Question 1

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.

Accepted Answer

A customs broker is a professional who specializes in the laws and documentation requirements for imports and can assist the company in navigating the specific regulations of the four European countries.

Question 2

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?

Accepted Answer

Entering a foreign market on a small scale allows the company to test the waters and manage financial risks effectively while gaining experience and understanding of the market.

Question 3

What is the purpose of a letter of credit?

Accepted Answer

A letter of credit is a financial instrument issued by a bank guaranteeing payment to a seller upon presentation of specified documents, ensuring the seller receives payment as long as the terms are met.

Question 4

What is an advantage of having a letter of credit?

Accepted Answer

A letter of credit provides assurance to the exporter that they will receive payment, which can be used to secure pre-export financing from banks or financial institutions.

Question 5

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

Accepted Answer

In international transactions, a formal promise to pay, such as a letter of credit, is often required to ensure payment before the buyer can obtain the merchandise, due to the higher risks and lack of trust compared to domestic transactions.

Question 6

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?

Accepted Answer

A letter of credit assures the exporter that payment will be made once the required documents are presented, which means the importer does not have to pay until the documents arrive, providing a secure transaction for both parties.

Question 7

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

Accepted Answer

The conflicting preferences are due to a lack of trust, as Horizon Trading wants to ensure payment before shipping, while Friggo Imports wants to ensure receipt before paying.

Question 8

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

Accepted Answer

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 can result in a lack of trust between the parties, as they may not be familiar with each other's business practices or legal systems.

Question 9

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

Accepted Answer

A letter of credit ties up the importer's credit line, reducing their ability to borrow funds for other purposes until the transaction is completed.

Question 10

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?

Accepted Answer

The board's hesitation is likely due to a lack of trust stemming from unfamiliarity with foreign legal systems and languages, which can create uncertainty and perceived risk in entering new markets.

Question 11

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

Accepted Answer

A bill of lading is a document issued by a carrier to acknowledge receipt of cargo for shipment. It serves as a title to the goods, allowing the bank to hold it until payment is made.

Question 12

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?

Accepted Answer

Eks-Plore Company is an export trading company because it handles the export of goods, including documentation, logistics, and transportation, for firms in the United States to companies in Europe and Asia.

Question 13

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

Accepted Answer

The answer of The government organization that employs 76 district...

Question 14

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?

Accepted Answer

A letter of credit can tie up the importer's credit line, reducing their ability to borrow funds for other purposes.

Question 15

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

Accepted Answer

The ELAN program involves attorneys who provide free initial consultations to small businesses on export matters.

Question 16

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?

Accepted Answer

A letter of credit is a document issued by a bank guaranteeing that a seller will receive payment from the buyer upon presentation of specified documents. Neptune Corp. is asking Pinkerton Imports to secure this document to ensure payment for their export.

Question 17

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

Accepted Answer

The Service Corps of Retired Executives (SCORE) is a program under the Small Business Administration that provides mentoring and counseling to small businesses, including those involved in international trade.

Question 18

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?

Accepted Answer

Piggyback marketing occurs when one company uses another company's distribution channels to sell its products, which is what Deli-Lite is doing by contracting with Green Source to fulfill the foreign client's order.

Question 19

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

Accepted Answer

A draft is a written order by one party (the exporter) to another party (the importer) to pay a specified amount by a certain date. In this case, Mulch-Rite's order for the Italian company to pay €15,000 by June 15 is an example of a draft.

Question 20

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

Accepted Answer

A lack of trust can be exacerbated by the difficulties in enforcing contracts due to an underdeveloped international legal system, which makes it challenging to resolve disputes and ensure compliance.

Quiz 14: Exporting, Importing, and Countertrade