Banking · International Banking and Risk Management
Which combination of statements accurately defines the financial technique of Forfaiting and the key features of the Sterling Overnight Index Average (SONIA)?
- 1Forfaiting involves a guarantee provided by the importer's bank without purchasing the underlying asset. SONIA is structurally identical to the old Sterling LIBOR and is administered under the same forward-looking panel methodology.
- 2Forfaiting is a type of domestic factoring always executed for consumer goods where the bank retains residual risk. SONIA is a secured rate, fully collateralized by UK government bonds, making it unsuitable for unsecured corporate lending.
- 3Forfaiting is the non-recourse purchase of medium-to-long term (180 days to seven years) trade receivables, removing political and commercial risk from the exporter. SONIA is a backward-looking, transaction-based overnight rate derived from actual unsecured funding data in the Sterling market.✓
- 4Forfaiting is the purchase of short-term (less than 90 days) trade receivables with full recourse to the exporter. SONIA is a forward-looking term rate based on panel bank expectations, incorporating a built-in credit risk premium.
Correct answer
Forfaiting is the non-recourse purchase of medium-to-long term (180 days to seven years) trade receivables, removing political and commercial risk from the exporter. SONIA is a backward-looking, transaction-based overnight rate derived from actual unsecured funding data in the Sterling market.
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