Deck 14: Exporting, Importing, and Countertrade

Question 1

Issued by a bank at the request of an importer, a letter of credit states that the bank will pay a specified sum of money to the exporter, on presentation of particular, specified documents.

Answer 1

True

Question 2

For U.S. firms, the most comprehensive source of information on export opportunities is the U.S. Department of Commerce.

Answer 2

True

Question 3

In international commerce, time drafts are non-negotiable instruments.

Answer 3

False

Question 4

In domestic trade transactions, a buyer can often obtain possession of merchandise without signing a formal document acknowledging his or her obligation to pay.

Question 5

Compared to a decade ago, commercial banks and major accounting firms are more willing to assist small firms in starting export operations.

Question 6

A company would hire a freight forwarder if it wanted to minimize shipping costs and combine many smaller shipments into one large shipment.

Question 7

It often makes sense for a firm to enter a foreign market on a large scale to reduce the costs of any subsequent failure.

Question 8

Most small firms actively seek opportunities for exporting rather than wait for demand from another country.

Question 9

In international commerce, a person or business initiating a draft is known as the drafter and the party to whom the draft is presented is known as the draftee.

Question 10

The CORE tool is used by all-sized companies to determine a company's readiness to export a product.

Question 11

The Export-Import Bank provides financing aid to prospective U.S. exporters.

Question 12

Reactive firms do not consider exporting until their domestic market is saturated.

Question 13

A bill of lading verifies to the exporter that his or her company is guaranteed payment and, as a result, the exporter will ship the products.

Question 14

Lack of trust in international trade is exacerbated by the distance between the two parties in space, language, and culture.

Question 15

A draft instructs the exporter to ship product.

Question 16

A bill of lading proves that the carrier has received the merchandise described on the document.

Question 17

Germany is one of the world's least successful exporting nations because it simply lacks knowledge of opportunities.

Question 18

An international business would use a sight draft when it wishes to delay payment.

Question 19

Only large companies have benefited significantly from the moneymaking opportunities of exporting.

Question 20

The mission of the Foreign Credit Insurance Association is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries.

Question 21

What is an accurate assessment when comparing exports of Germany, Japan, and the United States?

A) Historically, only the United States has made its living as a trading nation.
B) Germany and Japan are relatively self-contained continental economies in which international trade played a minor role.
C) Unlike Japan or Germany, U.S. firms have a strong information advantage when they seek export opportunities.
D) The United States has not yet evolved an institutional structure for promoting exports similar to that of Germany or Japan.
E) The Ministry of International Trade and Industry (MITI) in the United States is always on the lookout for export opportunities. There is no such organization elsewhere.

Question 22

The function of sogo shosha in Japan is to

A) proactively and continuously seek export opportunities for their affiliated companies.
B) exclusively serve the largest and most prestigious companies in Japan.
C) have offices concentrated in the business district of Tokyo.
D) monopolize the export market in the country.
E) consider export only when there is excess production at home.

Question 23

Which institution within the U.S. Department of Commerce is dedicated to providing businesses with intelligence and assistance for attacking foreign markets?

A) International Trade Administration
B) Small Business Administration
C) Federal Trade Commission
D) Bureau of Competition
E) Bank of New York

Question 24

Jeff, the sales manager for Audio-Visual Systems, a small family business, is eager to get the company on an export path. The CEO of the company is not convinced, however. To convince the CEO, Jeff should point out that firms that do not export often

A) face problems of currency conversion.
B) lose out on significant opportunities for cost reduction.
C) are able to reduce their unit costs.
D) typically grow faster than those that do.
E) can more easily leverage their technology in foreign markets.

Question 25

Barter is primarily used with trading partners who are not creditworthy or trustworthy.

Question 26

Unhappy with the speed with which the company's export initiative was going, the CEO called Ken, the person in charge of exports at Resolve Products. What aspect of exporting can Ken use to validate the slow progress of Resolve Products' efforts?

A) The U.S. government does not provide any help for exporters.
B) Novice exporters tend to overestimate the time required to cultivate business in foreign countries.
C) Exporters often face voluminous paperwork, complex formalities, and many potential delays and errors.
D) Small firms are usually familiar with foreign market opportunities.
E) Large firms do not consider exporting until their domestic market is saturated.

Question 27

One characteristic of exporting that many first-time exporters do not realize is that

A) many foreign customers require face-to-face negotiations on their home turf.
B) large firms tend to wait for the world to come to them, rather than going out into the world to seek opportunities.
C) exporters have the advantage of reduced paperwork and fewer formalities.
D) medium-size and small firms are proactive about seeking opportunities for profitable exporting.
E) firms that focus only on exporting often lose out on significant opportunities for growth and cost reduction.

Question 28

Exporting is nearly always a way to increase the revenue and profit base of a company because

A) there is little competition in the international market.
B) foreign governments encourage imports from other countries.
C) international markets are less complex than their domestic counterparts.
D) the international market is much larger than the domestic market.
E) it does not involve wasting resources on paperwork.

Question 29

Manuel, the CEO of Gilson Products, a small manufacturer of office furniture, is going abroad along with representatives of the U.S. Department of Commerce and other U.S. businesspeople to meet with qualified agents, distributors, and customers. Manuel is most likely participating in the

A) matchmaker program.
B) "best prospects" listing.
C) SCORE program.
D) "comparison shopping service."
E) export-import program.

Question 30

Many medium-size firms are not proactive in seeking export opportunities because

A) they are familiar with the foreign market and do not find it challenging enough.
B) the export market is similar to the home market in terms of legal and business practices.
C) they are intimidated by the complexities and mechanics of exporting to foreign countries.
D) domestic regulations limit their ability to export profitably.
E) they can't recruit managers with the expertise needed to cultivate business in foreign countries.

Question 31

When seeking opportunities for profitable exporting, large firms generally tend to be

A) passive.
B) risk averse.
C) wary.
D) proactive.
E) neutral.

Question 32

Countertrade's main attraction is that it can give a firm a way to finance an export deal when other means are not available.

Question 33

In terms of exporting, what can be said of medium-sized and small firms?

A) They are proactive about seeking opportunities for profitable exporting.
B) They consider exporting only after their domestic market is saturated.
C) They are not intimidated by the complexities of foreign legal systems.
D) They have a high degree of familiarity with foreign market opportunities.
E) They explore foreign markets to find opportunities for leveraging their technology.

Question 34

Without a letter of credit, an exporter faces the risk that the foreign importer will not make payment.

Question 35

A common pitfall that novice exporters come across involves

A) poor understanding of the domestic market.
B) low unit costs.
C) increased economies of scale.
D) problems securing financing.
E) familiar distribution systems.

Question 36

Sogo shosha in Japan are a type of

A) freight forwarder.
B) trading house.
C) currency exchange.
D) production site.
E) customer service center.

Question 37

One way the U.S. Department of Commerce helps potential exporters is by

A) overseeing volunteers with international trade experience.
B) assembling a "comparison shopping service" for countries that are major markets for U.S. exports.
C) coordinating a nationwide group of international trade attorneys who provide free initial consultations to small businesses.
D) providing export specialists who act as the export marketing departments for their client firms.
E) starting exporting operations for firms until they are well established.

Question 38

Kristine works for Ringer Labs in Salt Lake City, Utah. Her company is seeking information on export opportunities. What is the best source of information Kristine can use?

A) Small Business Administration
B) Department of Commerce
C) Federal Trade Commission
D) United Nations
E) Federal Deposit Insurance Corporation

Question 39

A countertrade indicates the exchange of money for goods and services.

Question 40

An offset agreement limits the flexibility to choose the goods an exporter wants to purchase.

Question 41

A medium-size skincare company based in Minnesota plans to expand operations into four countries in Europe. The company decides to hire a(n) ________ that can help the company with the specific laws and documentation requirements for imports for the four countries.

A) confirming house
B) customs broker
C) export packaging company
D) franchisee
E) buying agent

Question 42

Miami WindSails wants to export but, as a small family business, is cautious, particularly with respect to financial risk. What is a strategic step that you would advise Miami WindSails to take to increase its probability of exporting successfully?

A) avoid the use of export management companies to contain costs
B) enter several markets simultaneously to hedge risk
C) enter a foreign market on a small scale
D) wait for export opportunities to come to them
E) avoid recruitment of local personnel

Question 43

What is the purpose of a letter of credit?

A) It states that the bank will pay a specified sum of money to a beneficiary on presentation of particular, specified documents.
B) It is a document written by an exporter instructing an importer to pay a specified amount of money at a specified time.
C) It serves as a receipt, a contract, and a document of title.
D) It indicates that the carrier has received the merchandise described on the face of the document.
E) It allows buyers to obtain possession of merchandise without signing a formal document acknowledging his or her obligation to pay.

Question 44

What is an advantage of having a letter of credit?

A) It allows payment for merchandise after its delivery.
B) It facilitates an exporter to obtain pre-export financing.
C) It allows an exporter to get a higher price for his or her goods.
D) It helps exporters incur lower shipping costs.
E) It does not require the importer to pay any fee.

Question 45

How do international and domestic practices of settling trade transactions differ?

A) In an international transaction, a formal promise to pay is required before the buyer can obtain the merchandise.
B) In an international transaction, the seller usually ships merchandise on an open account.
C) In a domestic transaction, a draft is used to settle trade transactions.
D) In an international transaction, the exporter sends a commercial invoice that specifies the amount due and terms of payment to the importer.
E) In an international transaction, there is more trust between the exporter and the importer than in a domestic transaction.

Question 46

Peterson Manufacturing wants to import a machine from Germany. However, the company's head of manufacturing is reluctant to spend the time required to obtain a letter of credit that the German exporter insists on. You are the company's CFO. What advantage of a letter of credit will help convince the head of manufacturing that this is worthwhile?

A) The importer does not have to pay for the merchandise until the documents have arrived.
B) Obtaining pre-export financing becomes easier.
C) It helps the importer to get goods for a lower price.
D) It results in lower shipping costs.
E) The importer does not have to pay the third party a fee for facilitating the transaction.

Question 47

As an exporter, Horizon Trading wants to be paid before a consignment is shipped. Correspondingly, its importer in Italy, Friggo Imports, wants to pay only upon receipt of the consignment. These conflicting preferences of Horizon Trading and Friggo Imports are most likely a manifestation of

A) corporate greed.
B) acculturation.
C) lack of trust.
D) cultural insensitivity.
E) countertrading opportunities.

Question 48

Firms engaged in international trade deal with people they may have never seen, who live in different countries, who speak different languages, and who abide by different legal systems. These factors result in

A) easy tracking of the parties involved.
B) a lack of trust between the parties.
C) strict enforcement of contractual obligations.
D) rapid acculturation.
E) better understanding of how transactions should be configured.

Question 49

For an importer, what is a disadvantage of using a letter of credit for international transactions?

A) It results in the importer losing control over the process of trading.
B) It reduces the exporter's level of trust in the importer.
C) It reduces the importer's ability to borrow funds for other purposes.
D) It requires the importer to repay the loan even before the merchandise is sold.
E) It is not issued at the importer's request.

Question 50

Savannah Pecans is a fourth-generation family business. The company has concentrated on the U.S. market by selling its products primarily in the United States but now wants to sell abroad. The board of directors is hesitant about new markets because of their lack of knowledge regarding foreign legal systems and languages. What is the likely reason behind this hesitation?

A) poor education
B) a lack of trust
C) tariff barriers
D) rapid
E) licensing arrangements

Question 51

In terms of using a third party in international trade, title to the products is given to a bank by the exporter in the form of a document known as a

A) merchandise bill.
B) bill of lading.
C) bill of exchange.
D) draft.
E) letter of credit.

Question 52

The Eks-Plore Company exports outdoor gear for firms on the east coast of the United States. The company identifies companies in Europe and Asia that market and sell these products. Eks-Plore handles all documentation, logistics, and transportation for the products. What type of business is the Eks-Plore Company?

A) export trading company
B) wholly owned subsidiary
C) franchise
D) confirming house
E) piggyback marketers

Question 53

The government organization that employs 76 district international trade officers and 10 regional international trade officers throughout the United States as well as a 10-person international trade staff in Washington, D.C., to help to help potential exporters is the

A) Federal Trade Commission.
B) U.S. Commercial Service.
C) International Trade Administration.
D) Small Business Administration.
E) sogo shosha.

Question 54

Tuf-Enuf Steel, a rapidly growing company, is looking to buy a large industrial furnace from Thailand that is expected to cost $3 million. The exporter wants Tuf-Enuf Steel to produce a letter of credit, but its CFO is reluctant to do so. What disadvantage of letter of credits is the likely reason for the CFO's reluctance?

A) It results in the importer losing control over the process of trading.
B) It reduces the exporter's level of trust in the importer.
C) It reduces the importer's ability to borrow funds for other purposes.
D) It requires the importer to repay the loan even before the merchandise is sold.
E) It is not issued at the importer's request

Question 55

The Small Business Administration coordinates a group of ________ in the ELAN program who provide free initial consultations to small businesses on export matters.

A) engineers
B) politicians
C) accountants
D) attorneys
E) networkers

Question 56

Neptune Corp. is exporting for the first time to Australia and has contracted with Pinkerton Imports in Melbourne for an initial order valued at $110,000. Neptune Corp. wants Pinkerton Imports to secure a document from a Melbourne bank that indicates the bank will pay Neptune Corp. $110,000 upon presentation of specified documents by the exporter. What document is Neptune Corp. asking for?

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

Question 57

The Small Business Administration oversees almost 11,500 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses through its program known as the

A) Export Legal Assistance Network.
B) Service Corps of Retired Executives.
C) International Trade Veteran's Group.
D) Network of Foreign Trade Executives.
E) Export Management Company.

Question 58

Deli-Lite has a contract with a foreign client to provide low-fat deli trays. Deli-Lite does not have one of the items the foreign client wants on the trays, so it decides to contract with Green Source to fulfill this contract. What is this an example of?

A) piggyback marketing
B) an acquisition
C) a customs broker
D) licensing
E) a remarketer

Question 59

Mulch-Rite Inc., based in Germany, has contracted with a company in Italy to export twenty tons of mulch. Mulch-Rite has written an order requesting that the Italian company pay €15,000 by June 15 prior to the shipping date. This order is an example of a

A) bill of lading.
B) draft.
C) letter of credit.
D) counterpurchase.
E) buyback.

Question 60

A lack of trust between two parties engaged in international trade can be exacerbated by the

A) saturation of the domestic market.
B) similar preferences of the parties regarding how a transaction should be configured.
C) narrowing distance between the two parties due to technological advances.
D) problems of using an underdeveloped international legal system to enforce contractual obligations.
E) possibility of doing business with someone with whom they have been associated for a long time.

Question 61

A U.S. company would invest in export credit insurance when it

A) is exposed to the risk that an importer may default on payment.
B) is dealing in a country that has a nonconvertible currency.
C) is unable to obtain any pre-export financing.
D) has received a letter of credit from the importer's bank.
E) has to enter a barter-like agreement.

Question 62

Countertrade is a form of

A) licensing.
B) dumping.
C) bartering.
D) brokering.
E) franchising

Question 63

Repayment of medium- and long-term loans that U.S. commercial banks make to foreign borrowers for purchasing U.S. exports is guaranteed by the

A) Federal Deposit Insurance Corporation.
B) Central Bank.
C) World Bank.
D) Ex-Im Bank.
E) Export Credit Insurance Association.

Question 64

When a bill of lading is used to obtain payment or a written promise of payment before the merchandise is released to the importer, it serves as a

A) document of title.
B) contract.
C) receipt.
D) time draft.
E) collateral.

Question 65

When a time draft is drawn on and accepted by a business firm, it is known as a(n)

A) trade acceptance.
B) in-transit bill.
C) banker's acceptance.
D) bill of lading.
E) letter of credit.

Question 66

A ________ is issued to an exporter by a common carrier transporting the merchandise and serves as a receipt, a contract, and a document of title.

A) bill of lading
B) collateral title
C) draft
D) letter of credit
E) bill of exchange

Question 67

In the United States, export credit insurance is provided by the

A) Export-Import Bank.
B) Bank of New York.
C) Foreign Credit Insurance Association.
D) Federal Deposit Insurance Corporation.
E) Federal Reserve Bank.

Question 68

A time draft is a negotiable instrument, which means that it

A) has no value given the deferred nature of the document.
B) is generally not preferred in international transactions.
C) can be sold to an investor.
D) is also known as a bill of lading.
E) cannot be transferred.

Question 69

When a time draft is presented to a drawee, the company signifies acceptance of it by

A) delivering the goods immediately.
B) paying the draft amount immediately.
C) providing a collateral for the amount specified in the bill.
D) writing or stamping a notice of acceptance on its face.
E) selling the draft to an investor at a discount from its face value.

Question 70

Pro-Racquets has a bill of lading for an order of 10,000 tennis rackets it will be exporting to a foreign distributor. The company takes this bill of lading to the local bank and uses it to obtain funds to hold the company over until final payment is received from the foreign distributor. In this situation, the bill of lading is being used as

A) collateral.
B) licensing.
C) a draft.
D) a contract.
E) a receipt.

Question 71

When a time draft is drawn on and accepted by a bank, it is known as a

A) trade acceptance.
B) banker's check.
C) banker's acceptance.
D) bill of lading.
E) letter of credit.

Question 72

When Carlton Company Inc. exported elevator component parts to a company in Taiwan, it allowed the company 90 days to pay for the parts. This is an example of a(n)

A) sight draft.
B) time draft.
C) bill of lading.
D) counterpurchase.
E) offset.

Question 73

The Foreign Credit Insurance Association (FCIA) is an association of private commercial institutions operating under the guidance of the

A) Federal Mediation and Conciliation Service.
B) U.S. Department of Commerce.
C) Export-Import Bank.
D) International Trade Administration.
E) Ministry of International Trade and Industry.

Question 74

Once accepted by the drawee, a time draft becomes a(n)

A) asset for the drawee.
B) in-transit bill.
C) promise to pay by the accepting party.
D) bill of lading.
E) letter of credit held by the bank.

Question 75

When a bill of lading specifies that the carrier is obligated to provide a transportation service in return for a certain charge, it is acting as a

A) contract.
B) receipt.
C) document of title.
D) letter of credit.
E) bill of exchange.

Question 76

Jamal Steel, a rapidly growing small steel company with annual revenues of $8 million, is looking to buy a large industrial furnace from Shinto Manufacturing, a Japan-based company. Rather than have a letter of credit binding the two parties, both agree on a draft. In international commerce, Shinto Manufacturing, the party initiating the draft, is known as the

A) maker.
B) drawee.
C) buyer
D) agent.
E) drafter.

Question 77

Manatee Products, a U.S. company, is exporting to a Japanese company. The two parties agree on a draft, but Manatee Products wants it to be a draft that is payable on presentation to the Japanese company. Manatee Products is asking for a(n)

A) bill of lading.
B) sight draft.
C) letter of credit.
D) time draft.
E) offset.

Question 78

An exporter might have to forgo a letter of credit when

A) competing exporters also require letters of credit.
B) the importer is facing stiff competition from other importers.
C) the exporter is a dominant player in a noncompetitive market.
D) the importer is in a strong bargaining position.
E) he or she knows that the importer will default on payment.

Question 79

What is the first step in a typical international trade transaction?

A) The exporter agrees to ship under a letter of credit and specifies relevant information such as prices and delivery terms.
B) The importer applies to a trusted third party (usually a bank) for a letter of credit to be issued in favor of the exporter for the merchandise the importer wishes to buy.
C) The importer places an order with the exporter and asks the exporter if he would be willing to ship under a letter of credit.
D) The exporter ships the goods to the importer on a common carrier. An official of the carrier gives the exporter a bill of lading.
E) The trusted third party (usually a bank) issues a letter of credit in the importer's favor and sends it to the exporter's bank.

Question 80

Financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries is provided by the

A) International Monetary Fund.
B) World Bank.
C) Overseas Commercial Service.
D) Ex-Im Bank.
E) Export Credit Insurance Association.