To “meet the competition” from its counterparts overseas, Eximbank will mechanically match the terms of a loan provided by a rival export financing agency – including the interest rate – when it finances U.S. exports.

a. What problems might arise from this rule of matching nominal interest rates?

b. As of January 15, 1988, the minimum interest rate on government supplied export credits to rich countries was set at a flat rate of 10.4% for all nations providing such credits. What problems might arise with this rule? Comment on which governments would push for such a rule. Which would be against it?

c. How should minimum interest rates on export credits be set so as to ensure comparability across countries?

d. Suppose that instead of subsidizing interest rates, governments turn to export insurance subsidies. Is this move an improvement vis á vis export credit subsidies? Explain.

e. Why has the U.S. government fought against export credit subsidies?