Deck 18: International Financial Management

Question 1

________ are considered less risky and are usually discounted less than ________.

A) Letters of credit; bills of exchange
B) Trade acceptances; bills of lading
C) Banker's acceptances; trade acceptances
D) Bills of exchange; banker's acceptances

Answer 1

C

Question 2

Which currency do importers typically prefer to use in transactions?

A) U.S. dollars
B) Japanese yen
C) home country currency
D) host country currency

Answer 2

C

Question 3

Janson Enterprises, a U.S. firm, is exporting medical equipment to an Indonesian firm that has poor credit. Which method of payment would Janson most likely prefer?

A) payment in advance
B) open account
C) letter of credit
D) credit card

Answer 3

A

Question 4

Which currency do exporters typically prefer to use in transactions?

A) U.S. dollars
B) Japanese yen
C) home country currency
D) host country currency

Question 5

What document serves as a title to the goods in question under the document collection payment method?

A) sight draft
B) bill of lading
C) bill of exchange
D) trade acceptance

Question 6

Theresa, an importer, uses a variety of payment methods when paying for goods. Which of the following is most likely the safest for Theresa?

A) letter of credit
B) wire transfer
C) open account
D) payment in advance

Question 7

When paying via ________, the goods are shipped by the exporter and received by the importer before payment, and the exporter then bills the importer for the goods, stipulating the amount, form, and time at which payment is expected.

A) payment in advance
B) open account
C) letters of credit
D) countertrade

Question 8

A ________ extends credit to the importer by requiring payment at some specified time after the importer receives the goods.

A) sight draft
B) time draft
C) bill of lading
D) bill of exchange

Question 9

FedEx provided Lewis Exporters with a document that serves as a contract for transporting twenty boxes from Boston to Paris. Which term best describes this document?

A) sight draft
B) bill of lading
C) bill of exchange
D) trade acceptance

Question 10

A ________ requires payment upon the transfer of title to the goods from the exporter to the importer.

A) sight draft
B) time draft
C) bill of lading
D) bill of exchange

Question 11

In specialized international lending activity, firms may engage in ________, where they buy foreign accounts receivable at a discount from face value.

A) factoring
B) lading
C) documentary collecting
D) financial drafting

Question 12

Thompson Exporters, a new exporting firm, provides a 5 percent discount to customers who use the safest method of payment. Which method of payment most likely receives this discount?

A) payment in advance
B) open account
C) letter of credit
D) countertrade

Question 13

Why would an exporter most likely consider an open account undesirable?

A) high fees from host country governments
B) heavy reliance on financial institutions
C) significant paperwork required
D) working capital tied up

Question 14

Major exporting countries typically invoice foreign customers in ________.

A) U.S. dollars
B) Japanese yen
C) its home currency
D) the foreign customer's currency

Question 15

Fulsom Exporting prefers that customers who pay in advance use a wire transfer. What is the most likely reason for this preference?

A) protection from FDIC
B) immediate access to funds
C) minimal interest rates and fees
D) protection from currency fluctuation

Question 16

More than 70 percent of developing country exports are invoiced in ________.

A) U.S. dollars
B) euros
C) Japanese yen
D) Swiss francs

Question 17

Theresa, an importer, uses a variety of payment methods when paying for goods. Which of the following forms of payment provides the most risk to Theresa?

A) letter of credit
B) wire transfer
C) open account
D) payment in advance

Question 18

Which currency is used most often for transactions involving commercial aircraft?

A) U.S. dollars
B) euros
C) Japanese yen
D) Swiss francs

Question 19

When acceptances are sold ________, it means that the buyer of the acceptance is stuck with the loss if the importer does not pay.

A) without recourse
B) with recourse
C) with pay
D) without pay

Question 20

An accepted time draft is called a ________.

A) sight draft
B) bill of lading
C) bill of exchange
D) trade acceptance

Question 21

A sogo shosha might assist in the sale of Mitsubishi trucks in Ghana, taking payment in cocoa, which then can be sold to keiretsu-linked food processors back in Japan or to independent candy makers anywhere. This is an example of ________.

A) counterpurchase
B) switching arrangements
C) offset purchase
D) clearinghouse accounts

Question 22

Which form of countertrade involves compensation arrangements whereby one firm sells capital goods to a second firm and is compensated in the form of output generated as a result of their use?

A) buy-back
B) parallel barter
C) offset purchase
D) clearinghouse accounts

Question 23

After issuing the letter of credit, the importer's bank sends it and the accompanying documents to the exporter's bank, which advises the exporter of the terms of the instrument, thereby creating a(n) ________.

A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) revocable letter of credit

Question 24

Which document is issued by a bank and contains its promise to pay the exporter on receiving proof that the exporter has fulfilled all requirements specified in the document?

A) bill of lading
B) bill of exchange
C) letter of credit
D) trade acceptance

Question 25

Japan's Fukusuke Corporation sold 10 knitting machines and raw materials to Chinatex, a Shanghai-based clothing manufacturer in exchange for one million pairs of underwear to be produced on the knitting machines. What form of countertrade is this?

A) buy-back
B) parallel barter
C) offset purchase
D) clearinghouse accounts

Question 26

What is the most common form of countertrade?

A) barter
B) offset purchase
C) counterpurchase
D) clearinghouse accounts

Question 27

Which form of countertrade is used when part of an exported good is produced in the importing country?

A) barter
B) counterpurchase
C) offset purchase
D) clearinghouse accounts

Question 28

What is the simplest form of countertrade?

A) barter
B) parallel barter
C) offset purchase
D) clearinghouse accounts

Question 29

Credit card companies collect ________ from the merchant for assuming the costs of collecting the funds from the customer and any risks of nonpayment.

A) flat fees
B) transaction fees
C) translation fees
D) floating fees

Question 30

Company X sold its products to Company Z in September. Company X will be compensated with Company Z's products in December. Which term best describes this transaction?

A) offset purchase
B) parallel switch
C) counterpurchase
D) clearinghouse accounts

Question 31

The ________ is a letter of credit that the bank may alter at any time and for any reason.

A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) revocable letter of credit

Question 32

Columbus Trading agrees to exchange coffee and rice to Romania in return for machinery. Which term best describes this transaction?

A) countertrade
B) in-kind payment
C) open account payment
D) documentary collection

Question 33

The ________ is a letter of credit that cannot be altered without the written consent of both the importer and the exporter.

A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) revocable letter of credit

Question 34

When acceptances are sold ________, it means that the exporter will have to reimburse the buyer of the acceptance in the case of nonpayment by the importer.

A) without recourse
B) with recourse
C) with pay
D) without pay

Question 35

A(n) ________ confirms that the goods being shipped were produced in the exporting country.

A) export license
B) certificate of product origin
C) inspection certificate
D) bill of lading

Question 36

Which term refers to an accounting system used to facilitate international countertrade that requires a firm to balance its overall countertrade transactions but not any single countertrade transaction?

A) open accounts
B) parallel barters
C) offset purchases
D) clearinghouse accounts

Question 37

A(n) ________ provides assurance that the products have been checked by authorities and that they conform to relevant standards.

A) certificate of product origin
B) inspection certificate
C) trade acceptance
D) bill of lading

Question 38

The State Trading Corporation of India agreed to exchange wheat and other grains to Turkmenistan in return for cotton. What form of countertrade is this?

A) counterpurchase
B) barter
C) parallel barter
D) offset purchase

Question 39

Which form of countertrade is used when each party simultaneously swaps its products for the products of the other?

A) barter
B) parallel barter
C) offset purchase
D) clearinghouse accounts

Question 40

Martin Exporting requests ABC Bank to add its own guarantee of payment to a letter of credit, which creates a(n) ________.

A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) unconfirmed letter of credit

Question 41

Why do exporters and importers sometimes choose to use a third country's currency for their financial transactions?

Question 42

What are the two roles of the bill of lading?

Question 43

Exporters usually prefer their payment in the home currency.

Question 44

Both payment in advance and open account share the characteristic of shifting the cash flow burden and risk of default to one party in a transaction.

Question 45

What is the primary risk an exporter faces with documentary collection?

A) bank changing terms
B) importer defaulting
C) issuing bank defaulting
D) importer failing to pay account balance

Question 46

International commercial transactions are so common now that credit checks are unnecessary.

Question 47

Thompson Exports prefers payments in advance, while Worldly Imports dislikes making payments in advance. Briefly explain the reason for this difference.

Question 48

Countertrade agreements often permit the use of switching arrangements, whereby countertrade obligations are transferred from one firm to another.

Question 49

Open account is the safest form of payment from the importer's perspective.

Question 50

Which payment method is appropriate when the exporter has complete trust in the importer?

A) payment in advance
B) open account
C) letter of credit
D) countertrade

Question 51

What are the major forms of payment for international transactions?

Question 52

A sight draft requires payment prior to the shipment of the goods.

Question 53

The simplest form of countertrade is barter, in which each party simultaneously swaps its products for the products of the other.

Question 54

Exporters prefer that payments in advance be made by check.

Question 55

The vast majority of the exports of less-developed countries and of the exports of Latin American countries are in-voiced using the U.S. dollar, whereas the exports of many of the neighbors of the European Union favor the euro.

Question 56

In a counterpurchase, one part of the transaction can proceed even if the second part of the transaction requires additional time.

Question 57

Open accounts are best suited for well-established, long-term customers or larger firms with impeccable credit ratings.

Question 58

Countertrade is primarily important to countries that lack ________.

A) foreign trade zones
B) convertible currencies
C) greenfield investments
D) democratic governments

Question 59

Why does Eximbank offer a working capital guarantee loan program?

A) promote foreign imports
B) encourage U.S. exports
C) protect emerging economies
D) encourage trade in U.S. dollars

Question 60

Payment in advance is the most favorable method of payment from the exporter's perspective.

Question 61

What conditions favor the use of each form of payment?

Question 62

Discuss the various forms of countertrade.

Question 63

In most international transactions, one of the parties has to bear transaction exposure.

Question 64

How can firms reduce their translation exposure?

A) go naked
B) use a balance sheet hedge
C) buy forward currency
D) acquire an offsetting asset

Question 65

The benefit of a firm going naked is making no capital outlays.

Question 66

A(n) ________ is created when an international firm matches its assets denominated in a given currency with its liabilities denominated in that same currency.

A) offsetting asset
B) income statement hedge
C) balance sheet hedge
D) cash account

Question 67

What are the primary issues associated with financing international trade? How does foreign exchange risk affect financing decisions?

Question 68

Which of the following strategies could result in a lost opportunity for capital gain if the home currency rises in value?

A) buying a forward currency
B) buying a currency option
C) acquiring offsetting assets
D) buying a currency future

Question 69

What role does the Export-Import Bank play in financing international trade?

Question 70

________ occurs when exchange rate movements that occur after the firm is legally obligated to complete the transaction can affect the financial benefits and costs of an international transaction.

A) Exchange rate risk
B) Transaction exposure
C) Translation exposure
D) Currency conversion risk

Question 71

How does a time draft become a banker's acceptance?

Question 72

________ is the impact on the firm's consolidated financial statements of fluctuations in exchange rates that change the value of foreign subsidiaries as measured in the parent's currency.

A) Exchange rate risk
B) Transaction exposure
C) Translation exposure
D) Currency conversion risk

Question 73

Which of the following is not a type of transaction that could lead to transaction exposure?

A) the sale of goods, services, or assets
B) extension of credit
C) a balance sheet hedge
D) borrowing of money

Question 74

Explain the process of documentary collection as an international payment method.

Question 75

The purchase of goods, services, or assets denominated in a foreign currency most likely leads to ________.

A) exchange rate risk
B) translation exposure
C) transaction exposure
D) currency conversion risk

Question 76

Which type of country relies most on countertrade?

Question 77

A firm faces translation exposure when the financial benefits and costs of an international transaction can be affected by exchange rate movements that occur after the firm is legally obligated to complete the transaction.

Question 78

Which of the following strategies offers firms the potential for capital gain if the home currency rises in value?

A) buying a forward currency
B) buying a currency option
C) acquiring offsetting assets
D) going naked

Question 79

What is a clearinghouse account? What are the benefits of using such accounts?

Question 80

Which of the following is not a type of foreign-exchange exposure?

A) transaction exposure
B) currency conversion exposure
C) translation exposure
D) economic exposure