INSTITUTIONS COVERING

TRANSACTION RISK

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 FOREX RISK
• Banks provide cover against forex fluctuations
• Forwards and futures
• Options: call and put
• Swaps: exchange financial instruments

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 CREDIT RISKS
• Once goods are sold on credit, risks arising in
realising the sale proceeds are referred as
credit risks.
• Credit in International business is riskier than
the domestic trade
• Importers dictate terms as there are many
exporters
• Selling on credit has become very common

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 REASONS OF CREDIT RISKS
• Fraudulent practices
• Inability of the buyers to pay on the due date
• Situations where funds of buyer do not reach
the exporter
• An outbreak of war, civil war, coup or an
insurrection may block or delay the payment
• Changes in political and economic conditions

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 ECGC
• In India, Export Credit Guarantee Corporation
of India Limited covers export credit risks
• Government of India enterprise under the
administrative control of the Union Ministry of
Commerce
• Head office located in Mumbai,
• Board of Directors representing Government,
Banking, Insurance, Trade and Industry
manages the organization.
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 TYPE OF POLICIES
1. Standard Policies: exports on short-term credit basis
• (a) Shipments (Comprehensive Risks) Policy:
This covers from commercial and political risks from the
date of shipment.
• (b) Shipments (Political Risks):
This covers from political risks from the date of shipment.
• (c) Contracts (Comprehensive Risks) Policy:
This covers from commercial and political risks from the
date of contract.
• (d) Contracts (Political Risks) Policy:
This covers from political risks from the dateof contract.
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 Risks Not Covered
1. Commercial disputes including the quality disputes
raised by the buyer, unless the exporter obtains a
decree from a competent court in the importer’s
country in his favour;
2. Causes inherent in the nature of the goods;
3. Buyer’s failure to obtain import licence or exchange
authorisation in his country;
4. Insolvency or default of an agent of the exporter or the
collecting banks;
5. Losses or damages which can be covered by
commercial insurers; and
6. Exchange fluctuations.
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 2. Specific Policies:
These policies are specifically designed to protect Indian exporters
from the risks involved in
(a) Exports on deferred payment contracts
(b) Services rendered to foreign parties and
(c) Construction works and turnkey projects undertaken abroad.
Special Policies, beside the risks covered under Standard policies, are
issue by ECGC to meet the specific requirements of export
transactions.
3. Financial Guarantee: They are the policies issued to banks for
covering risks in extending credit at pre-shipment as well as post
shipment stages.
4. Special Schemes: They are meant to cover risks involved in
confirmation to letters of credit opened by foreign banks, insurance
cover for Buyers Credit, Line of Credit and exchange fluctuations
risks.

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