You have received an export order from USA for value of USD 700,000 for supply of handicrafts. In terms of the market practice, buyer wants 90 days credit.

Analyse various options for covering your commercial risk on the buyer and also in raising finance from any of the financial institutions. Following options are available to you. Find out the best option out of the following three options.

Option I.

Request the buyer to open a confirmed letter of credit. Raise finance against the LC bills (LC bills discounting) in the domestic market either in INR or USD whichever is favourable for you.

Option II.

There will be no letter of credit. You have only the confirmed order from the buyer. Cover the risk with any credit risk insurance agency like Export Credit Guarantee Corporation of India Ltd. (ECGC). Avail finance from the local bank either in USD or INR as per your requirement.

Option III

Avail international factoring.

Interest and other charges are given below to enable you to finalize the transaction.

1. International Factoring agency is quoting 8.00% discounting charges without recourse. Currency exposure will be taken over by the factoring agency.

2. Local banks are prepared to fund you under following terms:

	Rates in INR	Rates in USD
		for 3 months
		(annualized)
1. Discounting receivables under confirmed LC	7.75%	3.25%
Confirmation charges will be 1.50%. Buyer indicates that confirmation charges are
for you.
2. Discounting against Confirmed order	7.75% + 2%	4.25%
no letter of credit
To cover your commercial risk in this transaction, credit risk insurance cost will be 1.85%
USD/INR SPOT 75.5
3 month forwards premium USD/INR 95 paise