Risks

- - + + Methods of Payment Risk Assessment Neutral Zone Positive Negative Cash in Advance Letters of Credit Standby Commercial (Acceptances) Confirmed Transferable Back-to-Back Assignment of Proceeds Insurance Ex-Im Bank CEFO Vendor Financing Foreign Receivables Foreign Exchange Neutral Zone Exporter (Seller) (Beneficiary) Importer (Buyer) (Applicant) This slide provides a visual for discussing the risk associated with each method of payment for the buyer & the seller. The participants are the Exporter & Importer The Methods of Payment are noted in Yellow. The outside influences or opportunities are noted in Blue. (In the case of Open Account, Insurance makes this a positive for the Exporter) Above the horizontal line is less risky (positive) for the exporter & more risky (negative )for the importer Below the horizontal line is more risky (negative) for the exporter & less risky (positive for the importer. Open Account Documentary Collection - + Shipment Negative Positive

Activity Importers – Exporters – You are a new company (in business 2 years) and you are interested in placing a fairly large order with your foreign supplier. Your goal is to purchase the products and resell them to your customers. You need the product to be shipped within 2 weeks and it will take 6 weeks for you to receive the product once it ships. Once you receive the product, you will repack it and ship it to your customer within 1 week. You have agreed to receive payment from your customer 60 days after you ship. In order to fund this scenario you have requested Open Account payment terms from your vendor at Net 120 Days on Invoice and will pay in their currency. Exporters – You are a well established company and have been selling your products overseas for 15 years, although you have never sold to a customer in this new market. You currently hold inventory of the product this customer wants to purchase so you do not need to manufacture additional products. You never extend open payment terms to new customers however this customer is also talking to your biggest competitor and may place the order with them if you do not comply.

Activity Alternatives The currency in the importer’s country has devalued by 25%. There are grumblings of a dock strike in the importer’s country. The exporter wants to conduct a credit check in order to extend payment terms. The importer has agreed to supply the necessary information and will wait 4 weeks for the shipment to depart. The exporter has to manufacture the necessary products and will require funds to purchase raw materials. The exporter has never sold products overseas.