For what reason might an exporter use standard international trade documentation (letter of credit, draft, order bill of lading) on an intrafirm export to its parent or sister subsidiary?

Question

What will be an ideal response?

Answer 1

Answer: An export to a parent or sister subsidiary has no credit risk because both exporter and importer are part of the same corporate unit. Non-payment to an exporter in this situation is just a matter of keeping the firm's cash in another corporate account. In fact, very late payment for an export to an affiliated importer might be desirable, because the firm wants to keep cash in one location and not in another. Nevertheless, an export to an affiliated buyer might pass through the standard documentation as a way to obtain financing that is easy to obtain, is possibly cheaper than alternative sources of short-term financing, or provides some protection against political or country based interruption to payment for the transaction.