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Business Credit Insurance & Political Risk Coverage

Many companies that are involved in international business don't understand the nightmare that political upheaval can cause when it comes to their receivables. Trade credit insurance can eliminate this nightmare.

Political risk coverage is a type of trade credit insurance that eliminates the difficulty of converting foreign currency to local currency. Usually, this is a non-issue since there is a booming foreign exchange market set up just for this purpose. Certain political situations can make it impossible to convert a given currency.

Take a small country that is in the midst of a coup, will the new leadership honor the existing debts of the previous leadership? The willingness to honor debts is what determines the global value of a country's currency (since money is simply a representation of a country's willingness to honor its value).

What about a country that has been declared a rogue nation by the global community? Such a declaration is generally accompanied by economic sanctions against the rogue nation (including restrictions of trading in that country's currency). Once again trade credit insurance can be the difference between getting paid or delivering goods and services for absolutely nothing.

It's the dream of many companies to expand into the global marketplace. Often this expansion is done without really understanding some of the political ramifications of doing so. Any company doing business in an unstable region (or any company that is unsure of political conditions) should use trade credit insurance to guarantee that the hard work of its management and employees will actually bring the income it hopes for.

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