Medium- and long-term export finance – supplier credit

Documentary Letters of Credit and Documentary Collections are methods of payment in international trade used with Bills of Exchange for short-term credit (up to 6 months). But export finance is needed to provide money for longer periods of credit - for large-scale engineering and building projects, for machinery and installations supplied over several years. The aim is still the same - to provide money for the exporters and to get it back later from the importers - only the amounts of money are greater and the periods of credit longer: 6 months to 2 years (medium-term) and up to 5 years or even longer (long-term).

From this it can be seen that the size of the risk is often too great for one bank to take on. This is why all the various techniques of export finance such as forfeiting export insurance, leasing and lease purchase have been developed. Also, financial institutions besides individual banks are involved. For instance export insurance is provided by the Export Credits Guarantee Department (ECGD) in the UK for long-term contracts and by the Dutch company NCM for contracts up to 2 years. Some projects are syndicated by a consortium of banks and leasing is provided by subsidiary finance companies of banks. The ECGD is a government department set up in 1919 on a commercial basis, to protect exporters from buyer default and political risk. It has a database of over 200,000 credit ratings on importers around the world. The insurance is in the form of guarantees to banks.

These guarantees may be given either to the supplier or the buyer. If the suppliers (exporters) have a credit guarantee they receive payment from their bank as soon as they have shipped the goods, or handed over the factory in working order, according to agreement. There is no risk for them as long as they carry out the contract according to the terms of the agreement. Their bank has a guarantee from the ECGD or NCM and will not therefore have recourse to them.

When the ECGD or NCM provides a guarantee of buyer credit, the bank also receives the money to pay the exporters. In addition it has promissory notes or acceptance bills as collateral security from the buyer. If these are not paid when they mature/ the insurers (i.e. the ECGD or NCM) pay. The main advantage of this from the suppliers' point of view is that they are freed from all recourse problems, as long as they carry out the contract.

Leasing and lease purchase are methods of finance operated by finance company subsidiaries of banks, which work rather like buying a car or house. Leasing is a form of renting while lease purchasing is a form of buying. They are both used to finance major capital assets which have a long life, such as factories and other business premises.

As soon as the plant is set up and in working order the exporters get paid and the importers get immediate use of it. Part of the total price comes from the importers and the rest is provided by the finance company. The importers agree to pay the balance in installments. The bank may be in the importers' country. If it is in the exporters' country, the operation is known as cross border leasing.

As with export insurance, the big advantage of leasing to the exporters of leasing is that there is no recourse to them in the case of buyer default.

1. Are Documentary Letters of Credit a method of payment or a method of finance?

2. Are Bills of Exchange a method of payment or a method of finance?

3. Does The Export Credit Guarantee Department provide export insurance or guarantees?

4. Large projects are often too big to be financed by one bank, aren’t they?

5. Who can be given the guarantees the supplier or the buyer?

Language

1. Practise reading the following words correctly. If necessary, use the dictionary.

Guarantee, default, leasing, consortium, merchant, maturity, adverse change, dispenser, personal identification number, cashier, cheque, voucher, enquiry.

2. Give the Russian equivalents for the following words and phrases:

Financial institution, commercial bank, global business environment, market-driven strategies, competitive pressure, demand deposits, floating-rate deposits, fluctuating economy, cashing checks, automated teller machine, retail store point-of-sale (POS) terminals, correspondent banking, borrowings, obligations, maturity, trustee, trustor, mortgage loans, overdrafts, interest-earning deposits, savings deposits, nonnegotiable certificates of deposit, automated withdrawal, telephone transfer, overdrafts, loans, security, unsecured finance, exchange risk, adverse charge, exchange rate, leads and lags, factoring services, export merchants, eliminates the exchange risk, export agents, confirming houses, Short-term export finance, merchant bank, accommodation finance, trade bill, accommodation bill, acceptance bill, accepting house, the discount market, obtain payment, export order.

3. Fill in the blanks with the pronouns some, any, no, other, another and the other:

1. Are there … commercial banks in your town? Yes, there are. 2. Is there … money in your savings account? No, there isn't … . 3. Does a credit union lend … money to its members? Yes, it does. It lends … money to its members. 4. Do pension funds invest … money into the industry? No, they don't. They invest … money into the industry. 5. There are … commercial finance companies that provide collateralized loans to businesses. 6. Our company lets the bank handle the financing while … companies have their own financial people on the staff. 7.Big businesses prefer long, term. financing while small companies prefer … short-term financing. 8. Commercial bank … of the financial institutions that provide loans for … financial institutes that serve businesses in savings and loan association.

4. Fill in the blanks with many, much, little, a little, few and a few where necessary:

1. … insurance companies protect their customers against risk. 2.It takes one … money to join a credit union. 3.Starting a business without financial support from the bank may cause you … trouble. 4.Banks in the USA are subject to … government regulations. 5. Savings and Loan Associations attract … small savers who do not want to have any risk. 6.Only … major customers can keep up with the rise of the service prices. 7. No matter how … money you have you can open a bank account. 8. Very … financial institutions nowadays keep off technical innovations in the banking industry. 9. You can't do without … cash on hand when you go to a retailer shop.

5. Put the verb in brackets into the right tense form:

1.Large commercial banks (install) automatic teller machines nowadays. 2.Customers usually (use) their debit cards to transfer money from their checking account to the merchant's account. 3. As a rule a customer (pay) a fee of forty cents for each transaction outside the state. 4. Financial supermarkets (appear) all over the USA these days. 5.The customers often (look) around for the highest return on their savings or the lowest rate they can get on a loan. 6.Small banks now (compete) with larger banks by finding a special need and meeting it. 7.Small banks often (develop) strong ties with businesses and the general public in their own geographic area. 8.The Fed (lend) money to member banks. 9.Member banks (obtain) money from the district reserve banks. 10.The Federal Reserve System (receive) paper securities from the dealers that (receive) cash in return. 11.The Fed (buy) the government securities and (increase) the money supply. 12. Banks (keep) 20 percent of all the funds on deposit. 13. Our firm (extend) its resources through the use of credit next fiscal year. 14. I (invest) some more of other people's money next winter to expand my business. 15.The firm (secure) the mortgage by its building and equipment when it decides to do so.

6. Change direct speech into indirect speech:

1.The retailer said, "You can buy machinery and tools on an open account." 2. The customer said, "I bought a new car at your shop and it needs repair." 3.The banker said, "I am opening a credit account for you." 4.The businessman said, "As a rule, we sell our goods abroad." 5. The manager said, "We haven't raised enough money to expand." 6.The wholesaler said, "I sold a large amount of tools to retailer shops but they are not paying me in due time. 7.The manager asked, "Does this project require long term financing?" 8.The director asked, "Are we repaying debts in due time?" 9.The lender asked, "Have you found any collateral to back up the loan with?" 10. He asked, "Did this debt carry interest?" 11.The head of the company asked the Board of Directors, "Are we able to repay the loan?" 12.The manager asked the customer, "Can you wait a little longer?" 13.The borrower asked, "Do you require that we obtain your permission before taking on another loan?" 14. The bondholder asked, "Is the bond a secured one?" 15. The businessman asked, "Have you used debentures in recent years?" 16.The customer asked, "Were the terms specified in any agreement?" 17.The manager asked, "Is this really an accurate assumption?" 18. He asked, "Do you pay dividends quarterly or annually?" 19.We asked, "Did the investors prefer common stock?"

7. Fill in the blanks with the verbs can, may, must, have to, and need where necessary:

1.The businessman … use the money which his friends offer to him. 2.We do not … an installment loan. We have enough personal assets. 3. My business went bankrupt, so I … sell my home to pay debts. 4. … I obtain a loan from your venture capital firm? 5.We … apply for more cash yesterday because we ran out of money. 6. The venture capital firm … lend you about $20,000 to start your business with. 7. The company doesn't … additional cash. It receives high revenue. 8.The lender … become a shareholder in a corporation. 9.You … not exceed the cash surrender value when you borrow from the insurance company.

8. A. Using suffixes -er, -or, -ier, -ent, -ial, etc., give nouns which are related to the following:

Bank, invest, cash, manage, direct, office, deposit, own, execute, work, hold.

B. Using suffixes -al, -able, -ory, -ive, etc., give adjectives which are related to the following verbs:

Change, profits, control, sell, desire, speculate, negotiate, transfer, pay, value.

C. Using prefixes il-, im-, in-, ir-, un-, non-, dis-, etc., give negative adjectives which are related to the following:

Expensive, negotiable, regular, important, orderly, specified, legal, payable, stable, matured, proper, sufficient, movable, profitable, transferable, active, licensed, listed, cleared, direct, endorsed, honoured.

9. Complete the sentences using the correct forms of the verbs given below.

authorize guarantee check report collect swipe confirm select encode transfer

1.The retailer the card through a card reader at a terminal. 2. The information is …before being sent via the telephone system to ensure its security. 3. The Central Switch . .. the right bank. 4.After being paid by credit card, the retailer has to … payment from the credit card company. 5. The different systems have to … payment to the seller. 6. The cardholder's bank's computer … the information it receives. 7. If everything is acceptable the computer … payment to the Central Switch. 8. The display on the terminal … payment. 9. A cardholder should … the loss of a card to the company immediately. 10. The manager of my bank has been …to another branch.

10. Match the words on the left with the words of the same meaning on the right.

loan

money

fee

buy

shopkeeper

bank card

cash machine

use

supply

premises

provide

purpose

ATM

retailer

place of business

cheque card

purchase

charge

cash

credit

11. In the following phrases, the first noun acts as an attribute, e.g. cheque book. How many N+N phrases can you make?

Debit cheque bank video cash account identification enquiry transfer machine information terminal fee screen balance

membership teller credit charge fund statement number card account dispenser book holder

12. Fill in the blanks with prepositions where necessary. Give synonyms to the underlined parts.

1. Please transfer £ 100 ... the Westland Bank Ltd., Bournsea, ... the credit of Clark & Sons Ltd., debiting ... our N° 1 account. 2. Please refund this sum ... us crediting our account ... you ... advice ... us. 3. Kindly effect the following payments ... us. 4. ... effect... 1 January will you please discontinue payment ... the Great Eastern Bank authorised ... our letter ... 1 June Last. 5. Referring ... the instructions regarding payment ... I.I. Hooper Ltd., and contained ... our letter ... 3 April, we now wish to cancel these. 6. Please withhold payment of £ 500 deposit... Messrs N as the purchase ... the equipment concerned may not now be made. We will keep you informed ... any developments. 7. Please suspend payment ... our cheque N°... drawn ... favour ... Messrs Pink & Brown, as it appears to have been lost ... the post. 8. We have been reported ... our London office that the captioned draft has been lost. 9. We are pleased to say that our records now agree ... your statement. 10. Kindly credit all sums received ... £ 25 ... our № 2 account. Please also transfer £ 500 ... our current account ... deposit account. 11. We are advised ... our principals that the proceeds ... the above transfer were credited ... the payee's account only on 25 September. Kindly, therefore, look ... the matter and inform us ... the reasons if any ... such an inordinate delay ... effecting payment to enable us to advise ... our clients. 12. ... reply ... your letter ... 16^th ... ultimo and ... addition ... ours ... the 14 ... instant, we inform you that the payment order ... caption was transmitted ... us ... your letter N° 167 ... other payment orders, amounting ... $ 5600 ... all.

13. Fill in the blanks with the words given in brackets and their derivatives.

1.We propose ... by Bill of Exchange at 30 d/s, documents against .... Please confirm if this is ... to you. (pay, accept (use 2 times)) 2. You may draw on our London agent, Messrs N at 60 d/s for the amount of your invoice. Our agents have been instructed ... and advised of the terms of our agreement. (according) 3. We have received your letter and invoice dated 3 January and are willing ... your draft for the amount involved, ... at 60 days' sight. (accept, pay) 4. In ... with our terms of payment we have drawn on you at 30 days' sight for the amount of the enclosed invoice. (according) 5. We apologise for our ...... you that we had drawn on you. This was ... to a misunderstanding and we shall take care to avoid any recurrence. (fail, due) 6. Please note that we have domiciled the following ... with you. Will you kindly honour them at ... date and advise us at the time of .... (accept, due, pay) 7. Please ... the bill for ... and then discount it at the current rate, for the credit of our account. (accept, pay) 8. Your draft for the shipment by S.S. Calcutta was presented yesterday and ... met. We should now like to ask you if you are willing ... us in future on 60 d/s, D/A terms, as other ... in your country are already allowing us this credit, (due, supply (use 2 times)).

14. Render in English:

1. Наш коммерческий банк занимается финансированием cельского хозяйства. 2.Некоторые сберегательные банки идут навстречу новым финансовым запросам людей. 3.Этот кредитный союз состоит из членов нашего отдела. 4.Коммерческий банк заинтересован в высокой прибыли. 5.Общие сберегательные банки, как правило, не дают краткосрочных ссуд фирмам. 6. В случае необходимости коммерческий банк требует дополнительное обеспечение в поддержку ссуды. 7.Компаниям с хорошей финансовой репутацией назначают базовую процентную ставку. 8.Большинство банков предлагают своим клиентам различные депозитные сертификаты. 9.Около двух третей коммерческих банков в США - федеральные банки. 10. Многие банки устанавливают высокую плату за свои услуги. 11.Федеральная резервная система контролирует разнообразные финансовые учреждения и является банком “банкиров”. 12.Все национальные банки являются членами Федеральной резервной системы и владеют ею совместно с правительством. 13.Банки - члены Федеральной резервной системы время от времени берут ссуды в местных резервных банках. 14.Федеральная резервная система предоставляет финансовую поддержку и консультирует своих членов. 15.Банки-члены Федеральной резервной системы получают дивиденды на капитал, которым владеют резервные банки. 16.Федеральная резервная система контролирует поступление денежных средств. 17.Самое сильное оружие системы - дополнительные резервные обязательства. 18. Если банк держит на руках 30 процентов фондов, он может давать ссуду из остальных 70 процентов. 19.Когда Федеральная резервная система покупает правительственные ценные бумаги, поступление денег увеличивается. 20.Система использует эти методы для “тонкой подстройки” экономики. 21.Федеральная резервная система также устанавливает предельные уровни кредитования, покупок капитала и ценных бумаг. 22. Она также передает чеки из банка, где они были учтены, в банк, где они были выписаны. 23.Система страхует вклады на случай банкротства банка. 24.Она дает клиентам сведения о состоянии банка и его наличного капитала.

Speaking

1. Argue for or against the following debating themes:

1. Active mutual and state-owned banks can lower the profitability of privately owned banks, since they tend to care less about profits.

2. For all central banks' importance, they remain tiny participants in huge financial markets.

3. In the longer term banks might have something else to worry about: electronic money.

2. Explain a) why banks evolved; b) how they function; c) what they do; d) the challenges they face.

3. Discuss the following problems:

1. Some people argue that credit cards make it too easy for people to get into debt which they can't afford. Should a bank limit whom they issue credit cards to?

1. The cost of credit cards is added to the price of goods. This means that customers who pay cash subsidise those who do use credit cards for interest-free credit. Is this fair? If not, what can be done about it?

2. Getting money from a cash dispenser is risky. Someone might see you and rob you. How can banks give protection to customers using their cash machines at night?

3. EFTPOS are more of a help to banks than to customers. Customers can easily pay by cheque or in cash. Why have EFTPOS?

4. It can be very risky to rely on plastic money. If you lose your cards you lose everything. In the UK 5,000 cards are lost or stolen each day. How can banks minimize the losses through stolen cards?

4. Working in pairs or small groups discuss the following questions:

1. Where do banks get their money?

2. How has the mix of bank deposits changed in recent years?

3. How can you account for it?

4. Expand on the difference between deposit-taking practices in the U.K. and the U.S.?

5. Do you believe that we witness the age of new services in banking?

6. Would you say that there has been a shift in the interrelation of traditional and innovative types of banking services?

5. Comment on the willingness of modern banks to act as financial department stores.

1. Suppose you are planning to set up a new bank. What will be its organizational form and functions depending on the objec­tives you aim at? Draw up an organization chart of your future bank.

2. What are the modern tendencies in banking?

6. Make presentations illustrating your arguments with examples:

1. In Europe, banks are at risk from an economic slowdown.

2. Technology allows banks to market products more effectively — and not just traditional banking services but all the other things.

с) Most central banks set monetary policy with the aim of keeping inflation low.