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Letters of credit and credit insurance products, Comparative Analysis

Abstract: The export credit insurance of foreign trade enterprises in China to open up international markets to prevent the risk of effective protection. Compared with the traditional letter of credit, credit insurance, risk control, operating procedures and have the advantage on cost. Key words: credit; credit insurance products; advantages compared 1 from the perspective of risk control export enterprises, whether the importer to open letters of credit or insurance export credit insurance, goal is to get beyond the third-party credit support for importers and reduce risk. But the realization of the nature of the way and get support but not the same. Chinese papers League finishing. (1) letter of credit is opened by the issuing bank to the exporter as the beneficiary of the payment undertaking, the issuing bank replaces the importer bear the primary responsibility for payment. Credit insurance company assumes responsibility for payment is secondary, that is the responsibility of the entry into force of mountain risks (including importers of commercial risk and political risk) as the prerequisite. (2) the relative export credit insurance coverage, settled to avoid the use of credit risk is relatively narrow, only to a certain extent, against the importer's business risk, due to export credit insurance is a special kind of insurance,[link widoczny dla zalogowanych], because of their risk, extensive coverage, the maximum insurance compensation limit under special compensation system with an absolute and therefore the amount of the coverage is slightly lower than the credit, but the scope of export credit insurance, guarantees an even broader, In addition to underwriting the credit guarantee responsibility within, but also more than the letter of credit issuing bank assumes the risk and political risk. (3) letters of credit under the responsibility of the issuing bank's payment is Beneficiary must be consistent with the presentation of documents alone, consistent documentation, this feature makes the credit to some extent out of touch with the actual trade, because there may be the beneficiary has fully discharged its obligations under the contract, but had submitted a point Exporters and export credit insurance in full compliance with obligations under the contract, as long as there underwriting risk, credit insurance company's liability is Since the issuing bank under the credit payment obligations of the over-reliance, leading exporter in the event of discrepancies in the case of a lack of follow-up risk management instruments, whether they materially or non-substantive discrepancy, compared with similar circumstances collection or OA and trade credit insurance coverage, exporters are at greater risk. (4) Credit insurance companies out of China to provide more general protection of the issuing bank to be more solid and reliable, whether credit or export credit insurance, can help companies manage risk effectively fundamentally depends on the issuing bank and export credit insurance companies credit situation. As China's export credit insurance policy background, and the corresponding policy arrangements,[link widoczny dla zalogowanych], export credit insurance company in China with the Chinese government should have the same credit rating. China Export & Credit Insurance Corporation no less solvency of the company's largest banking group, not to mention the many small and medium sized banks. 2 from the comparative analysis as a means of clearing credit developed in the 19th century as a settlement. Was to achieve in international trade, on. As qualified under the credit documents must be submitted to the stringent requirements of export enterprises, compared with the collection, documentation, negotiating bank examination bank and spend at least part of one of three charges 5-6 working days,[link widoczny dla zalogowanych], the need to or limit the transfer of non-location of the issuing bank for negotiation of the circumstances, longer delays. Present, Europe and the United States exports only 20% use the letter of credit, on the one hand the local financial market has developed a lot of alternative risk management tools to choose from, more importantly, before the serious lag in technological development of credit has been unable to meet the requirements of modern international trade. Many exporters have noted, requires a bill of lading send directly to the importer's credit more and more, especially the export Korea, Japan, Hong Kong and other countries and regions in foreign trade in the past, because the banks deal with documents much faster far not keep up with the speed of logistics, for the Bank of red tape does not affect the commercial activities of the importer to take the alternative approach, I believe the bill of lading send directly to the exporters, importers are aware of the risks, the courage to accept this arrangement exporters phenomenon indicates a problem, that is, the credit for importers exporters a considerable grasp of the situation. That being the case, exporters If you still choose to use the credit settlement can only be regulated by the stick to the traditional inertia. 3 credit cost comparison analysis of the costs associated can be divided into two kinds of explicit and implicit. Cost is the dominant method of settlement compared with non-permit required to pay an additional bank fees, hidden costs is to borrow bank credit importers to bear the cost of capital. Which included issuing explicit costs of fees, notification fees, proposed fees, cable fees, confirmation fees,[link widoczny dla zalogowanych], which pay the issuing fee and the proposal received generally in proportion to a total of about 0.5% of the amount of the credit. In addition, the bank will generally pay the minimum proposed standards, such as less than 5 million small amount by $ 50,000 invoice to receive meeting fees, the rest of the cost of a fixed fee charged by pen, such as notification costs 200 yuan each, cable charges each 150 (the charges of foreign banks domestic banks are generally 2-2 times). Letters of credit confirmation fees generally amount to 0.3-0.5% or higher. In addition there are frequent although not known, but the cost of discrepancies in the shipment with the case, the issuing bank to pay discrepancies fees, cable fees, and document processing fees, generally takes a discrepancy The overall cost 150-200 dollars, in the case of credit transfer, the transferring bank to deduct no exchange fee (in lieu of exchange charge), usually in the 200-300 dollars,[link widoczny dla zalogowanych], needs to be noted that, cost structure can be seen from the letter of credit, letter of settlement for the multiple, small or large amounts of issuing letters of credit under the multiple, small amount of shipment is not economical.
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