Export-Import Bank Case Study Example | Topics and Well Written Essays - 500 words

Export-Import Bank - Case Study Example Ex-Im began issuing loan guarantees after thirty years of existence. This move aimed at encouraging commercial banks to take part in export markets. Loan guarantees focused on reducing the administrative obligations of commercial banks. Loan guarantees surpassed direct loans, making insurance to become popular. Ex-Im guarantees 90% of the outstanding balance of working capital loans from a commercial bank to an exporter. It only authorized transactions that had a reasonable assurance of repayment. It offers medium and long-term coverage for transactions by providing an 85% guarantee. In this case, a 15% deposit is required from the buyer. Ex-Im charges the following costs on direct loans and medium and long-term guarantees; Export-Import bank charged fixed interest rates on loans that were set at the Commercial Interest Reference Rate (CIRR). The cost of direct loans was static; that is, it was set after numerous negotiations among countries in the OECD (organization for Economic Co-operation and Development). All medium and long-term guarantees were subject to a ‘one-off’ exposure fee. The exposure fee was determined by the degree of transactional risk. For example, scheduled payments from Amal to Wells Fargo were subject to a 0.2 exposure risk value. The beta constitutes the transactional risk for the scheduled payments. Ex-Im would charge a 0.2 exposure fee for the transactional risk. Importer payment obligations differed from those of foreign buyers of a U.S. product. Direct loans and guarantees of importer payment obligations are influenced by various aspects such as; market risk premium of the destination country, the repayment period, percentage of exports covered, and whether the exposure fee was financed or paid in advance. Each country has a baseline fee set for sovereign borrowers. Non-sovereign borrowers are subject to a transaction risk increment higher than the