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Projects & Policies | Loan Guarantee FOREIGN CURRENCY GUARANTEE The Ex-Im Bank Foreign Currency Guarantee policy (FCG) was established to meet the competitive threat of other currencies. It is designed to help these buyers control certain risks associated with export credits by allowing an obligor to repay funds in the same currency as its revenue stream.. Cover for transactions denominated in foreign currencies is also available under Ex-Im Bank's Export Credit Insurance. The policies governing cover under the insurance program are the same as for the guarantee product and are affected by endorsement to an insurance policy. GUARANTEE As the name suggests, the FCG only contemplates the issuance of guarantees or insurance by Ex-Im Bank. Ex-Im Bank does not issue direct credits in foreign currencies. Under this and other Ex-Im Bank guarantees, a commercial bank extends an export credit to a buyer of US goods and/or services and Ex-Im Bank extends to a commercial bank a 100% guarantee of all principal and regular interest. In other words, Ex-Im Bank takes the full political and commercial risk of a credit. All lenders are eligible to use the program, provided that they enter into a standard Master Guarantee Agreement with Ex-Im Bank. The interest rate applicable to a guaranteed credit is negotiated between the borrower and the commercial bank. Ex-Im Bank neither determines guaranteed interest rates, nor regulates unguaranteed commercial bank fees or other charges. As with any credit guaranteed by Ex-Im Bank, a FCG credit must comply with the requirements of the OECD Arrangement on Guidelines for Officially Supported Export Credits. In addition, such credits are subject to Ex-Im Bank standard polices and procedures, including: 1. A risk based exposure fee (which may be financed under the guaranteed credit). Commitment and exposure fees are paid to Ex-Im Bank in U.S. Dollars on established dates. DISBURSEMENT During the disbursement period, the commercial bank either:
A significant devaluation of the foreign currency could therefore have a material effect on the amount of the foreign currency ultimately owed by the borrower. To cover this risk, Ex-Im Bank estimates the average exchange rate over the disbursement period and authorizes the foreign currency transaction on that basis. DEFAULT CONVERSION MECHANICS Under the FCG, in the event of a payment default, Ex-Im purchases the foreign currency, using the spot exchange rate on that day, to repay the lender. Ex-Im then converts (or “crystallizes”) the outstanding debt obligation into U.S. dollars equal to the amount that Ex-Im Bank paid to obtain the foreign currency. Thus, in effect, Ex-Im’s foreign currency guarantee policy shifts the post-claim exchange rate risk from Ex-Im Bank to the obligor If the borrower does not default, then Ex-Im Bank makes no payments. In this case, the credit stays as a foreign-currency based credit and the borrower faces no mismatch or other devaluation risk. CURRENCIES To date, Ex-Im Bank has announced a willingness to issue guarantees in a number of hard and soft currencies. This includes the following:
Ex-Im Bank is willing to consider any currency. If an exporter or a Bank is interested in Ex-Im support in a currency that is not on the above list, they should contact Ex-Im's trade finance group. Last Updated: July 2010 |
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