If you export goods to another country, one potential problem with
credit is a swift devaluation of that country's currency. For example,
in 1994, the Mexican peso fell from 4 pesos per dollar to 7.2 pesos per
dollar in one week. The devaluation can make it difficult, if not
impossible, for the importing company to pay its bills. To cover the
risk there is trade-credit insurance. In fact, the recent decline in the
Indian rupee is expected to generate a 10 percent increase in trade-credit insurance for imports to that country. With trade-credit insurance,
if an importer has difficulty paying the counterparty, the trade-credit
insurer will step in and pay the exporter. At the same time, the
trade-credit insurer will make an agreement with the importer to pay the
debt in installments, often over a three to five year period.
