Question

Explain why forfaiting would be a preferred method for an organisation like Boeing when conducting trade finance.

Answer 1

Forfaiting will be a preferred method for an organization like Boeing when conducting trade finance because of the fact that it will enable Boeing to receive immediate cash. A company like Boeing sells and leases its aircrafts to airline companies across the globe and hence it will be having both medium as well as long term receivables. Through use of forfaiting Boeing will be able to convert all its medium as well as long term receivables to cash immediately. Of course this will involve a discount that Boeing will have to give to the forfeiter but it will help Boeing to eliminate all its risk exposure related to the receivables. Boeing will become insulated from the default risk on its receivables. Also as Boeing sells its aircrafts to different countries it will also be able to eliminate risks posed by foreign exchange rates as well through forfaiting.