UNDERSTANDING MAIN PROFESSIONAL POINTS ACTIVITY FOREFAITING

*Prepared by Prof. Harkirat Singh Professor & Consultant IIFT, New Delhi

Please tick the correct answers: 1. Capital goods are high value manufactured items and foreign buyer needs longer credit period to make payment from earnings from such machinery / equipments. Correct 2. Incorrect

Forefaiting is an export finance instrument with benefits of without recourse facility. Correct Incorrect

3.

Forefaiting converts long period credit sales into cash sale for exporter of capital items. Correct Incorrect

4.

Forefaiting involves discounting of long period export receivables at postshipment stage without recourse against exporter, incase of non-payment, on due date by the foreign buyer. Correct Incorrect

5.

Buyer has to arrange letter of credit issued by reputed multinational bank to enable the exporter to forefait the capital goods sale transaction. Correct Incorrect

6.

Buyer has to arrange guarantee of payment by its reputed bank duly acceptable to forefaitor on long dated bill of exchange or promissory note. Correct Incorrect

7.

Overall cost of forfaiting export transaction involves LIBOR based discount rate, commitment and documentation fee etc. Correct Incorrect

8.

As per latest FEMA guidelines overall cost has to be passed to foreign buyer by inflating the amount of bill of exchange / promissory note as compared to commercial invoice value. Correct Incorrect

9.

Guarantee or aval on forefaiting instrument does not required the guarantee of payment by buyer's bank but the undertaking of the foreign buyer to make payment on due date. Correct Incorrect

10.

Exporter arranges preshipment finance to manufacture the machinery or equipment and forefaitor provides finance without recourse at postshipment stage. Correct Incorrect

11.

Forefaitor is not responsible for the collection of export proceeds on due date. Payment collection responsibility is of the exporter. Correct Incorrect

12.

Exchange risk, interest rate risk, payment risk, political risk etc. involved in long period export sales belong to exporter. Correct Incorrect

13.

Exporter will arrange ECGC coverage in such long period export sales to cover commercial and political risk. Correct Incorrect

14.

Exporter has to assist the forefaitor at various stages till final payment is made by the foreign buyer. Correct Incorrect

15.

Forefaiting helps in raising cash by selling long period export receivables. Forefaitor provides finance, collect export payment and provide protection against bad debts. Correct Incorrect