Question
XYZ Bank has entered into a factoring agreement with ABC Textiles, a garment manufacturer based in Bangladesh. Under the agreement, XYZ Bank agrees to purchase
XYZ Bank has entered into a factoring agreement with ABC Textiles, a garment manufacturer based in Bangladesh. Under the agreement, XYZ Bank agrees to purchase ABC Textiles' accounts receivable at a discount and provide immediate funding to ABC Textiles. Required: a. Critically analyse the role of XYZ Bank in this international lending transaction and discuss the benefits and drawbacks of factoring for both parties.
b. Compare and contrast factoring with forfaiting. Provide a recommendation on whether factoring is a suitable financing option for ABC Textiles and justify your answer.
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