Cisco Systems has sold to Dhaka’s municipal water and sewer company an integrated computer system to modernize its citywide billing procedure. The trade acceptance in the amount of US$5 million has been confirmed by Bangladesh’s Commonwealth Commerce Bank (CCB). The transaction is secured by a letter of credit issued by CCB to Cisco Systems and confirmed by State Street Bank (U.S.).

a. Identify the different risks faced by Cisco Systems.

b. Explain the roles played by CCB and State Street Bank in mitigating these risks.

c. The trade acceptance can be discounted at 5 percent in addition to a fee of 1 percent of its face value. How much will Cisco Systems receive upon shipping the equipment? How much would Cisco Systems receive if it did not discount its trade acceptance?