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Export Credits Guarantee Department

A department of the Secretary of State for Trade and Industry, its primary function is to encourage exports of British goods and services by offering guarantees, in the form of insurance against bad debts, and incentives, in the form of assistance in setting up a credit sales system abroad. The relevant statute is the Export Guarantees Act 1975, which consolidated a plethora of previous legislation. The insurance cover given will. in addition to protecting the vendor from non-payments of a trading nature, also offer protection against losses arising from political causes or exchange rate fluctuations. The cover is for all transactions, not single contracts.

Additional aid is given to new investment by the Overseas Investment and Export Guarantees Act 1972, which empowers the E.C.G.D. to provide insurance against losses arising from such risks as war, civil disturbance, expropriation of assets by foreign states or restrictions imposed on currency remittances. Although the E.C.G.D. does not provide actual financial assistance it works with the banking system in such a way that the guarantees given provide security for loans that the exporter may wish to obtain from banks; with most export contracts the bank will ask for the additional! security of assignment of the documentary bills of exchange drawn on the buyer and signed by him. In so far as these bills can be discounted by the banks, the transaction is similar to that in which an irrevocable documentary acceptance credit is used, but it has the valuable additional cover of the E.C.G.D. guarantee. Again, where such a guarantee exists, banks will often give the additional aid of a rate of interest fixed over the agreed repayment period.

Reference: The Penguin Business Dictionary, 3rd edt.