Deck 19: Financing International Trade

Question 1

A bill of exchange requesting the bank to pay the face amount at a future date is a:

A) banker's acceptance.
B) time draft.
C) letter of credit.
D) sight draft.

Answer 1

B

Question 2

Consider a bank that acknowledges that it will make payments on behalf of a computer importer after the computers are delivered to the importer. This reflects:

A) accounts receivable financing.
B) forfaiting.
C) factoring.
D) a letter of credit.

Answer 2

D

Question 3

Consider an exporter that sells its accounts receivables off to another firm that becomes responsible for obtaining cash from the various importers. This reflects:

A) accounts receivable financing.
B) consignment.
C) factoring.
D) a letter of credit.

Answer 3

C

Question 4

A bill of exchange requesting the bank to pay the face amount upon presentation of documents is a:

A) banker's acceptance.
B) time draft.
C) letter of credit.
D) sight draft.

Question 5

The all-in-rate a bank charges its customer(s) for accepting drafts includes both the discount rate and the acceptance commission.

Question 6

The ____ was established in 1934 with the intention to facilitate Soviet-American trade.

A) Domestic International Sales Corporation (DISC)
B) Private Export Funding Corporation (PEFCO)
C) Export-Import Bank
D) Foreign Credit Insurance Association (FCIA)

Question 7

Which of the following is a reason why commercial banks can facilitate international trade?

A) The exporter may not wish to accept credit risk of the importer.
B) The government may impose exchange contracts that prevent payment by the importer to the exporter.
C) The exporter may need financing until payment for the goods is received.
D) All of the above

Question 8

According to the text, international trade activity has generally ____ over time. This should cause the popularity of trade finance techniques to ____ over time.

A) increased; increase
B) increased; decrease
C) decreased; increase
D) decreased; decrease

Question 9

A ____ provides a summary of freight charges and conveys title to the merchandise.

A) letter of credit
B) banker's acceptance
C) bill of lading
D) bill of exchange

Question 10

Which of the following payment terms provides the supplier with the greatest degree of protection?

A) letters of credit.
B) consignment.
C) prepayment.
D) drafts (sight/time).

Question 11

In ____, a bank arranges to fund a loan to pay the exporter instead of charging the importer's account immediately.

A) refinancing of a sight letter of credit
B) a banker's acceptance
C) a short-term bank loan
D) accounts receivable financing

Question 12

With ____, the exporter ships the goods to the importer while still retaining actual title to the merchandise.

A) a letter of credit arrangement
B) an open account arrangement
C) a draft arrangement
D) a consignment arrangement

Question 13

With ____, a bank purchases a receivable without recourse to the exporter.

A) accounts receivable financing
B) factoring
C) a banker's acceptance
D) a letter of credit

Question 14

Which of the following is not a program of the Export-Import Bank of the U.S.?

A) working capital guarantee program.
B) project finance loan program.
C) direct loan program.
D) the foreign sales corporation program.

Question 15

Countertrade represents foreign trade:

A) restrictions imposed by the government on imports from another country.
B) restrictions imposed by the government on exports sent from the country.
C) transactions that force the sales of goods of one country to be linked to the purchase or exchange of goods from the country.
D) financing provided to an exporter in exchange for goods provided to the creditor by the exporter.

Question 16

Who bears the payment risk in a letter of credit?

A) the exporter.
B) the importer.
C) the issuing bank.
D) both the exporter and importer.

Question 17

MNCs can use ____ to sell their existing accounts receivable as a means of obtaining cash.

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

Question 18

Consider an importer that issues a promissory note to pay for the imported capital goods over a period of five years. The notes are extended to an exporter who sells them at a discount to a bank. This reflects:

A) accounts receivable financing.
B) forfaiting.
C) factoring.
D) a letter of credit.

Question 19

An exchange of goods between two parties under two distinct contracts expressed in monetary terms is:

A) compensation.
B) counterpurchase.
C) factoring.
D) accounts receivable financing.

Question 20

Consider an exporter that is willing to send goods to the importer without a guaranteed payment by the bank. The bank provides a loan to the exporter that is backed by the value of the exported goods. This reflects:

A) accounts receivable financing.
B) forfaiting.
C) factoring.
D) a letter of credit.

Question 21

The Direct Loan Program is administered by the:

A) Private Export Funding Corporation (PEFCO).
B) Overseas Private Investment Corporation (OPIC).
C) Ex-Imbank.
D) Foreign Credit Insurance Association (FCIA).

Question 22

The exchange of goods between two parties without the use of any currency as a medium of exchange is called factoring.

Question 23

All types of foreign trade transactions in which the sale of goods to one country is linked to the purchase or exchange of goods from that same country are called countertrade.

Question 24

The Working Capital Guarantee Program is administered by the:

A) Private Export Funding Corporation (PEFCO).
B) Overseas Private Investment Corporation (OPIC).
C) Ex-Imbank.
D) Foreign Credit Insurance Association (FCIA).

Question 25

An irrevocable L/C obligates the issuing bank to honor all drawings presented in conformity with the terms of the L/C.

Question 26

The risk to the exporter is highest with the ____ method.

A) prepayment
B) letter of credit
C) consignment
D) open account

Question 27

Which of the following is not true regarding letters of credit?

A) They are issued by banks on behalf of the importer promising to pay the exporter.
B) A revocable letter of credit can be cancelled or revoked at any time without prior notification to the beneficiary.
C) They guarantee that the goods shipped are the goods purchased.
D) All of the above are true.

Question 28

A ____ is an unconditional promise drawn by one party, instructing the buyer to pay the face amount upon presentation.

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

Question 29

Which of the following is not a payment method used for international trade?

A) consignment.
B) open account.
C) factoring.
D) draft.
E) letter of credit.

Question 30

As part of Ex-Imbank's export credit insurance programs, a(an) ____ policy is generally issued to an administrator, such as a bank, trading company, insurance broker, or government agency, who then administers the policy for multiple exporters.

A) multiple-buyer
B) single-buyer
C) small business
D) umbrella

Question 31

Which of the following is not true regarding a banker's acceptance?

A) It can be beneficial to the exporter, as he does not have to worry about the credit risk of the importer.
B) It can be beneficial to the importer, as he may have greater access to foreign markets when purchasing supplies.
C) It can be beneficial to the bank accepting the draft in that it earns a commission for creating an acceptance.
D) It is a sight draft.
E) All of the above are true.

Question 32

A banker's acceptance is a draft drawn on and accepted by a(n) ____.

A) bank
B) importer
C) exporter
D) none of the above

Question 33

In ____, the exporter sells accounts receivable without recourse.

A) accounts receivable financing
B) factoring
C) working capital financing
D) countertrade

Question 34

A draft drawn on and accepted by a bank is called a banker's acceptance.

Question 35

____ promises to pay the beneficiary if they buyer fails to pay as agreed.

A) A standby L/C
B) A transferable L/C
C) Assignment of proceeds
D) None of the above

Question 36

The ____ is a private corporation owned by a consortium of commercial banks and industrial companies, but the ____ is a self-sustaining government agency.

A) Overseas Private Investment Corporation (OPIC); Private Export Funding Corporation (PEFCO)
B) Private Export Funding Corporation (PEFCO); Overseas Private Investment Corporation (OPIC)
C) Private Export Funding Corporation (PEFCO); Ex-Imbank
D) Overseas Private Investment Corporation (OPIC); Ex-Imbank

Question 37

A(n) ____ letter of credit is not a trade-related letter of credit.

A) commercial
B) import/export
C) revocable
D) irrevocable
E) all of the above are trade-related letters of credit

Question 38

Under a(n) ____ arrangement, the exporter ships the goods to the importer while still retaining actual title to the merchandise.

A) draft
B) consignment
C) prepayment
D) open account

Question 39

____ is not a type of program offered by Ex-Imbank.

A) Guarantees
B) Loans
C) Currency swap insurance
D) Bank insurance

Question 40

Under a letter of credit arrangement, the bank issuing the letter of credit is known as the ____ bank, the correspondent bank in the beneficiary's country to which the issuing bank sends the letter of credit is known as the ____ bank, and the bank that agrees to examine documents under the letter of credit and pay the beneficiary is called the ____ bank.

A) issuing; negotiating; advising
B) issuing; advising; negotiating
C) advising; issuing; negotiating
D) negotiating; issuing; advising
E) advising; negotiating; issuing

Question 41

The sale of accounts receivable to a third party for a discount is called factoring.

Question 42

The Working Capital Guarantee Program and the Medium-term Guarantee Program are offered by the:

A) Export-Import Bank of the United States
B) Private Export Funding Corporation
C) Overseas Private Investment Corporation
D) none of the above

Question 43

Under a letter of credit, the exporter will not ship the goods until the buyer has remitted payment to the exporter.

Question 44

In a countertrade transaction, banks on both ends act as intermediaries in the processing of shipping documents and the collection of payment.

Question 45

The objectives of the Export-Import Bank of the United States include the assumption of underlying credit risk and country risk to encourage private lenders to finance export trade and the provision of direct loans to foreign buyers when private lenders are unwilling to do so.

Question 46

The term counterpurchase denotes the exchange of goods between two parties under two distinct contracts expressed in monetary terms.

Question 47

From a bank's viewpoint, issuing a letter of credit is analogous to making a loan as far as risk is concerned.

Question 48

When using factoring to finance international trade, a bank will provide a loan to the exporter secured by an assignment of the account receivable.

Question 49

The Overseas Private Investment Corporation (OPIC) is owned by a consortium of commercial banks and industrial companies; it cooperates closely with the Export-Import Bank.

Question 50

The Working Capital Guarantee Program of the Private Export Funding Corporation (PEFCO) encourages commercial banks to extend short-term export financing to eligible exporters by providing a comprehensive guarantee that covers 100 percent of the loan's principal and interest.

Question 51

There is an active secondary market for banker's acceptances.

Question 52

The interest rate the bank charges the customer in a banker's acceptance is referred to as the all-in rate; it entirely consists of the acceptance commission.

Question 53

A letter of credit does not guarantee that the goods purchased will be those invoiced and shipped.

Question 54

____ refers to the purchase of financial obligations, such as bills of exchange or promissory notes, without recourse to the original holder, usually the exporter.

A) Factoring
B) Accounts receivable financing
C) Forfaiting
D) None of the above

Question 55

In an open account transaction, the exporter ships the goods to the importer but retains title to the goods until they have been sold.

Question 56

The ____ is a self-sustaining federal agency responsible for insuring direct U.S. investments in foreign countries against the risk of currency inconvertibility, expropriation, and other political risks.

A) Export-Import Bank of the United States
B) Private Export Funding Corporation
C) Overseas Private Investment Corporation
D) none of the above

Question 57

Under prepayment, the exporter will not ship the goods until the buyer has remitted payment to the exporter.

Question 58

Under a countertrade arrangement, the exporter ships the goods to the importer while retaining title to the merchandise until it is sold.

Question 59

If shipment is made under a forfaiting draft, the exporter is paid once shipment has been made and the draft is presented to the buyer for payments.

Question 60

The commission earned by the bank for accepting a draft is reflected in the all-in-rate.

Question 61

In an open account transaction, the exporter ships the goods to the importer but retains title to the goods until they have been sold.

Question 62

Which of the following is not a trade financing method used in international trade from an exporter's perspective?

A) Accounts receivable financing
B) Letter of credit
C) Barter
D) Open account

Question 63

When using factoring to finance international trade, a bank will provide a loan to the exporter secured by an assignment of the account receivable.

Question 64

A bank issuing a letter of credit on behalf of an importer is obligated to honor the letter of credit regardless of the buyer's willingness or ability to pay.

Question 65

Which of the following is not true regarding letters of credit?

A) They are issued by banks on behalf of the importer promising to pay the exporter.
B) A revocable letter of credit can be cancelled or revoked at any time without prior notification to the beneficiary.
C) They guarantee that the goods shipped are the goods purchased.
D) All of the above are true.

Question 66

Of all the payment methods available in international trade, ____ probably affords the most protection to the exporter, while ____ probably affords the least protection.

A) prepayment; consignment
B) prepayment; open account
C) open account; prepayment
D) consignment; prepayment

Question 67

The payment method that affords the supplier the greatest degree of protection is the prepayment method.

Question 68

Under a ____, the exporter is paid once shipment has been made and the draft is presented to the buyer for payment; under a ____, the exporter provides instructions to the buyer's bank to release shipping documents against acceptance, by the buyer, of the draft.

A) sight draft; time draft
B) sight draft; banker's acceptance
C) bill of lading; banker's acceptance
D) time draft; sight draft

Question 69

An irrevocable letter of credit can be cancelled or amended if the beneficiary consents to it.

Question 70

The bill of exchange serves as a receipt for shipment and a summary of freight charges; most importantly, it conveys title to the merchandise.

Question 71

If shipment is made under a time draft, the exporter is paid once shipment has been made and the draft is presented to the buyer for payment.

Question 72

Which of the following is not a payment method used for international trade?

A) Supplier credit
B) Bill of exchange
C) Bill of lading
D) Letter of credit
E) All of the above are payment methods used.

Question 73

Under a letter of credit, the exporter will not ship the goods until the buyer has remitted payment to the exporter.