Deck 20: International Trade Finance

Question 1

Forfaiting (forfeiting)meets Islamic finance practices.

Answer 1

True

Question 2

Banker's acceptances usually have maturities ranging from

A)30 to 180 days.
B)90 to 360 days.
C)1 year to 5 years.
D)over 5 years.

Answer 2

A

Question 3

The Export-Import Bank provides competitive assistance to U.S.exporters through

A)direct loans to foreign importers.
B)loan guarantees.
C)credit insurance to U.S.exporters.
D)all of the options

Answer 3

D

Question 4

Suppose the face amount of a promissory note is $1,000,000 and the importer's bank charges an acceptance commission of 1.5 percent.The note is for 60 days.Calculate the amount of the acceptance commission that the bank will charge.

A)$997,500
B)$15,000 = $1,000,000 × (0.015)
C)$2,500
D)none of the options

Question 5

The primary methods of payment for foreign trades,ranked in the order of most secure to least secure for the exporter is

A)open account,consignment,letter of credit/time draft,and cash in advance.
B)consignment,letter of credit/time draft,cash in advance,and open account.
C)cash in advance,letter of credit/time draft,consignment,and open account.
D)cash in advance,letter of credit/time draft,open account,and consignment.

Question 6

When a bank purchases at a discount from an importer a series of promissory notes in favor of an exporter,this is called

A)accounts receivable financing.
B)asset backed commercial paper.
C)discounting.
D)forfeiting.

Question 7

Countertrade transactions are

A)becoming obsolete as a means of conducting international trade transactions.
B)gaining renewed prominence as a means of conducting international trade transactions.
C)strictly a form of barter.
D)none of the options

Question 8

A typical foreign trade transaction requires three basic documents:

A)letter of credit,time draft,and bill of lading.
B)letter of credit,banker's acceptance,and bill of lading.
C)letter of credit,time draft,and a banker's acceptance.
D)none of the options

Question 9

A banker's acceptance is created when

A)a document issued by the common carrier specifies that it has received the goods for shipment; it can serve as title to the goods.
B)after taking title to the goods via a bill of lading,the importer's bank accepts the time draft.
C)a time draft calls for payment upon physical delivery of goods matures.
D)none of the options

Question 10

In a consignment sale

A)the importer only pays the exporter once he sells the merchandise.
B)the exporter retains title to the merchandise that is shipped.
C)if the goods do not sell,the importer can return them to the exporter.
D)all of the options

Question 11

Forfaiting,in which a bank purchases at a discount from an importer,is a series of promissory notes in favor of an exporter,

A)is a short-term form of trade financing.
B)is a medium-term form of trade financing.
C)is a long-term form of trade financing.
D)none of the options

Question 12

The three basic documents needed in a foreign trade transaction are

A)letter of credit,time draft,and proof of inspection.
B)letter of credit,time draft,and a bill of lading.
C)letter of credit,bill of lading,and insurance.
D)time draft,bill of lading,and a pro forma statement.

Question 13

There are several types of countertrade transactions

A)none of which involve the use of money.
B)and in each type,the seller provides the buyer with goods or services in return for a reciprocal promise from the seller to purchase goods or services from the buyer.
C)and in each type,the seller provides the buyer with goods or services in return for a reciprocal promise from the buyer to stand ready to sell goods or services to the buyer.
D)none of the options

Question 14

International trade is more difficult and risky from the exporter's perspective than is domestic trade because

A)the exporter may not be familiar with the buyer,and thus not know if the importer is a good credit risk.
B)if the merchandise is exported abroad and the buyer does not pay,it may prove difficult,if not impossible,for the exporter to have any legal recourse.
C)political instability makes it risky to ship merchandise abroad to certain parts of the world.
D)all of the options

Question 15

A time draft can become a negotiable money market instrument called

A)Eurodollars.
B)a banker's acceptance.
C)a letter of credit.
D)a bill of lading.

Question 16

The ________ sends a purchase order to the ________.The ________ applies to his bank for a letter of credit.

A)importer; exporter; exporter
B)exporter; importer; importer
C)importer; exporter; importer
D)exporter; importer; exporter

Question 17

Conducting international trade transactions is difficult in comparison to domestic trades.Which of the following are false statements regarding this reality?

A)Commercial and political risks enter into the equation,which are not factors in domestic trade.
B)It is important for a country to be competitively strong in international trade in order for its citizens to have the goods and services they need and demand.
C)It is generally the case that the costs of international trade outweigh the benefits.
D)all of the options

Question 18

The ________'s bank sends the letter of credit to the ________'s bank.After sending the merchandise,the ________ gives the shipping documents and time draft to his bank.

A)importer; exporter; exporter
B)exporter; importer; importer
C)importer; exporter; importer
D)exporter; importer; exporter

Question 19

A bill of lading

A)is a document issued by the common carrier specifying that it has received the goods for shipment; it can serve as title to the goods.
B)later becomes a banker's acceptance.
C)is a time draft that calls for payment upon physical delivery of goods.
D)none of the options

Question 20

A time draft

A)is a document issued by the common carrier specifying that it has received the goods for shipment; it can serve as title to the goods.
B)later becomes a banker's acceptance.
C)is a written order instructing the importer or his agent that calls for payment the amount specified on its face on a certain date.
D)none of the options

Question 21

Assume the time from acceptance to maturity on a $5,000,000 banker's acceptance is 90 days.Further assume that the importing bank's acceptance commission is 1.5 percent and that the market rate for 90-day B/As is 6.0 percent.Calculate the amount the exporter will receive if he holds it to maturity.

A)$4,981,250
B)$4,906,250
C)$4,009,375
D)none of the options

Question 22

Assume the time from acceptance to maturity on a $1,000,000 banker's acceptance is 180 days.Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 180-day B/As is 5.0 percent.Calculate the amount the exporter will receive if he discounts the B/A with the importer's bank.

A)$906,250
B)$909,375
C)$968,750
D)$993,750

Question 23

Assume the time from acceptance to maturity on a $1,000,000 banker's acceptance is 180 days.Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 180-day B/As is 5.0 percent.Calculate the amount the exporter will receive if he holds it to maturity.

A)$906,250
B)$909,375
C)$968,750
D)$993,750

Question 24

Assume the time from acceptance to maturity on a $10,000,000 banker's acceptance is 90 days.Further assume that the importing bank's acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent.Calculate the amount the banker will receive if the exporter discounts the B/A with the importer's bank.

A)$200,000
B)$100,000
C)$25,000
D)$75,000

Question 25

Assume the time from acceptance to maturity on a $5,000,000 banker's acceptance is 90 days.Further assume that the importing bank's acceptance commission is 1.5 percent and that the market rate for 90-day B/As is 6.0 percent.Calculate the amount the exporter will receive if he discounts the B/A with the importer's bank.

A)$4,981,750
B)$4,906,250
C)$4,009,375
D)none of the options

Question 26

The time from acceptance to maturity on a $3,000,000 banker's acceptance is 90 days. If the market rate for 90-day B/As is 6.0 percent,calculate the amount the exporter will receive if he discounts the B/A with the importer's bank.

A)$2,945,625
B)$2,990,625
C)$3,000,000
D)$3,009,375

Question 27

Assume the time from acceptance to maturity on a $4,000,000 banker's acceptance is 180 days.Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 6.0 percent.Calculate the amount the exporter will receive if he holds it to maturity.

A)$3,993,750
B)$3,999,375
C)$3,975,000
D)$3,009,375

Question 28

Assume the time from acceptance to maturity on a $2,000,000 banker's acceptance is 180 days.Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 180-day B/As is 5.0 percent.The bond equivalent yield that the bank earns in holding the B/A to maturity is

A)13.08 percent.
B)6.54 percent.
C)4.06 percent.
D)none of the options

Question 29

The time from acceptance to maturity on a $3,000,000 banker's acceptance is 90 days. The bond equivalent yield that the exporter pays in discounting the B/A is

A)6.10 percent.
B)9.29 percent.
C)6.02 percent.
D)none of the options

Question 30

Assume the time from acceptance to maturity on a $10,000,000 banker's acceptance is 90 days.Further assume that the importing bank's acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent.Calculate the amount the exporter will receive if he holds it to maturity.

A)$9,993,750
B)$9,999,375
C)$9,975,000
D)$9,009,375

Question 31

Assume the time from acceptance to maturity on a $10,000,000 banker's acceptance is 90 days.Further assume that the importing bank's acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent.Calculate the amount the exporter will receive if he discounts the B/A with the importer's bank.

A)$9,993,750
B)$9,900,000
C)$9,975,000
D)$9,009,375

Question 32

Assume the time from acceptance to maturity on a $2,000,000 banker's acceptance is 90 days.Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 6.0 percent.Calculate the amount the exporter will receive if he discounts the B/A with the importer's bank.

A)$1,993,750
B)$1,999,375
C)$1,963,750
D)$1,009,375

Question 33

The term "forfaiting"

A)means relinquishing,waiving,yielding,and penalty.
B)is a type of medium-term trade financing used to finance the sale of capital goods.
C)involves the sale of promissory notes signed by the importer in favor of the exporter,who might sell the notes at a discount from face value.
D)is a type of medium-term trade financing used to finance the sale of capital goods,and involves the sale of promissory notes signed by the importer in favor of the exporter,who might sell the notes at a discount from face value.

Question 34

Assume the time from acceptance to maturity on a $4,000,000 banker's acceptance is 180 days.Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 3.0 percent.Calculate the amount the exporter will receive if he discounts the B/A with the importer's bank.

A)$3,993,750
B)$3,915,000
C)$3,975,000
D)$3,009,375

Question 35

Assume the time from acceptance to maturity on a $2,000,000 banker's acceptance is 90 days.Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 6.0 percent.Calculate the amount the exporter will receive if he holds it to maturity.

A)$1,993,750
B)$1,999,375
C)$1,963,750
D)$1,009,375

Question 36

The time from acceptance to maturity on a $3,000,000 banker's acceptance is 90 days. If the importing bank's acceptance commission is 1.25 percent,determine the amount the exporter will receive if he holds the B/A until maturity.

A)$2,945,625
B)$2,990,625
C)$2,906,250
D)$3,009,375

Question 37

In a forfaiting transaction,the forfait is usually

A)the importer.
B)the exporter.
C)the bank.
D)the title to the goods,or the bill of lading.

Question 38

Assume the time from acceptance to maturity on a $10,000,000 banker's acceptance is 90 days.Further assume that the importing bank's acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent.The bond equivalent yield that the exporter pays in discounting the B/A is

A)3.05 percent.
B)3.01 percent.
C)3.07 percent.
D)none of the options

Question 39

Assume the time from acceptance to maturity on a $10,000,000 banker's acceptance is 90 days.Further assume that the importing bank's acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent.The bond equivalent yield that the bank earns in holding the B/A to maturity is:

A)0.2287 percent
B)0.102 percent
C)0.406 percent
D)none of the options

Question 40

In a forfaiting transaction,the forfait

A)buys the notes at a discount from face value from the importer.
B)buys the notes at a discount from face value from the exporter.
C)redeems the notes at a face value to the exporter.
D)none of the options

Question 41

Through its Export Credit Insurance Program,Ex-Im bank helps U.S.exporters develop and expand their overseas sales by

A)protecting them against loss should a foreign buyer default.
B)guaranteeing the loans made by private financial institutions to foreign importers.
C)providing liquidity via the purchase of notes issued by Ex-Im bank to finance the loans.
D)none of the options

Question 42

A typical foreign trade transaction requires which three basic documents?

A)letter of credit,bill of lading,and shipping documents
B)time draft,banker's acceptance,and bill of lading
C)letter of credit,time draft,and bill of lading
D)letter of credit,banker's acceptance,and bill of lading

Question 43

Arguments in favor of countertrade include benefits such as

A)conservation of cash or hard currency.
B)improvement of trade imbalances.
C)maintenance of export prices.
D)all of the options

Question 44

In the event of a default

A)the forfait does not have recourse against the exporter in the event of a default by the importer.
B)the forfait does have recourse against the exporter in the event of a default by the importer
C)the exporter will have to return the goods to the importer.
D)none of the options

Question 45

One of the steps to follow to develop an investment fund which has been structured to adhere to Shari'ah principles whilst at the same time making use of forfaiting assets was

A)the fund sponsors had to be careful in ensuring that the pool of non-Islamic forfaiting assets was not used to directly satisfy the Islamic compliant obligations under the commodity and trade financing arrangements.
B)screening is required to ensure that the products underlying the LCs do not run counter to Shari'ah principles.
C)there had to be a sign off by Islamic scholars to verify that Shari'ah strictures had been met with.
D)all of the options

Question 46

A buy-back transaction

A)is also called a bilateral clearing agreement.
B)involves a technology transfer via the sale of a manufacturing plant: as part of the terms,the seller of the plant agrees to purchase a certain portion of the plant output.
C)involves two parties agreeing to buy a specified amount of goods or services from one another.
D)all of the options

Question 47

Under the terms of Islamic finance (Shari'ah)

A)selling debt at a reduced value is strictly forbidden.
B)charging interest is OK,but short selling stock is forbidden.
C)buying low and selling high is forbidden.
D)none of the options

Question 48

The armed forces of ________ leads all government agencies in countertrade.

A)the United States
B)Great Britain
C)China
D)the Philippines

Question 49

Countertrade transactions

A)are included in official trade statistics.
B)are not included in official trade statistics.
C)reduce trade imbalances and trade deficits.
D)are included in official trade statistics,and also reduce trade imbalances and trade deficits.

Question 50

Among the reasons put forth for government assistance in exporting

A)success in international trade is fundamentally important for a country.
B)success in exporting implies that there is demand for a country's products,that its labor force is employed,and that some resources are used for technological advancement.
C)to be successful in international trade means that the government is popular.
D)success in international trade is fundamentally important for a country,and success in exporting implies that there is demand for a country's products,that its labor force is employed,and that some resources are used for technological advancement.

Question 51

A clearing arrangement

A)is also called a bilateral clearing agreement.
B)is a form of barter.
C)involves two parties agreeing to buy a specified amount of goods or services from one another.
D)all of the options

Question 52

Export-Import Bank (Ex-Im bank)is an independent agency of the United States government that facilitates and finances U.S.export trade.Ex-Im bank's purpose is to provide financing in situations where private financial institutions are unable or unwilling to because of which of the following reasons: (i)The loan maturity is too long.
(ii)The amount of the loan is too large.
(iii)The loan risk is too great.
(iv)The importing firm has difficulty obtaining hard currency for payment.
(v)There are no futures or forward contracts available for foreign exchange transactions.

A)(i)and (ii)
B)(i),(ii),and (iii)
C)(i),(ii),(iii),and (iv)
D)(i),(ii),(iii),(iv),and (v)

Question 53

The term "countertrade" refers to

A)many different types of transactions in which the seller provides a buyer with goods or services and promises in return to purchase goods or services from the buyer.
B)barter,clearing arrangement,and switch trading.
C)buy-back,counterpurchase,and offset.
D)all of the options

Question 54

The British version of the Ex-Im bank

A)helps U.S.exporters develop and expand their overseas sales.
B)is called Inland Revenue.
C)is called the Exports Credits Guarantee Department.
D)is called Ex-Im bank U.K.

Question 55

An offset transaction

A)can be viewed as a counterpurchase trade agreement involving the aerospace/defense industry.
B)involves a technology transfer via the sale of a manufacturing plant: as part of the terms,the seller of the plant agrees to purchase a certain portion of the plant output.
C)is the purchase by a third party of one country's a clearing agreement balance for hard currency.
D)none of the options

Question 56

A counterpurchase

A)involves a technology transfer via the sale of a manufacturing plant: as part of the terms,the seller of the plant agrees to purchase a certain portion of the plant output.
B)is similar to a buy-back transaction but the seller of the plant agrees to buy unrelated goods.
C)is a form of barter.
D)involves two parties agreeing to buy a specified amount of goods or services from one another.

Question 57

Through its Medium and Long-Term Guarantee Program,Ex-Im bank helps U.S.exporters develop and expand their overseas sales by

A)protecting them against loss should a foreign buyer default.
B)guaranteeing the loans made by private financial institutions to foreign importers.
C)providing liquidity via the purchase of notes issued by Ex-Im bank to finance the loans.
D)none of the options

Question 58

A switch trade

A)is the purchase by a third party of one country's a clearing agreement balance for hard currency.
B)is a form of barter.
C)involves two parties agreeing to buy a specified amount of goods or services from one another.
D)all of the options

Question 59

A buy-back transaction

A)can be viewed as direct foreign investment in the purchasing country.
B)can be viewed as direct foreign investment in the exporting country.
C)can be viewed as indirect foreign investment in the purchasing country.
D)none of the options

Question 60

The Ex-Im bank helps U.S.exporters develop and expand their overseas sales by

A)working capital guarantees.
B)direct loans to foreign borrowers.
C)loan guarantees.
D)credit insurance.

Question 61

The time from acceptance to maturity on a $6,000,000 banker's acceptance is 360 days.The importing bank's acceptance commission is 2 percent and the market rate for 360-day B/As is 3 percent.
Determine the amount the exporter will receive if he holds the B/A until maturity.

Question 62

The time from acceptance to maturity on a $500,000 banker's acceptance is 270 days.The importing bank's acceptance commission is 0.75 percent and that the market rate for 270-day B/As is 4 percent.
Determine the amount the exporter will receive if he discounts the B/A with the importer's bank.

Question 63

The time from acceptance to maturity on a $500,000 banker's acceptance is 270 days.The importing bank's acceptance commission is 0.75 percent and that the market rate for 270-day B/As is 4 percent.
Determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter.

Question 64

The time from acceptance to maturity on a $2,000,000 banker's acceptance is 90 days.The importing bank's acceptance commission is 1.25 percent and the market rate for 90-day B/As is 6 percent.
If the exporter's opportunity cost of capital is 11 percent,should he discount the B/A or hold it to maturity?

Question 65

The time from acceptance to maturity on a $2,000,000 banker's acceptance is 90 days.The importing bank's acceptance commission is 1.25 percent and the market rate for 90-day B/As is 6 percent.
Determine the amount the exporter will receive if he discounts the B/A with the importer's bank.

Question 66

The time from acceptance to maturity on a $1,000,000 banker's acceptance is 60 days.The importing bank's acceptance commission is 1.00 percent and that the market rate for 60-day B/As is 5 percent.
Calculate the amount the banker will receive if the exporter discounts the B/A with the importer's bank.

Question 67

The time from acceptance to maturity on a $1,000,000 banker's acceptance is 60 days.The importing bank's acceptance commission is 1.00 percent and that the market rate for 60-day B/As is 5 percent.
If the exporter's opportunity cost of capital is 11 percent,should he discount the B/A or hold it to maturity?

Question 68

The time from acceptance to maturity on a $500,000 banker's acceptance is 270 days.The importing bank's acceptance commission is 0.75 percent and that the market rate for 270-day B/As is 4 percent.
Determine the amount the exporter will receive if he holds the B/A until maturity.

Question 69

The time from acceptance to maturity on a $6,000,000 banker's acceptance is 360 days.The importing bank's acceptance commission is 2 percent and the market rate for 360-day B/As is 3 percent.
If the exporter's opportunity cost of capital is 11 percent,should he discount the B/A or hold it to maturity?

Question 70

The time from acceptance to maturity on a $500,000 banker's acceptance is 270 days.The importing bank's acceptance commission is 0.75 percent and that the market rate for 270-day B/As is 4 percent.
If the exporter's opportunity cost of capital is 11 percent,should he discount the B/A or hold it to maturity?

Question 71

The time from acceptance to maturity on a $500,000 banker's acceptance is 270 days.The importing bank's acceptance commission is 0.75 percent and that the market rate for 270-day B/As is 4 percent.
Calculate the amount the banker will receive if the exporter discounts the B/A with the importer's bank.

Question 72

The time from acceptance to maturity on a $6,000,000 banker's acceptance is 360 days.The importing bank's acceptance commission is 2 percent and the market rate for 360-day B/As is 3 percent.
Determine the amount the exporter will receive if he discounts the B/A with the importer's bank.

Question 73

The time from acceptance to maturity on a $1,000,000 banker's acceptance is 60 days.The importing bank's acceptance commission is 1.00 percent and that the market rate for 60-day B/As is 5 percent.
Determine the amount the exporter will receive if he discounts the B/A with the importer's bank.

Question 74

The time from acceptance to maturity on a $1,000,000 banker's acceptance is 60 days.The importing bank's acceptance commission is 1.00 percent and that the market rate for 60-day B/As is 5 percent.
Determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter.

Question 75

The time from acceptance to maturity on a $6,000,000 banker's acceptance is 360 days.The importing bank's acceptance commission is 2 percent and the market rate for 360-day B/As is 3 percent.
Calculate the amount the banker will receive if the exporter discounts the B/A with the importer's bank.

Question 76

The time from acceptance to maturity on a $1,000,000 banker's acceptance is 60 days.The importing bank's acceptance commission is 1.00 percent and that the market rate for 60-day B/As is 5 percent.
Determine the amount the exporter will receive if he holds the B/A until maturity.

Question 77

The time from acceptance to maturity on a $2,000,000 banker's acceptance is 90 days.The importing bank's acceptance commission is 1.25 percent and the market rate for 90-day B/As is 6 percent.
Determine the amount the exporter will receive if he holds the B/A until maturity.

Question 78

The time from acceptance to maturity on a $2,000,000 banker's acceptance is 90 days.The importing bank's acceptance commission is 1.25 percent and the market rate for 90-day B/As is 6 percent.
Determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter.

Question 79

The time from acceptance to maturity on a $2,000,000 banker's acceptance is 90 days.The importing bank's acceptance commission is 1.25 percent and the market rate for 90-day B/As is 6 percent.
Calculate the amount the banker will receive if the exporter discounts the B/A with the importer's bank.

Question 80

The time from acceptance to maturity on a $6,000,000 banker's acceptance is 360 days.The importing bank's acceptance commission is 2 percent and the market rate for 360-day B/As is 3 percent.
Determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter.