A middle-party, Texas Bonds, have approached their bank with a request for the issuance of demand guarantees to an end-buyer in Africa in respect of the sale of three machines for the total sales value of USD 2.8m. The machines are to be purchased by Texas Bonds for USD 2.184m from the manufacturer in South East Asia and shipped direct to Africa. Supply lead time is as follows: Machine 1 USD 0.654m to be shipped in month 4 Machine 2 USD 0.846m to be shipped in month 5 Machine 3 USD 1.300m to be shipped in month 7 The end-buyer in Africa is to pay Texas Bonds by export letter of credit, payable 750 days after the date of shipment. The manufacturer in South East Asia requires Texas Bonds to arrange the issuance of an import letter of credit in their favour, payable 45 days after the date of shipment. Texas Bonds have been able to negotiate an advance payment of 30% of the contract value from the end-buyer. The following demand guarantees are to be issued in favour of the end- buyer on contract signature: Advance payment guarantee USD 0.840m (30%) valid for 8 months

1. What are the risks for Texas Bonds? 2. What are the options for Texas Bonds? 3. Develop terms of payment.

Answer rating: 100% (QA)

Answer 1 Risks for Texas Bonds Payment Risk The endbuyer in Africa is set to pay Texas Bonds by an export letter of credit payable 750 days after the date of shipment This presents a significant payme... View the full answer