Question 1

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

Accepted Answer

A time draft is a type of payment term where the importer is allowed to receive the goods before payment is due, but must make payment at some specified time after receiving the goods. This is also known as a "term draft." A sight draft, on the other hand, requires immediate payment upon presentation, and a bill of lading and bill of exchange are documents related to the shipment and transfer of goods, but do not necessarily indicate payment terms.

Question 2

Export/import financing in which a bank acts as an intermediary without accepting financial risk is called ________.
A) documentary collection
B) counterpurchase
C) buyback
D) open account

Accepted Answer

When a bank acts as an intermediary in export/import financing without accepting financial risk, it is known as "documentary collection." In this process, the bank only facilitates the payment process but does not take any financial responsibility for the transaction. Counterpurchase, buyback, and open account all involve some level of financial risk for banks.

Question 3

Advance payment is commonly used for export/import financing when ________.
A) two parties are unfamiliar with each other
B) the buyer has obtained credit for the transaction
C) the transaction is for a relatively high amount
D) the buyer has good credit rating at banks

Accepted Answer

Advance payment is commonly used when two parties are unfamiliar with each other, as it provides security to the seller that they will receive payment before shipping the goods. It is also used when the buyer has not yet obtained credit for the transaction.

Question 4

Companies involved in direct exporting typically rely on ________.
A) distributors
B) agents
C) export management companies
D) All of the above

Accepted Answer

Companies involved in direct exporting may rely on a combination of distributors, agents, and export management companies to help them reach international markets. Therefore, all of the choices are correct.

Question 5

Letters of credit are popular among traders because the risk of non shipment are assumed by ________.
A) distributors
B) importers
C) exporters
D) banks

Accepted Answer

Letters of credit are issued by banks and they assume the risk of non-shipment, thus providing a level of assurance to both importers and exporters. Therefore, the correct choice is D) banks.

Question 6

Scenario: Wang's Techno Toys
Ann Wang has been successfully running Wang's Techno Toys that sells high-tech toys in the domestic market. Continually increasing and stiff competition at home has now forced Wang's Techno Toys to enter international markets through direct exports.
-Which of the following methods of export/import financing is Techno Toys' bank using if it acts as an intermediary without accepting financial risk?
A) documentary collection
B) buyback
C) letter of credit
D) advance payment

Accepted Answer

If Techno Toys' bank acts as an intermediary without accepting financial risk, then the best method they could use is documentary collection. In this method, the bank acts on behalf of the exporters by collecting payment from the importer against the release of shipping documents. The bank does not assume any financial risk in this method, making it a safe choice for Techno Toys to enter the international market.

Question 7

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

Accepted Answer

When a bank adds its own guarantee of payment to a letter of credit, it becomes a confirmed letter of credit. This means that the seller/beneficiary will receive payment from both the issuing bank (Martin Exporting's bank) and the confirming bank (ABC Bank), reducing the risk of non-payment. This is different from an unconfirmed letter of credit, where the seller/beneficiary only has the guarantee of payment from the issuing bank. Although the letter of credit may also be irrevocable, this is not the best choice as it does not specifically refer to the added guarantee from ABC Bank. An advised letter of credit just means that the issuing bank has informed the seller's bank about the letter of credit, but it does not necessarily have any added guarantees of payment.

Question 8

Which of the following is a method of export/import financing in which the importer's bank issues a document stating that the bank will pay the exporter when the exporter fulfills the terms of the document?
A) sight draft
B) bill of lading
C) letter of credit
D) bill of exchange

Accepted Answer

A letter of credit is a document issued by the importer's bank that guarantees payment to the exporter upon fulfillment of the terms of the document. It provides assurance to the exporter that they will be paid for their goods or services and serves as a form of export/import financing. A sight draft is a different type of payment method where the exporter presents the draft to the importer for payment upon receipt of the goods, while a bill of lading is a document that serves as evidence of the shipment of goods. A bill of exchange is a negotiable instrument that allows one party to order another party to pay a certain amount of money at a future date.

Question 9

Export/import financing in which an exporter ships merchandise and later bills the importer for its value is called ________.
A) advance payment
B) open account
C) a letter of credit
D) documentary collection

Accepted Answer

The export/import financing in which an exporter ships merchandise and later bills the importer for its value is called an open account. In an open account, the importer pays the exporter at a later date as agreed between the two parties, often with a credit period of 30, 60, or 90 days. This method of payment carries a higher risk for the exporter as they do not receive payment until after the shipment has been made, but it can also increase business opportunities and improve customer relationships.

Question 10

Which of the following letters of credit can be modified without obtaining approval from either the exporter or the importer,by the bank issuing the letter of credit?
A) revocable letter of credit
B) confirmed letter of credit
C) at sight letter of credit
D) irrevocable letter of credit

Accepted Answer

A revocable letter of credit can be modified without obtaining approval from either the exporter or the importer. However, revocable letters of credit are rarely used in international trade because they offer no protection to the beneficiary.

Question 11

Which of the following financing methods entails the lowest risk for exporters?
A) supersedeas bond
B) advance payment
C) letter of credit
D) open account

Accepted Answer

Advance payment is the financing method that entails the lowest risk for exporters as the payment is received prior to shipment, giving exporters complete control over the transaction. The other financing methods carry varying degrees of risk for the exporter, such as the possibility of non-payment or payment dispute.

Question 12

A(n)________ is guaranteed by both the exporter's bank in the country of export and the importer's bank in the country of import.
A) confirmed letter of credit
B) transferrable letter of credit
C) revocable letter of credit
D) irrevocable letter of credit

Accepted Answer

A confirmed letter of credit is a type of letter of credit that is guaranteed by both the exporter's bank and the importer's bank. This means that both parties are protected in the event that one party fails to fulfill their obligations. A transferrable letter of credit can also be guaranteed by both banks, but it allows for the transfer of the credit to a third party, which may not be applicable in this scenario. A revocable letter of credit can be changed or canceled by either party, which does not provide sufficient protection. An irrevocable letter of credit is guaranteed by the issuing bank, but not necessarily both banks, and therefore may not provide sufficient protection for both parties.

Question 13

Which of the following financing methods entails the greatest risk for importers?
A) documentary collection
B) advance payment
C) confirmed letter of credit
D) open account

Accepted Answer

Advance payment entails the greatest risk for importers because the importer pays for the goods before receiving them. If the exporter does not deliver the goods or delivers defective goods, the importer may have difficulty recovering their money.

Question 14

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

Accepted Answer

The primary risk an exporter faces with documentary collection is the importer defaulting. This means the importer may refuse to pay or may not have the necessary funds to settle the account. The exporter relies on the importer to pay the agreed-upon amount, and if payment is not received, the exporter may suffer financial losses. Therefore, it is important for the exporter to conduct due diligence on the importer's financial position to minimize risks.

Question 15

Which of the following normally takes the form of a wire transfer of money from the bank account of the importer directly to that of the exporter prior to shipment of merchandise?
A) documentary collection
B) letter of credit
C) advance payment
D) open account

Accepted Answer

Advance payment involves transferring money directly from the importer's bank account to the exporter's bank account before the shipment of goods. This option provides the exporter with the least risk and is often used for smaller transactions, or when the exporter is relatively unknown or located in a high-risk country.

Question 16

Which of the following requires an importer to pay for the imported goods when they are delivered?
A) sight draft
B) onboard bill of lading
C) air way bill of lading
D) time draft

Accepted Answer

A sight draft requires the importer to pay for the goods upon their presentation or delivery, ensuring immediate payment before the importer can take possession of the goods.

Question 17

Scenario: Wang's Techno Toys
Ann Wang has been successfully running Wang's Techno Toys that sells high-tech toys in the domestic market. Continually increasing and stiff competition at home has now forced Wang's Techno Toys to enter international markets through direct exports.
-In some countries,people exchange electronic goods for Techno Toys instead of paying money for them.This practice is known as ________.
A) offset
B) counterpurchase
C) switch trading
D) barter

Accepted Answer

Barter is the exchange of goods or services without the use of money. In this scenario, people exchange electronic goods for Techno Toys instead of paying money, which is an example of barter. Offset refers to a practice where a country agrees to purchase products from another country as a part of a larger offset agreement. Counterpurchase involves an agreement where a seller agrees to buy goods or services from the buyer's country in exchange for the original sale. Switch trading is a practice where a third party acts as a mediator between two trading partners and allows them to exchange goods or services without any monetary transactions. None of these options fit the scenario as well as barter does.

Question 18

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

Accepted Answer

The bill of lading serves as a title to the goods being transported. Under a document collection payment method, the buyer will only receive the bill of lading and other specified documents from the bank once payment has been made.

Question 19

Which of the following is a method of export/import financing?
A) offset
B) buyback
C) switch trading
D) documentary collection

Accepted Answer

Documentary collection is a method of export/import financing that involves the exchange of shipping and payment documents between the buyer's and seller's banks. This ensures that the buyer makes payment before receiving the goods, providing some security to the seller. Options A, B, and C are not methods of export/import financing. Offset involves the sale of goods or services to a foreign government in exchange for purchasing goods or services from that same country; buyback involves purchasing goods from a buyer in exchange for future products or equity in the buyer's company; and switch trading involves the exchange of commodities between two parties, typically involving an intermediary.

Question 20

A document ordering the importer to pay the exporter a specified sum of money at a specified time is called a ________.
A) bill of lading
B) letter of credit
C) bill of exchange
D) management contract

Accepted Answer

A bill of exchange is a written order from the exporter to the importer, requiring the importer to pay a specified sum of money to the exporter at a specified time. It is also known as a draft. A bill of lading is a document that serves as evidence of receipt of goods by a carrier. A letter of credit is a financial instrument used to facilitate trade transactions, which guarantees payment from the buyer to the seller. A management contract is an agreement between two parties that outlines the terms of a business relationship or project.

Quiz 13: Selecting and Managing Entry Modes

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

Export/import financing in which a bank acts as an intermediary without accepting financial risk is called ________.

Advance payment is commonly used for export/import financing when ________.

Companies involved in direct exporting typically rely on ________.

Letters of credit are popular among traders because the risk of non shipment are assumed by ________.

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

Which of the following is a method of export/import financing in which the importer's bank issues a document stating that the bank will pay the exporter when the exporter fulfills the terms of the document?

Export/import financing in which an exporter ships merchandise and later bills the importer for its value is called ________.

Which of the following letters of credit can be modified without obtaining approval from either the exporter or the importer,by the bank issuing the letter of credit?

Which of the following financing methods entails the lowest risk for exporters?

A(n) ________ is guaranteed by both the exporter's bank in the country of export and the importer's bank in the country of import.

Which of the following financing methods entails the greatest risk for importers?

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

Which of the following normally takes the form of a wire transfer of money from the bank account of the importer directly to that of the exporter prior to shipment of merchandise?

Which of the following requires an importer to pay for the imported goods when they are delivered?

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

Which of the following is a method of export/import financing?

A document ordering the importer to pay the exporter a specified sum of money at a specified time is called a ________.