In forfaiting, which instrument does the exporter surrender to receive 100% of the receivable upfront?

In forfaiting, which instrument does the exporter surrender to receive 100% of the receivable upfront?

• A. Promissory note
• B. Cheque
• C. Bill of exchange
• D. Certificate of deposit

Answer: (C)

Forfaiting is about turning a future payment into immediate cash by selling the instrument that proves the buyer’s obligation to pay. The instrument used is a bill of exchange, a negotiable document in which the exporter orders the importer to pay a set amount on a future date. When the exporter surrenders this bill to a forfaiter, the bank pays cash up front (usually the face value minus a discount) and assumes the credit risk, with no recourse to the exporter. A cheque isn’t the standard instrument for creating a tradable receivable in this context, a certificate of deposit is simply a bank deposit instrument, and while a promissory note can be discounted in some scenarios, the typical instrument involved in forfaiting is the bill of exchange, making it the best choice.

Forfaiting is about turning a future payment into immediate cash by selling the instrument that proves the buyer’s obligation to pay. The instrument used is a bill of exchange, a negotiable document in which the exporter orders the importer to pay a set amount on a future date. When the exporter surrenders this bill to a forfaiter, the bank pays cash up front (usually the face value minus a discount) and assumes the credit risk, with no recourse to the exporter. A cheque isn’t the standard instrument for creating a tradable receivable in this context, a certificate of deposit is simply a bank deposit instrument, and while a promissory note can be discounted in some scenarios, the typical instrument involved in forfaiting is the bill of exchange, making it the best choice.