2. GoodtoExport Sdn Bhd (G2Ex) of Malaysia currently has 60 foreign orders outstanding, with a typical order averaging at $18,000 due to be settled in 45 days. G2Ex is considering the following two alternatives to protect itself against credit risk on these foreign orders:

1. Request a letter of credit. The cost would be $80 plus 0.75% of the invoice amount. To remain competitive, G2Ex would have to absorb the cost of the letter of credit; OR
2. Factor the receivables. The factor would charge a nonrecourse fee of

1.20%.

Assuming 360 days in a year, which alternative would you recommend to

G2Ex? Why? (7 marks)