Consider an importer that issues a promissory note to an exporter to pay for imported capital goods over a period of five years. The exporter sells the note at a discount to a bank. This reflects:

Question

​Consider an importer that issues a promissory note to an exporter to pay for imported capital goods over a period of five years. The exporter sells the note at a discount to a bank. This reflects:

Quizplus · Accepted Answer

The process described is forfaiting, in which an exporter sells their promissory note (i.e. debt owed by the importer) at a discount to a bank in order to receive immediate payment. This allows the exporter to mitigate the risk of non-payment by the importer and free up capital to continue their operations. Accounts receivable financing and factoring involve the sale of accounts receivable (i.e. unpaid invoices) rather than promissory notes, while a letter of credit is a separate instrument used to guarantee payment in international trade transactions.

​Consider an Importer That Issues a Promissory Note to an Exporter

Consider an Importer That Issues a Promissory Note to an Exporter