Manual del Estudiante

ASIGNATURA
Inglés para el Comercio Exterior

UNIDAD 1
Insurance

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 Índice de contenidos

Introduction Unit 1 ................................................................................................................... 3

1.1 Risk prevention in foreign trade ............................................................................................. 5

1.2 Insurance and Companies.................................................................................................. 15

1.3 Grammar focus ................................................................................................................. 25

Bibliography ........................................................................................................................... 29

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 Introduction Unit 1
English

English as a foreign lenguaje, is a real powerfull tool for students from different
professional areas.

In this english course, we will be introduced into specifical terms and contexts,
emphasising in the four habilities needed to develop. To achieve this objective, the
manual contains dialogues and audios, videos and activities.

In some exercises and tests, you have to record your voice, so that, it’s necesary a
multimedia tool to do so, (you can use an mp3 recorder, or cellphone).

This manual provides a helpful guide, since the clear real life examples, inmerse in
the different work areas.

Spanish

El idioma inglés, como lengua extranjera, es una herramienta que pueden utilizar
los estudiantes de diferentes areas de desempeño profesional.

En este curso de inglés, nos introduciremos en diferentes temáticas y contextos,

haciendo énfasis en las cuatro habilidades que se requiere desarrollar. Para
alcanzar este objetivo, el manual contiene diálogos y audios, videos y actividades.

En algunos ejercicios y evaluaciones, necesitará una herramienta multimedia para

grabar su voz (puede usar su teléfono celular, su computador, o cualquier otro
medio para generar un archivo mp3.).

Este manual proporciona una guía útil, ya que entrega ejemplos claros inmersos en
contextos reales, de las diferentes áreas de desempeño profesional.

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Important consideration:

For the purposes of this manual, we will convey that a phoneme is a

symbol that represents the correct sound of the letters. We can find them
in a dictionary.

Here you have an example:

/This symbol means pronunciation/

Need/ niːd/

List of words Meet / miːt/

Economy/ɪˈkɒnəmɪ/

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1.1 Risk prevention in foreign trade

In taking a decision to export, there are many

facets that need to be evaluated by the local
Producer/Exporter before a final conclusion is
reached. Apart from assessing the market
potential of the target countries, there is also a
need for the company to evaluate the different
types of risks associated with exporting to
particular territories. In this context the
company needs to implement in-house risk
management systems which can deal with the
levels of corporate risks associated with both
the domestic and export market.

Compared with other forms of bank lending, financing trade

transactions is popular because:

 Short term.
 Self-liquidating (e.g., banks finance the import of goods
which are then resold to repay the bank).
 Secured (by the underlying goods).
 Speedily completed (e.g., within the short life of a
documentary credit, there may be several transactions
which are completed quickly, at "high velocity")

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Risks Involved in International Trade
There are three main areas of risk: micro risks,
macro risks, and product risks.

Some of the more frequent problems in trade

financing are caused by a lack of appreciation
of country risk, foreign exchange risk, industry
risk, bank risk and fraud.

 Micro risks are encountered at the individual customer level and are confined to the
financial (credit) and operational risks associated with their business.
 Macro risks can be defined as those external factors which have a tendency to impact
adversely on a customer's international trade business.

Macro risk areas in more detail

Country Risk

The factors usually associated with this type of risk are the political and economic stability of a
country, exchange controls, if any, and the country's penchant for protectionism of domestic
industry at short notice. All these factors will determine whether the country can and will honor
their payment commitments-in time.

Did you know…

What holds the country back from being seen as a "more comfortable" level of risk is
the political problems caused by the separatist issue.

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Foreign Exchange Risk

Payments and receipts in foreign currency are an everyday occurrence in international trade and
the trader is always at the mercy of exchange rate fluctuations due to various economic, political
and even purely speculative reasons. The astronomical volume of the global foreign exchange
market leaves the importer/exporter with no control and an adverse movement in the transaction
currency vis-a-vis the local currency can wipe out the entire profit and more of the deal.

Bank Risk

When financing an importer or exporter, a bank often looks to the security of a backing document
issued by another bank, be it a guarantee or a documentary credit. It is important to realize that
the documentary credit issued by Bank A may not be as secure as that issued by Bank B, due to
Bank A.

To value risks banks take into account:

 Having a history or delaying or actually reneging on payment.

 Having a habit of rejecting documents iting tribial discrepancies;
 Being domiciled in a country notorious for foreign exchange restrictions and mortoriums.
 Being domiciled in a country classified as high risk.

Fraud

To cover the various aspects of maritime and indeed any other type of trade fraud requires
volumes of paper. There are various types of fraud like documentary fraud, counterpart fraud,
insurance scams, cargo theft, scuttling and piracy. Unfortunately, there are some countries which
are renowned for harboring fraudsters. The golden rule is "if the deal looks too good to be true, it
probably is" and one should be cautious when dealing with transactions which are much larger in
value than the norm. Forged documentary credits are always in circulation and fortunately, an
experienced trade services officer can detect a dud credit more often than not.

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 Important

If goods are released against an undertaking by the importer to pay in the

future - usually by accepting a draft - then the exporter/financing bank loses
control over the goods and this method of release termed D/A (documents
against acceptance) is more risky than D/P.

Documentary Credits

Here we will consider the bank in two roles: (1) as the institution financing the importer, and (2) as
the exporter bank.

Imports under Documentary Credit (DC)

Before undertaking to establish a DC for an importer, the bank should consider:

 The financial standing of the importer: The bank has to look to the importer to pay the
import bill drawn under the DC and therefore should be sure that the latter has or will
have the funds to pay.
 The goods: Trade finance is supposed to be self-liquidating and the goods must be readily
saleable. Consideration should also be given to the risks associated with perishability of
the goods, possible obsolescence, import regulations, packing and storage, etc.
 The status of the exporter (or beneficiary of the DC): There is always the risk that an errant
exporter could ship substandard goods or, worse still, complete rubbish, and one always
guards against this by finding out as much possible about the exporter using status reports
and other confidential information from banks and credit rating agencies such as Dun &
Bradstreet. It is always wise to request a reliable third party like SGS (a firm of

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 international cargo inspectors) to inspect the goods prior to shipment and produce a
report called an inspection certificate. Such a document is often called for under a DC.

There has been many an instance where the exporter has shipped rubbish and still produced a
compliant set of documents. Under the Uniform Custom and Practice for Documentary Credits
(UCP), ICC publication No. 500, all parties deal in documents and a tender of compliant
documents to the issuing bank means that the bank will have to pay. The only redress that is
available to the importer is if he can conclusively prove fraud and get the courts to issue an
injunction restraining the bank from making payment.

Important

The DC itself is a contract between the importer's bank (the issuing bank) and
the exporter. It makes a lot of sense to find out about the party contracting with
prior to issuing the contract.

One must also consider the various macro risks and it is imperative that the goods are suitably
insured by & reputable insurance company. The bank should endeavor to retain control over the
goods until release to the importer and this can usually be achieved with a suitable transport
document like the Bill of Lading or the Air Waybill.

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Exports under DC

One of the greatest services a bank can do for

its exporter in advising the DC it receives from
an overseas bank is to check carefully whether
it is workable and that the exporter will be able
to comply with its terms and conditions. This is
called checking the workability of a DC and very
often one encounter exporters finding that
they cannot produce a compliant set of
documents under the DC. Payment is thus
delayed due to discrepancies between the
documents and the DC or, worse still, not
forthcoming at all.

Many exporters submit documents to their bank and request that the bank negotiate the
documents, i.e. they want the bank to give value for the documents prior to reimbursement by the
issuing bank. Provided bank risk and country risk considerations have been dealt with, the
exporter's bank - now termed the negotiating bank - will have to check the documents carefully
against the DC and if they are in order, i.e., no discrepancies, the bank will discount the export bill.
The documents are then sent to the issuing bank, which will check the documents and then
reimburse the negotiating bank. If the issuing bank finds discrepancies overlooked by the
negotiating bank, they will reject the documents and if the applicant is also unwilling to take up
the documents, the negotiating bank will have to turn to the exporter for reimbursement-usually
not an easy task as the exporter may have already used the funds other trading activities. The
situation is more serious if the negotiating bank is also the confirming bank. Here, the negotiating
bank takes on the same liabilities and responsibilities of the issuing bank, and therefore have no
recourse to the exporter.

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 Areas & Causes of Export Risk
Knowing the risks associated with exporting to
a particular country is, therefore, an important
factor, as it could determine how the company
will mitigate against these risks. This also has a
bearing on the level of market penetration and
profitability that can be achieved in a particular
target export market.

To understand these risk factors, the following is a brief description of the likely problems that
may arise and which will need to be addressed in the main risk groups associated with exporting:

 Country/political risk.
 Legal risk.
 Credit & financing risks.

In addition to the above, there are a number of other secondary risk concerns that companies
needs to be aware of, which include:

Macro-economic mismanagement risk: this relates to governments who may pursue unsound
monetary/fiscal policies e.g. if a situation occurs where a country’s policies.

 Insurance gap risk: the possibility that multi or bi-lateral or private insurance cover may
not be obtainable or only partly available due to the country/political risk of a particular
export county being high. This leaves an insurance gap that cannot be covered except by
the Producer/Exporter himself. Here it may be possible to take out insurance cover from
several sources that will cover different aspects of the deal, instead of trying to secure a
single insurance deal.
 Cargo theft risk: this is a growing area of risk where the cost of insurance cover is rising
regularly because the incidence of theft is also rising rapidly.

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Did you know…

Other areas of risks: these could include the following;

 War & civil disorder: creating general disruptions in getting products
to market.
 Labor unrest: creating higher costs, work stoppages, etc.

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Risk Management Structure

For any company, to implement sales policies with confidence that business opportunities can
be maximized while alleviating the levels of risks to be encountered in the export markets,
there is a need to understand the structure of risk, what aspects need to be evaluated and
how they can be minimized. The following two charts identify the various levels of
international risk associated with exporting and breaks them down into their constituent
parts, so that each risk can be better understood:

Levels of International Risks Associated with Exporting

RISK GROUPS RISK SUB-GROUPS

 Country risk - defined as the risk  Sovereign risk - defined as risk
that something may happen in a from customers that are in the
foreign country which will public sector.
negatively influence the willingness  Transfer risk - defined as risk
or ability of public and/or privately from customers that are in the
owned customers in that country private sector.
to pay their debts on time. Country  Cross-border risk - describes the
risk is caused by political risk related to the volatility of
(unwillingness to repay) or returns on international
economic (inability to repay) events investments caused by events
in a particular country. associated with a particular
country as opposed to events
associated solely with a particular
economic or financial agent.
 Local company risks - the risk
based on the financial standing of
the company and its ability to
meet business commitments.
 Customer/counter party risk - the  Local currency risk - the risk that
risk that the other party to an a business’ operations or an
agreement will default. In an options investments value will be
contract, the risk to the option affected by changes in exchange
buyer that the option writer will not rates.
buy or sell the underlying (defined  Covariant with country risk - a
as: what supports the security or statistical measure of the degree
instrument that parties agree to to which random variables move
exchange in a derivative contract) as together.
agreed.

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 Systemic risk - risks that affects an  Governance - A generic term
entire financial market or system, which describes the ways in
and not just specific participants. It which rights and responsibilities
is not possible to avoid systemic risk are shared between the various
through diversification. corporate participants via the
management.
 Accounting standards - the
adoption of certain accounting
principles and methods when
preparing accounts.
 Transparency - managerial
transparency refers to the
actions, writing and plans of
organizations that exclude any
hidden information, motives or
data.
 Contagion - excess correlation of
equity or bond returns.
Contagion is difficult to identify
because there is a need for some
sort of measure of the expected
correlation. It is complicated
because correlations are known
to change through time.

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 1.2 Insurance and Companies

An insurance policy is a financial contract between a policyholder and an insurer, which is almost
always an insurance company. The insurer agrees to pay in the event that the person or property
insured suffers a type of loss named in the policy.

In return for coverage, it’s paid the insurer a specified amount, called the "premium." Premiums
are typically paid in monthly installments, but may also be paid all at once or in other intervals.
Insurance companies use a process called "underwriting" to evaluate the risk factors and estimate
the statistical likelihood that will be suffer a covered loss and file a claim. The higher a company
determines risk factors to be, the more it will charge in premium (as the company believes it is
more likely that it will have to pay). If the risk factors are too high, a company may decline to sell
a policy. Each insurance company uses its own underwriting formula for assessing risk factors. If
one company turns down, keep shopping; another company may be willing to cover.

Pay attention to the following conversation: Calling the Insurance Company

How may I help you?

I need to ask you something about my insurance.

What's your question?

Did you make any changes to my insurance?

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 What kind of changes are you referring to?

My premium isn't the same.

Is there a problem with your premium?

Did you guys raise my premium?

Yes, we did go up on the premiums.

Why wasn't I told of this change?

I apologize, and next time we will make sure to let you know.

I'd appreciate that.

Did you know…

The insurance sector is made up of companies that offer risk management in the
form of insurance contracts. The basic concept of insurance is that one party, the
insurer, will guarantee payment for an uncertain future event. Meanwhile, another
party, the insured or the policyholder, pays a smaller premium to the insurer in
exchange for that protection on that uncertain future occurrence.

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What Are the Different Types of Insurance Companies?

Not all insurance companies offer the same products or cater to the same customer base. Among
the largest categories of insurance companies are accident and health insurers; property and
casualty insurers; and financial guarantors.

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 Alex, today I’ll explain you one of the most
interesting features of insurance companies.
They are essentially allowed to use their
customers' money to invest for themselves.
This makes them similar to banks, but the
investing happens to an even greater extent.
This is sometimes referred to as "the float."
Float occurs when one party extends money to
another party and does not expect repayment
until after a circumstantial event. This
mechanism essentially means insurance
companies have a positive cost of capital. This
distinguishes them from private equity funds,
banks and mutual funds.

Insurance for international trade

If a business is new to international trade, it is important to assess and plan for the different risks
that can invariably face. When risks are evaluated the potential customer, also look into risks
associated with the countries in which they operate.

As well as physical loss or damage to goods, it’s important to plan for problems of cash flow to
allow for the time that goods are in transit or in bonded warehouses here or abroad and/or
heightened risk of non-payment by customers. In some cases is also needed to plan for risks
associated with faulty goods or services.

Types of International Insurance

International insurance is not one specific policy; instead, it is an array of policies that businesses
can choose to best cover the risks that their company faces in its work abroad. Working with a
benefits broker can help a business determine exactly what type of coverage fits their needs. The
company can then choose the policies that best address these potential losses.

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Many types of international insurance are similar to those that a company may already have
domestically. For example, an international general liability policy will protect a business from
lawsuits in foreign countries based on accidents, injuries, or negligence. It offers coverage for a
broad range of claims, such as property damage and bodily injury, which may result from normal
business operations.

International product liability insurance covers losses due to products that cause bodily injury or
property damage. Companies that manufacture, sell, distribute, or repair products outside of the
United States will often benefit from international product liability policies. Just like the domestic
version, the international product liability insurance policy will cover injuries or damage that occur
as a result of a defective product.

An international professional liability insurance policy will provide protection for any business that
provides services abroad. Also known as malpractice or errors and omissions insurance, this policy
will generally cover the cost of defending a lawsuit and any settlement or award.

Ocean Cargo Insurance

For businesses that utilize ships to send goods overseas, ocean cargo or marine insurance will
protect losses related to this transport. It typically covers losses to the merchandise or goods, the
crew, employees, and others, both while on a ship and while being transported to the ship over
land or via plane. Many policies also provide coverage for any damage to the vessel itself, along
with legal liability associated with the shipment.

Ocean cargo insurance is particularly important for exporters who are not paid for the
merchandise at the time of shipment or importers who have paid for all or part of the shipment
before receiving it. If something happens to the goods in transit, an ocean cargo insurance policy
will cover the financial loss, above and beyond what the carrier might cover in the event of an
accident.

Insurance for exports

Many exporters arrange insurance and freight but pass on the cost to the buyer. Where this is the
case, agreed terms are likely to be Cost Insurance Freight to a named destination port - in other
words it’s charging the customer for the cost of goods as well as insurance and freight to the port
or airport of their choice.

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Figure: Ocean marine insurance.

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Insurance for imports
The following types of cover are available:

 Open cover - for all journeys.

 Specific (voyage) policy - for one-off shipments.
 Seller's interest contingency - back-up for physical loss or damage where there is not
arranged the cargo insurance.

Important

A specialist cargo insurance broker will find a good price, ensure the cover
suits that are needed and help with claims.

It’s important to be aware that carriers, freight forwarders or third-party

service suppliers will not automatically insure goods that are under their care or
control. They can only do so if instructed in writing.

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Documentary credit (DC)

DC (commonly known in many countries as a Letter of Credit) is a fixed assurance from the buyer's
bank in the buyer's country. It is issued on behalf of the buyer to say that payment will be made
for the goods or services supplied by business, providing comply with all terms and conditions
established by the credit.

Important

If it is a cash contract, the DC terms will provide for payment immediately

upon presentation of conforming documents to the issuing bank – i.e. before
goods are released to the customer.

If it’s offered credit, the DC terms will state when payment is due, reflecting any
extended payment terms granted. The bank may be prepared to provide a
short-term loan, for a percentage of the DC, prior to shipment to cover the
temporary shortfall. They will then collect from the proceeds of the subsequent
presentation of the DC.

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Pay attention to the following conversation: Documentary credit

Nicole, the dresses are wonderful, and my customers on the West Coast are
going to love them.

Thank you. There were one or two tricky moments, but I think it all worked
out in the end.

One thing in the show did bother me, though.

Really? What was that?

All those so-called fashion correspondents with their sketch books, sketching
everything that came through the door. I don't see them here at the
reception.
Oh, they've gone off to file their stories for tomorrow's newspapers.

Some of them, maybe, but a lot of them are busy faxing those sketches back
home to the sweatshops. By tomorrow they'll be turning out Nicole
Vernay exclusives ready to ship, and they’ll have you all stitched up.
Well, I've signed a deal with a very respectable firm in South Korea. They
already have my designs, so I hope that the pirates won't be able to compete.

Great idea! Does that mean I have to order from Korea as well?

Yes, I'm sorry, Karen - Skopje's will have to place its orders with Fashionpark
just like everyone else. Even I have to get my stock from them - for my own
little boutiques here in Paris.

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Factoring

A factor enables to receive cash within a few days of invoicing, by taking on the ongoing
responsibility for collecting short-term debt. In some cases the factor will also take on a
percentage of the non-payment risk. This is called non-recourse factoring and means the factoring
company won't come back to if the payer defaults.

Forfaiting

Forfaiting enables exporters to convert a credit sale into a cash sale. However, this is for larger
projects and medium- to long-term financing.

Credit insurance facilities

An exporter can also raise finance by assigning the credit-insured invoices to banks. In return the
bank will offer up to 100 per cent of the insured debt as a loan. It’s important to ask the bank
whether they offer this kind of support.

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 1.3 Grammar focus

What is a Conditional?
The first conditional and second conditionals talk about the future. With the third conditional we
talk about the past. We talk about a condition in the past that did not happen. That is why there is
no possibility for this condition. The third conditional is also like a dream, but with no possibility of
the dream coming true.

Third conditional

Notice that we are thinking about an impossible past condition. You did not win the lottery. So the
condition was not true, and that particular condition can never be true because it is finished. We
use the Past Perfect tense to talk about the impossible past condition. We use would have + past
participle to talk about the impossible past result. The important thing about the third conditional
is that both the condition and result are impossible now.

Look at these example sentences:

If Condition in Past Perfect Result “would have + past participle

If I had seen Mary, I would have told her
If they had not passed their exam, their teacher would have been sad.
if it had rained yesterday, would you have stayed at home?

We make the third conditional by using the past perfect after 'if' and then 'would have' and
the past participle in the second part of the sentence:

 “If that guy had given me the correct directions, then I wouldn’t have met my wife.”

We use the third conditional to talk about hypothetical or unreal situations in the past

The guy didn’t give me the correct directions and I did meet my wife. The third conditional allows
us to talk about different past actions (unreal) and how they would affect the past. So it talks
about the past and it’s used to describe a situation that didn't happen, and to imagine the result
of this situation.

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 Pay attention to these examples:

 If I had known you were in town, I would have gone to visit you.
 If the prices had been lower, we would have bought more shares.

Time Clause rules

Though the patterns for forming time clauses are similar to regular clauses, with the same word
order (except with an adverb of time first), but time clauses use particular tense rules.

Time clauses only use different rules for future tenses; when talking about past or present events,
you can generally use regular tenses for time clauses.

 Before we cook pies, we wash our hands.

 He came home after he finished work.
 We had dinner before we watched the movie.

For the future, we use the present tenses to talk about future times:

 He will finish reading the book after he eats dinner. (Not after he will eat dinner.)
 They are going to the museum before we arrive. (Not before we are going to arrive.)
 I might practice my pronunciation until my friend’s lesson has finished. (Not until my
friend’s lesson will have finished)

Do not repeat the future tense in clauses with adverbs of time

As you can see in the examples above, when two clauses are joined by adverbs of time the future
form should not be repeated.

 She will meet me after it stops raining. (Not after it will stop raining)
 I’ll turn off my computer when he does. (Not when he will)

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Passive Voice

A verb is in the passive voice when the subject of the sentence is acted on by the verb. For example, in “The
ball was thrown by the pitcher,” the ball (the subject) receives the action of the verb, and was thrown is in
the passive voice. The same sentence cast in the active voice would be, “The pitcher threw the ball.”

Example:

1. My laptop was stolen. (The object – now the subject = My laptop /

action= was stolen)

a. Passive: Twenty civilians were killed in the bomb explosion.

b. Active: Someone killed twenty civilians in the bomb explosion.

The passive voice in each tense:

Tense Auxiliary verb + sample V3 (past Examples

participle)

Present simple am, is, are + made  Wine is made from grapes.
 Many cars are made in Japan.

Present am, is, are + being + sent  The document is being sent right now.
progressive  I am being sent to work in the London
office.

Past simple was, were + invited  John was invited to speak at the conference.
 We were invited to Daniel and Mary’s
wedding.

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Past was, were + being + washed  The dog was being washed when I got
progressive home.
 Their cars were being washed while they
were in the mall shopping.

Future (will) will be + signed  The contract will be signed tomorrow.

 The documents will all be signed by next
week.

Future (going am, is, are + going to be + built  A bridge is going to be built within the next
to) two years.
 New houses are going to be built in our
neighborhood.

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 Bibliography

Grant, D., McLarty, R. (2001). Business Basics.

Oxford University Press.

Barnard, R., Cady, J. (2010). Business Venture.

Oxford University Press.

Murphy, R., (2004).English Grammar in Use II

Cambridge University Press.

Jocelyn Blink, J.; Dorton, I. (2011). Economics course. Oxford University press. Cap 1

Frendo E.; Mahoney, S. Oxford. English for accounting

Mascull, Hill Business vocabulary in use

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