In forfaiting, which statement is true?

In forfaiting, which statement is true?

• A. The exporter sells goods with a credit period.
• B. The exporter uses insurance to cover payment.
• C. The exporter receives 100% of the receivable upfront in return for a bill of exchange.
• D. The exporter receives 100% upfront in exchange for a line of credit.

Answer: (C)

Forfaiting is a way to turn a future export receivable into cash today by selling that receivable to a forfaiter in exchange for an immediate cash payment, on a no-recourse basis. The key idea is that the exporter delivers the goods or services and, instead of waiting for the buyer to pay later, they receive cash now in return for a bill of exchange (or promissory note) drawn by the buyer and payable at a future date. The risk of non-payment rests with the forfaiter, not the exporter. So the statement that describes this situation—receiving cash upfront in exchange for a bill of exchange—is the true characterization of forfaiting. The other statements describe broader credit terms, insurance coverage, or a credit line, which are not what forfaiting specifically involves.

Forfaiting is a way to turn a future export receivable into cash today by selling that receivable to a forfaiter in exchange for an immediate cash payment, on a no-recourse basis. The key idea is that the exporter delivers the goods or services and, instead of waiting for the buyer to pay later, they receive cash now in return for a bill of exchange (or promissory note) drawn by the buyer and payable at a future date. The risk of non-payment rests with the forfaiter, not the exporter.

So the statement that describes this situation—receiving cash upfront in exchange for a bill of exchange—is the true characterization of forfaiting. The other statements describe broader credit terms, insurance coverage, or a credit line, which are not what forfaiting specifically involves.