International Trade

Finance
MGMT 3008

Export Development Canada

Financing & Insurance

OECD The Organization for Economic Cooperation and Development.

It is an international organization for 30 member
countries.
These countries include only developed countries
where these members usually have high-income
economies.
Originally formed in 1948 as the Organization for
European Economic Co-operation to help the
reconstruction of Europe after WW1.
Its head office is in Paris, France.
It shares a consensus that no single country will top
another country by offering more EDC services.

EDC

Formed from the Export Development Act of 1969.

It deals with bonds, guarantees and performance
bonds.
A bond is an instrument by which a guarantor will
guarantee the obligations of the Exporter in favour of
the Importer.
In this instance, the guarantee is an agreement that
the exporter will pay a sum of money in case the
exporter defaults on its promises.

EDC

Performance bonds on the other hand, have a 5%

10% of the contract value posted (for performances),
In guarantee, this amount is set for the possibility of
a default.
The following is required to benefit from EDC
Financing:
A local content requirement: where the Canadian
business must have 50% CDN content.
Benefits Report: Exporter must complete a CDN
benefits report; giving the ratios of CDN content to
foreign content.

EDC

Import finance & Export credit insurance:

Iff the Exporter qualifies for EDC coverage, then the
Importer is given a credit by the Exporter after 90
120 days.
This credit is then used to purchase CDN goods.
This is an example of reverse financing, whereby
the Exporter is financing the Importer on behalf of
EDC.

EDCAN INSIDE LOOK

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EDC example.
Importer gives a cheque for $50,000
10,000 of this is held back (CND legislation)
So, 40,000 is given
(5000) in 30 days + (5000) in 60 days
25,000 X 0.01 X (30/10) = 750
25,000 X 0.01 X (60/10) = 1500
So EDC takes 2,250 and the Exporter is left with
47,750.
EDC insures and now finances.

EDCInsurance

EDC covers up to 90% of invoice value.

The insurer provides a list of risks covered.
Every country has its own premium payable
for insurance.
There are two specific areas looked at:
Commercial risk
Political risk

EDCInsurance

Commercial risk covers:

Buyer insolvency (bankrupt)
Default by buyer
Refusal to accept or take delivery of goods
Buyer terminates contract on his or her own without notice to the
exporter.
Political risk covers:
Blocked funds
Breakout of war
Cancellation of import permits by foreign governments
Expropriation
Revolutions
Civil commotion

EDCInsurance

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14 insurance categories (the buffet of insurance)

Short term insurance 180 days or less.
Medium insurance up to 5 years.
Long term insurance over 5 years.
Foreign investment insurance protects CDN investments in
foreign countries from Political risks.
Global comprehensive insurance usually done on a shipment
by shipment basis.
Global Political insurance covers all countries on the list.
Selective Political insurance covers sales to specific markets.

EDCInsurance
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Documentary credit insurance covers defaults on

LCs or Stand Bys. Coverage is not to be more
than 365 days and was originally designed to cover
agricultural products.
Specific transaction insurance covers risks for
individual transactions for goods and services from
the time the goods are shipped until the time
payment is received.
Loan pre-disbursements coverage for production
risk.
Sub-supplier insurance covers CDN companies
acting as sub-contractors to the CDN exporter.

EDCInsurance
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Equipment insurance coverage for

equipment used in foreign projects.
Bid security insurance to provide
insurance to exporter in case the importer
walks out of a bid after acceptance.
Surety bond insurance provides insurance
to a surety company that, in turn, provides a
performance bond to a foreign buyer.

EDCFinancing Services
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Global comprehensive insurance financing A

CDN company will take its account receivables to
its commercial bank and will receive cash up front
for their receivables.
EDC provides export financing for up to 85% of
contract value; either on a floating rate or fixed
rate.
Lines of credit for either short term, medium term,
or long term. Credit is not directly provided to the
exporter. this is so the importer can purchase.
EDC finances the importer indirectly; reverse
financing.

EDCFinancing

EDC finances the following:

Importer
Exporter
Service
Government projects
Private projects
Construction buildings
Equipment
Transportation materials
Tools and equipment for specific industries (ex.. oil, gas
equipment)
Mining projects
Telecommunications equipment
Manufacturing production
Anything else they deem fit by approval

EDC3 types of financing

programs
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Direct loans negotiated with the foreign buyer to support the

purchase of CDN goods.
Mixed Credit such as forfeiting and factoring for short term
long term.
Note purchase program EDC purchases promissory motes
that have maturities of 1 5 years.
Lines of credit negotiated with foreign banks, specifically to
purchase CDN capital goods or products related to the oil
industry.

EX.. MOSCOW May 30, 2007 Export Development Canada

(EDC) and JSC VTB Bank (VTB) of Russia signed an
agreement increasing an existing US 50 million line of credit
established in December, 2004 to USD 150 million. The
increase is a result of high usage of the original facility and
ongoing demand. This line of credit will continue to finance
Canadian exports of goods and services to Russia