to pay, and a contractual dispute. A buyer’s refusal to pay because goods were defective may be excluded even when the buyer is otherwise insolvent.

Political risk arises from governmental action or disorder. Typical events include:

• currency inconvertibility or inability to transfer funds;
• cancellation or non-honouring of a sovereign obligation;
• expropriation, confiscation, or nationalization;
• war, civil disturbance, or politically motivated violence; and
• government-imposed import or export restrictions.

The distinction matters because the same missed payment may have different causes. An insurer may require evidence that the debtor had sufficient local currency but could not obtain foreign exchange, rather than treating every foreign-currency payment failure as political risk.

2. Private trade credit insurance

Private insurers commonly offer whole-turnover policies, single-buyer policies, transaction-specific cover, excess-of-loss cover, and policies supporting receivables financing. The policy normally specifies a credit limit for each buyer, a percentage indemnity, a deductible or first-loss amount, waiting periods, exclusions, and claims procedures.

2.1 Core policy mechanics

Suppose an insured receivable has principal amount P, the approved indemnity percentage is c, the deductible is D, and the policy limit applicable to the buyer is L. A simplified indemnity calculation is:

Here, I is the insurer’s indemnity. All monetary variables must be expressed in the same currency. This expression is applicable only where the policy actually applies, the loss is accepted as an insured loss, and the policy does not use a different deductible or limit method. Some policies apply the deductible to the loss before coinsurance; others apply a percentage share to the insured amount and impose aggregate or per-buyer limits.

Example. An accepted loss is €2,000,000, the indemnity percentage is 90%, and the deductible is €50,000. If the policy limit is at least €1,750,000:

I = 0.90 × €2,000,000 − €50,000 = €1,750,000

The insured retains €250,000 before considering recoveries and any uninsured consequential loss.

A more general loss model separates principal, covered interest, excluded amounts, and recoveries:

The exact allocation depends on the policy and on subrogation provisions. An insured cannot normally recover more than its economic loss.

2.2 Policy provisions requiring close analysis

Credit limits. An insurer may approve a discretionary limit, a named limit, or a zero limit. A zero limit usually means that new exposure is not insured, even if an earlier shipment was covered.

Waiting periods. Claims for protracted default may be payable only after a specified period. The waiting period protects against temporary delays but creates liquidity exposure for the insured.

Deductibles and coinsurance. These preserve the insured’s incentive to underwrite and collect. They also affect the lender’s residual risk.

Exclusions. Common exclusions include pre-existing default, ordinary commercial disputes, failure to meet policy conditions, sanctions violations, fraud by the insured, unauthorized extensions, and losses caused by the insured’s own failure to perform.

Notification duties. The insured may have to report adverse information, overdue invoices, disputes, changes in payment terms, and material deterioration in the buyer’s condition. Late notification can reduce or eliminate cover.

Claims evidence. A claim may require contracts, invoices, shipping documents, acceptance evidence, proof of delivery, account statements, demand letters, insolvency documents, and evidence of compliance with policy conditions.

Subrogation. After paying a claim, the insurer generally obtains rights to pursue the debtor to the extent of its payment. The insured must preserve those rights and cooperate in recovery.

3. Export credit agencies and multilateral support

ECAs are public or publicly mandated institutions that support exports judged to have national economic value. Their instruments include buyer-credit guarantees, supplier-credit insurance, direct loans, refinancing, investment insurance, and working-capital guarantees. The precise mandate, pricing rules, eligible sectors, local-content requirements, and environmental standards vary by jurisdiction.

3.1 Buyer credit and supplier credit

In a buyer-credit structure, a bank lends to the foreign buyer or its bank to pay an exporter. The ECA guarantees or insures the loan. The exporter is paid under the financing arrangement, while the buyer repays the lender over time.

In a supplier-credit structure, the exporter extends deferred payment terms to the buyer and then may insure or discount the resulting receivable. The exporter bears the initial financing and collection burden, while ECA cover can facilitate refinancing.

ECA support does not eliminate all risk. It may exclude commercial disputes, require a deductible, cover only a percentage of principal and interest, and impose conditions relating to procurement, environmental impact, anti-bribery, sanctions, and local content.

3.2 Sovereign, bank, and corporate obligors

The quality of an ECA-supported exposure depends on the obligor and the guarantee chain. A sovereign guarantee may improve credit quality, but its enforceability, waiver of immunity, budget authority, and governing law must be assessed. A bank guarantee may be subject to local resolution regimes, licensing issues, and concentration in the bank’s home sovereign. A corporate buyer may have strong operating cash flow but remain exposed to transfer and convertibility restrictions.

3.3 Multilateral institutions

Multilateral development banks and specialized agencies may provide partial risk guarantees, trade-finance guarantees, political-risk insurance, liquidity facilities, and counter-guarantees. Their involvement can mobilize private capital where country risk, tenor, or information asymmetry would otherwise make financing unavailable. However, multilateral support may involve lengthy approvals, procurement rules, environmental and social safeguards, and restrictions on eligible transactions.

4. Political-risk insurance

Political-risk insurance is especially important where the commercial buyer is viable but the surrounding political environment threatens payment or asset control. Coverage is commonly structured around:

1. Transfer restriction and inconvertibility: local currency cannot be converted or remitted.
2. Expropriation: government action substantially deprives the investor or lender of its rights.
3. Political violence: war, civil disturbance, terrorism, or politically motivated damage.
4. Breach of contract: a public obligor fails to perform and an agreed dispute mechanism is unavailable or ineffective.
5. Non-honouring: a sovereign or public-sector obligor, or sometimes a qualifying financial institution, fails to pay.

The policy must identify the insured interest, insured amount, covered event, waiting period, causation standard, currency, and dispute-resolution mechanism. Political-risk insurance is not a general guarantee of investment success. It normally excludes ordinary market decline, poor management, commercial disputes unrelated to government action, and risks known before inception.

A crucial analytical issue is causation. If a public utility does not pay because its tariff revenue is insufficient, the loss may be commercial. If it does not pay because a government order prevents remittance, it may be political. Claims often turn on documentary evidence and the precise wording of the policy.

5. Structuring insured receivables

Receivables finance converts future collections into present liquidity. A bank may lend against eligible insured receivables, purchase them, or provide a borrowing base facility. The structure requires alignment among the sale contract, invoice, insurance policy, assignment, notice of assignment, and payment account.

5.1 Eligibility and borrowing base

An illustrative borrowing-base formula is:

The summation covers all eligible receivables. Eligibility may require that the receivable be valid, undisputed, payable by an approved buyer, within an ageing limit, denominated in an acceptable currency, and covered by an insurer whose rights are acknowledged by the lender. Reserves may cover dilution, currency volatility, deductibles, unpaid premiums, concentration, or claim uncertainty.

Example. A facility contains:

• €4.0 million of eligible insured receivables at an 80% advance rate;
• €1.5 million of eligible uninsured receivables at a 60% advance rate; and
• €0.2 million of reserves.

The borrowing base is:

€4.0m × 0.80 + €1.5m × 0.60 − €0.2m = €3.9m

The availability is €3.9 million before considering the commitment limit and outstanding drawings.

The advance rate should reflect more than the insurer’s headline percentage. It should incorporate policy exclusions, claim timing, counterparty quality, dilution, legal enforceability, and the probability that the insurer may dispute the claim.

5.2 Assignment and lender protections

A lender commonly requires:

• an assignment of receivables and insurance proceeds;
• acknowledgment of the assignment by the insurer;
• a loss-payee or lender’s-interest endorsement where available;
• direct payment into a controlled account;
• notice of cancellation or material amendment;
• power to pay premiums or cure policy breaches; and
• step-in or collection rights after default.

The legal effectiveness of these protections depends on the governing law, perfection requirements, anti-assignment rules, insolvency law, data-protection constraints, and the insurer’s policy terms. An assignment may transfer payment rights without transferring every obligation under the policy. The lender must therefore determine whether it can claim directly or only receive proceeds after the insured submits a valid claim.

6. Commodity-backed facilities

Commodity finance links advances to the movement, storage, processing, and sale of commodities. The lender’s repayment expectation is based on identifiable goods and contracted cash flows rather than solely on the borrower’s balance sheet.

A typical structure involves:

1. purchase of commodity from an approved supplier;
2. controlled shipment or storage;
3. warehouse receipt or equivalent title document;
4. inspection and verification;
5. sale to an approved buyer; and
6. collection of sale proceeds into a controlled account.

Key risks include price volatility, quality deterioration, theft, commingling, warehouse fraud, transport interruption, sanctions, and inability to enforce title. A warehouse receipt is valuable only if the warehouse operator is reliable, the document is genuine, the goods exist, and local law recognizes the lender’s security interest.

The lender may use a mark-to-market test. If the market value of collateral is V and the required collateral coverage ratio is k, the maximum debt supported by collateral is:

For example, with collateral worth $12 million and a required coverage ratio of 1.25, maximum debt is $9.6 million. This is a simplified test and does not deduct liquidation costs, insurance gaps, taxes, or quality discounts. In practice, a borrowing base is usually lower after applying haircuts and reserves.

Commodity-backed facilities should also address hedging. A price hedge may reduce market risk but introduces basis risk, margin-call risk, counterparty risk, and documentation complexity. Insurance for political events does not protect against ordinary commodity-price decline.

7. Risk participation, recovery, and claims

7.1 Risk participation

A funded risk participation transfers an economic interest in a trade-finance asset, while an unfunded participation transfers payment risk through a contingent undertaking. Participants must establish whether the transfer is legal assignment, sub-participation, guarantee, or another arrangement. That classification affects insolvency treatment, capital, withholding tax, accounting, and enforceability.

The participation agreement should specify:

• the reference obligation and covered risks;
• payment mechanics and timing;
• information and voting rights;
• treatment of amendments, waivers, and restructurings;
• insurer claims and recoveries;
• confidentiality and sanctions obligations; and
• replacement or transfer rights.

A participant should not assume that the lead bank’s insurance automatically protects it. The participant may have only contractual recourse to the lead bank, not direct rights against the insurer.

7.2 Claims and recoveries

A disciplined claims process begins before default. The insured should preserve evidence, notify the insurer promptly, suspend unauthorized credit, document collection efforts, and distinguish a genuine payment default from a contractual dispute. The lender should coordinate with the insured because inconsistent statements can prejudice the claim.

Recoveries may arise from collateral liquidation, debtor payments, guarantees, litigation, restructuring, or asset sales. The policy normally determines whether recoveries are shared pro rata, applied first to uninsured losses, or paid to the insurer through subrogation. A recovery waterfall should be documented in the financing and insurance contracts.

7.3 Expected loss and capital implications

A simplified expected-loss model is:

where PD is probability of default, LGD is loss given default as a proportion of exposure, and EAD is exposure at default. The formula assumes a simplified single-period framework and does not capture default timing, discounting, dependence, or unexpected loss.

If eligible insurance reduces the effective loss given default from 45% to 10%, exposure is $10 million, and probability of default is 4%, then:

• uninsured expected loss = 0.04 × 0.45 × $10m = $180,000;
• insured expected loss, ignoring insurer default and timing = 0.04 × 0.10 × $10m = $40,000.

The apparent reduction is not automatically the regulatory capital reduction. Capital treatment depends on applicable rules, guarantor eligibility, legal certainty, maturity mismatch, currency mismatch, residual risk, and operational requirements. A guarantee may substitute the guarantor’s risk weight for the borrower’s risk weight, but only when regulatory conditions are satisfied. Accounting expected-credit-loss models, regulatory capital models, economic capital, and pricing models are related but not identical.

8. Integrated transaction design

An effective transaction process can be organized into seven stages:

1. Define the trade: identify goods, parties, payment terms, shipment, title, and governing law.
2. Map risks: separate buyer, sovereign, performance, logistics, currency, commodity, and operational risks.
3. Select support: compare private insurance, ECA cover, multilateral guarantees, collateral, and structural controls.
4. Test legal enforceability: review assignment, security, guarantees, insolvency, sanctions, and claims rights.
5. Set economics: determine advance rate, premium, deductible, tenor, pricing, reserves, and fees.
6. Monitor continuously: track ageing, limits, policy conditions, shipment, collateral, buyer information, and country events.
7. Prepare for stress: establish default, claim, recovery, restructuring, and enforcement playbooks.

Pricing should reflect the complete risk-adjusted return rather than merely the insurer’s premium. A simplified all-in financing cost can be expressed as:

This is a managerial decomposition, not a universal accounting identity. Each component must be measured consistently, and expected loss should not be double-counted in both the premium and the credit charge.

9. Illustrative case: Meridian Machinery export

This is a fictional illustrative case.

Background

Meridian Machinery, an enterprise in Country A, receives a €20 million order from Delta Water Utility, a government-owned utility in Country B. The contract requires 20% payment on signing and 80% after delivery, with the deferred amount payable over three years. Country B has a history of foreign-exchange shortages. A commercial bank is willing to finance the transaction only if political and payment risks are addressed.

Problem

The exporter needs early liquidity, the buyer needs a three-year payment period, and the bank must control the risk of non-payment, transfer restriction, performance dispute, and government interference. A simple unsecured loan would place excessive reliance on the utility and Country B.

Analysis

The parties identify four principal risks:

• the utility may fail to pay for commercial or budgetary reasons;
• the government may restrict currency conversion or remittance;
• the buyer may allege defective performance;
• the exporter may fail to complete installation, invalidating payment rights.

An ECA in Country A is prepared to provide 90% cover of qualifying principal and interest, subject to a deductible, environmental review, anti-bribery certification, and evidence of a valid government support agreement. The bank also requires performance security from Meridian and a controlled payment account.

Structure

The bank extends a €16 million buyer credit, representing the 80% deferred contract value. The ECA guarantees 90% of eligible debt. Meridian receives the initial 20% and progress payments funded from the buyer credit after certified milestones. The buyer’s payment obligations are supported by a government undertaking, while political-risk provisions address transfer restriction and government non-honouring.

The financing documents include:

• assignment of the sales contract and insurance proceeds;
• direct notice and acknowledgment by the ECA;
• independent engineer certification of milestones;
• a performance bond from Meridian’s bank;
• a debt-service reserve account; and
• covenants requiring timely reporting of political and operational events.

Stress analysis

If the buyer fails to pay €5 million after a qualifying political event, the nominal ECA claim is 90% of the covered loss before any deductible or recoveries. If the policy deductible is 5% of the covered loss, the simplified claim is:

€5m × 0.90 × (1 − 0.05) = €4.275m

This calculation is illustrative only. The actual result depends on policy wording, eligible interest, claim limits, currency conversion, waiting periods, and recoveries. The bank still faces €725,000 of uninsured or retained exposure before recoveries, plus timing and enforcement risk.

Outcome

The structure allows Meridian to receive payment earlier, gives Delta Water Utility affordable tenor, and enables the bank to lend with reduced political exposure. It does not remove project-performance risk or eliminate the need for monitoring. The bank’s return must compensate for the ECA premium, capital usage, claim delay, retained risk, and operational complexity.

Learning points

1. Public support is most effective when integrated with contractual and operational controls.
2. A guarantee percentage is not the same as a guarantee of immediate full recovery.
3. Performance certification protects both the buyer and the financier.
4. Political-risk cover must be matched to the precise source of payment failure.
5. Claim rights, assignment, and recovery allocation should be negotiated before disbursement.

10. Governance, regulation, and ethics

Trade-finance structures can create serious governance risks. Export support may distort competition if subsidies are opaque or tied to political influence. Publicly supported transactions require scrutiny of corruption, bribery, human-rights impacts, environmental harm, tax evasion, sanctions, and forced-labour risks.

Boards and credit committees should ask:

• Is the transaction economically viable without unrealistic official support?
• Does the structure transfer risk or merely obscure it?
• Are policy exclusions and claim uncertainties reflected in the advance rate?
• Are beneficial owners, agents, and intermediaries known?
• Does the transaction comply with sanctions and export-control rules?
• Are environmental and social impacts independently assessed?
• Can the bank explain the structure to regulators, auditors, customers, and affected communities?

Technology can improve monitoring through invoice matching, shipment tracking, electronic bills of lading, warehouse sensors, and anomaly detection. Artificial intelligence may identify duplicate invoices, unusual payment patterns, or deteriorating buyers. However, models can amplify biased data, misclassify legitimate transactions, or create false confidence. Human review, explainability, access controls, model validation, and audit trails remain essential.

11. Contemporary developments and limitations

Several developments are reshaping the field:

• digital trade documents and distributed-ledger systems may improve document control, but legal recognition remains uneven;
• climate-transition and infrastructure projects increasingly require blended public and private risk support;
• supply-chain finance faces heightened scrutiny concerning disclosure, recourse, and buyer-driven payment practices;
• geopolitical fragmentation increases sanctions, transfer, and sovereign-risk complexity;
• insurers and banks are refining portfolio-based solutions rather than relying only on single-obligor cover; and
• regulators increasingly expect robust operational resilience and third-party-risk management.

The main limitation of insurance and guarantees is basis risk: the protection purchased may not respond to the loss actually suffered. A policy may cover principal but not consequential loss, political violence but not commodity-price decline, or insolvency but not a quality dispute. The second limitation is timing risk. A financially strong insurer may still require investigation before paying. The third is concentration risk: an institution may insure many receivables with one insurer, country, bank, or commodity corridor. Diversification therefore remains necessary.

Best-practice framework

A professionally managed transaction should apply the following principles:

1. Underwrite the buyer and transaction independently of the insurance.
2. Read the policy and guarantee wording, not only the term sheet.
3. Align sales contracts, financing documents, security, and insurance rights.
4. Use conservative eligibility rules, advance rates, haircuts, and reserves.
5. Monitor policy limits, overdue reporting, sanctions, country events, and collateral.
6. Pre-agree claims, recovery, and information-sharing procedures.
7. Test insurer, guarantor, obligor, and bank failure scenarios.
8. Distinguish accounting, regulatory-capital, economic-capital, and pricing effects.
9. Maintain strong anti-bribery, environmental, social, and data governance.
10. Reassess the structure whenever tenor, buyer, currency, shipment, or payment terms change.

Chapter Summary

Trade credit insurance, ECA support, political-risk insurance, and multilateral guarantees are complementary tools for managing cross-border payment risk. Private insurance primarily addresses commercial receivables, while ECAs and multilateral institutions can support export transactions, sovereign or public-sector buyers, longer tenors, and difficult markets. Political-risk insurance addresses government action and political events, but coverage depends on precise definitions and proof of causation.

Structured trade finance strengthens risk management by linking repayment to insured receivables, controlled accounts, commodity inventory, contracts, and borrowing bases. The borrowing-base concept converts eligible collateral or receivables into prudent availability after advance rates and reserves. Claims, subrogation, recoveries, and risk participation must be designed contractually rather than assumed. Insurance may reduce expected loss, but capital treatment depends on legal and regulatory eligibility and does not eliminate liquidity, operational, performance, or concentration risk.

The strongest structures combine independent underwriting, enforceable documentation, conservative collateral controls, public or private risk support, continuous monitoring, and ethical governance.

Key Terms

Advance rate: The percentage of eligible collateral or receivables against which financing may be drawn.

Borrowing base: The calculated amount available under a facility after applying eligibility rules, advance rates, and reserves.

Buyer credit: Financing provided to a foreign buyer or its bank to pay an exporter.

Commercial risk: Risk arising from the financial condition or conduct of a private buyer.

Coinsurance: The portion of an insured loss retained by the insured.

Credit limit: The maximum exposure an insurer agrees to cover for a buyer.

ECA: Export credit agency that supports national exports through insurance, guarantees, loans, or related instruments.

Eligible receivable: A receivable satisfying agreed legal, credit, ageing, documentation, and insurance criteria.

Indemnity: Payment made by an insurer for a covered loss.

Political-risk insurance: Cover for specified government actions or political events affecting payment or investment.

Protracted default: Failure to pay continuing for the policy-defined period without necessarily involving formal insolvency.

Recovery: Amount collected after default through the debtor, collateral, guarantees, litigation, or restructuring.

Risk participation: Transfer of all or part of the economic risk of a financing exposure to another institution.

Subrogation: Transfer to the insurer of rights to pursue the debtor after an insurance payment.

Supplier credit: Deferred payment terms extended by the exporter to the buyer.

Transfer restriction: Inability to convert or remit local currency because of governmental controls.

Unfunded participation: Contingent risk transfer in which the participant pays only if a specified loss occurs.

Waiting period: Time that must elapse before a claim becomes payable under a policy.

Review Questions

Short Answer Questions

1. How does political risk differ from commercial risk in an insured trade receivable?
2. What is the purpose of a deductible or coinsurance requirement?
3. Distinguish buyer credit from supplier credit.
4. Why might a lender require an acknowledgment of assignment from an insurer?
5. What are three common exclusions or limitations in trade credit insurance?

Long Answer Questions

1. Explain how a private credit insurance policy should be analysed before financing insured receivables.
2. Compare the roles of private insurers, ECAs, and multilateral institutions in supporting international trade.
3. Discuss the legal and operational requirements for a commodity-backed borrowing-base facility.
4. Explain how claims, subrogation, recoveries, and risk participation interact in a default.
5. Evaluate why insurance can reduce expected loss without necessarily producing an equivalent reduction in regulatory capital.

Analytical / Application Questions

1. A bank has €6 million of eligible insured receivables at an 80% advance rate and €1 million of eligible uninsured receivables at a 55% advance rate. Reserves are €0.3 million. Calculate the borrowing base and explain two reasons why the bank might set availability below that amount.
2. A buyer fails to pay because its government blocks foreign-currency remittance, but the buyer also alleges defective goods. Identify the factual and documentary issues that an insurer would need to resolve before determining coverage.
3. Design a risk-mitigation structure for a three-year export of industrial equipment to a government-owned buyer in a country with foreign-exchange shortages. Address financing, insurance, performance, security, monitoring, and claims.

Multiple Choice Questions with Answers

Question 1

Which feature most directly distinguishes political-risk insurance from ordinary commercial credit insurance?

A. It covers government-imposed transfer restrictions or expropriation.

B. It eliminates the need to assess the buyer.

C. It guarantees every invoice regardless of policy terms.

D. It covers all commodity-price movements.

Correct Answer: A. It covers government-imposed transfer restrictions or expropriation.

Question 2

An accepted insured loss is €2,000,000, the indemnity percentage is 90%, and the deductible is €50,000. Assuming the policy limit is sufficient, what is the indemnity under the simplified formula?

A. €1,750,000

B. €1,800,000

C. €1,950,000

D. €2,000,000

Correct Answer: A. €1,750,000

Question 3

Which party is normally the primary borrower in a buyer-credit structure?

A. The exporter’s insurer

B. The foreign buyer or its bank

C. The warehouse operator

D. The exporter’s government

Correct Answer: B. The foreign buyer or its bank

Question 4

A facility has €4 million of eligible insured receivables at 80%, €1.5 million of uninsured receivables at 60%, and €0.2 million of reserves. What is the borrowing base?

A. €3.50 million

B. €3.70 million

C. €3.90 million

D. €4.10 million

Correct Answer: C. €3.90 million

Question 5

What is a central purpose of subrogation?

A. To transfer the insurer’s premium obligation to the buyer

B. To give the insurer rights to pursue the debtor after paying a claim

C. To increase the borrower’s credit limit automatically

D. To remove all deductibles from the policy

Correct Answer: B. To give the insurer rights to pursue the debtor after paying a claim

Question 6

Which item is most likely to be a borrowing-base reserve?

A. A completed audit of the insurer

B. A provision for dilution or an insurance deductible

C. The exporter’s historical sales growth

D. The buyer’s marketing budget

Correct Answer: B. A provision for dilution or an insurance deductible

Question 7

Using EL = PD × LGD × EAD, what is expected loss when PD is 4%, LGD is 45%, and EAD is $10 million?

A. $18,000

B. $40,000

C. $180,000

D. $450,000

Correct Answer: C. $180,000

Question 8

Why does an ECA guarantee not necessarily produce immediate full recovery after default?

A. The guarantee may contain coverage limits, exclusions, deductibles, and claim procedures.

B. ECAs never support payment obligations.

C. ECA guarantees apply only to commodity prices.

D. The exporter automatically becomes the sovereign borrower.

Correct Answer: A. The guarantee may contain coverage limits, exclusions, deductibles, and claim procedures.

Question 9

Which control most directly addresses the risk of financing duplicate invoices?

A. A higher commodity-price hedge ratio

B. Invoice matching, controlled collections, and independent verification

C. A longer waiting period for political-risk claims

D. Removing buyer credit limits

Correct Answer: B. Invoice matching, controlled collections, and independent verification

Question 10

With collateral value of $12 million and a required coverage ratio of 1.25, what maximum secured debt is indicated by the simplified formula?

A. $8.75 million

B. $9.60 million

C. $10.50 million

D. $15.00 million

Correct Answer: B. $9.60 million