An export credit insurance is necessary when the:
A) exporter is exposed to the risk that the importer may default on payment.
B) exporter is dealing in a country that has a nonconvertible currency.
C) exporter is unable to obtain any pre-export financing.
D) exporter has received a letter of credit from the importer's bank.
E) exporter has to enter a barterlike agreement.

Question

Quizplus · Accepted Answer

Export credit insurance provides protection to an exporter against the risk of non-payment by the importer. Therefore, it is necessary when the exporter is exposed to the risk that the importer may default on payment. Choice B is incorrect because nonconvertible currency risk can be addressed through other means such as currency hedging. Choice C is incorrect because export credit insurance does not address pre-export financing issues. Choice D is incorrect because a letter of credit already provides payment security to the exporter. Choice E is incorrect because barter agreements do not involve payment in cash, so there is no payment risk to insure against.

An Export Credit Insurance Is Necessary When The