Question 1

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

Accepted Answer

An open account financing method carries the greatest risk for exporters as the goods are shipped and delivered to the buyer without any payment security upfront. This means the exporter is relying solely on the buyer's promise to pay within an agreed-upon timeframe, which can leave them vulnerable to non-payment or delayed payment. The other financing methods listed provide some form of payment security for the exporter. A supersedeas bond is a court-ordered assurance that payment will be made, an advance payment requires full payment upfront, and a letter of credit guarantees payment from a bank.

Question 2

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 financial document that orders the importer to pay the exporter a specified sum of money at a specified time. A bill of lading is a document that outlines the details of a shipment, while a letter of credit is a financial guarantee issued by a bank on behalf of a buyer, promising payment to a seller once specific conditions are met. A management contract is an agreement between a company and an external management firm. Therefore, the best choice here is C, bill of exchange.

Question 3

________ is a countertrade whereby one company sells to another its obligation to make a purchase in a given country.
A)Franchising
B)Joint venture
C)Switch trading
D)Barter

Accepted Answer

Switch trading is a countertrade in which one company sells to another its obligation to make a purchase in a given country. This can be useful for companies that do not want to or cannot make a direct purchase in that country. The company selling the obligation will typically receive a discount or some other benefit in exchange for doing so.

Question 4

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

In a documentary collection, the bank acts as an intermediary to facilitate the exchange of documents and payment between the importer and exporter. However, unlike other forms of export/import financing such as counterpurchase, buyback, and open account, the bank does not accept financial risk.

Question 5

A form of countertrade that usually typifies long-term relationships between the companies involved is called ________.
A)barter
B)franchising
C)offset
D)buyback

Accepted Answer

The answer of A form of countertrade that usually typifies...

Question 6

A(n)________ becomes a negotiable instrument that can be traded among financial institutions when inscribed "accepted" by an importer.
A)sight draft
B)ocean bill of lading
C)time draft
D)inland bill of lading

Accepted Answer

A time draft becomes a negotiable instrument that can be traded among financial institutions when inscribed "accepted" by an importer. A sight draft is payable on demand and does not require acceptance, while an ocean bill of lading and inland bill of lading are documents that serve as evidence of shipment or receipt of goods.

Question 7

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

Accepted Answer

The answer of Which of the following financing methods entails...

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

This method is known as a letter of credit. It is a document issued by the importer's bank, which guarantees payment to the exporter once the exporter meets the terms outlined in the letter of credit. This is a common method of payment in international trade and is considered to be a secure option for both the importer and exporter.

Question 9

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 refers to the transfer of money from the importer's bank account directly to the exporter's bank account before the merchandise is shipped. This is a common method of payment for small transactions or transactions between parties who have a well-established relationship. It carries the least risk for the exporter, as they receive payment before delivery of the goods, and the importer may be able to negotiate a better price by offering to pay in advance.

Question 10

Which of the following is the oldest known form of countertrade?
A)counterpurchase
B)switch trading
C)offset
D)barter

Accepted Answer

Barter is the oldest known form of countertrade, dating back to ancient times where people exchanged goods and services without the use of money.

Question 11

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 where the seller/exporter entrusts the handling of shipping documentation to a bank, which then releases the documents to the buyer/importer upon receipt of payment. This provides a level of security for both parties involved in the transaction. Options A, B, and C are methods of international trade but not specifically related to financing.

Question 12

Which of the following statements is true of countertrade?
A)Countertrade is practiced by countries when there is a lack of hard currency.
B)Countertrade involves products whose prices on world markets tend to remain steady.
C)Countertrade usually involves industrial products and computer softwares.
D)Hedging risk in countertrade is prohibited.

Accepted Answer

Countertrade is commonly used by countries when they lack hard currency or access to credit. It involves the exchange of goods or services rather than the use of cash. Countertrade can involve a variety of products and services and is not limited to any particular type of product or industry. Hedging risk in countertrade is not prohibited, but it can be more complex due to the use of multiple currencies and products.

Question 13

The sale of goods and services to a country by a company that promises to buy a specific product from that country in the future is called a(n)________.
A)counterpurchase
B)offset
C)joint venture
D)barter

Accepted Answer

This transaction is known as a counterpurchase, where the selling company promises to buy a specific product from the buying country in the future as part of the deal. An offset refers to an agreement in which a company agrees to offset part of the purchase price by providing something of value to the buying country, such as technology transfer or job creation. Joint venture refers to a business agreement in which two or more companies partner to undertake a specific business activity together, while barter is a direct exchange of goods or services without the use of money.

Question 14

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 assurance to the seller that they will receive payment and minimizes the risk of non-payment. It is also used when the buyer has a weak credit rating or has not obtained credit for the transaction. The transaction amount may vary, but the primary reason for using advance payment is to reduce the risk of non-payment.

Question 15

An offset agreement differs from a counterpurchase agreement in that an offset agreement ________.
A)fails to specify the type of product that must be purchased
B)fails to specify the amount that will be spent on the purchase
C)fails to give a business greater freedom in fulfilling its end of a countertrade deal
D)fails to make a hard-currency purchase of any product from that nation in the future

Accepted Answer

An offset agreement often does not specify the exact type of product that must be purchased, allowing for more flexibility in fulfilling the agreement's terms compared to a counterpurchase agreement, which typically involves more specific terms regarding the products or services to be exchanged.

Question 16

Which of the following refers to a contract between the exporter and shipper that specifies merchandise destination and shipping costs?
A)sight draft
B)bill of lading
C)letter of credit
D)bill of exchange

Accepted Answer

A bill of lading is a contract between the exporter and shipper that details the merchandise destination and shipping costs. A sight draft is a method of payment, a letter of credit is a financial agreement, and a bill of exchange is a type of negotiable instrument.

Question 17

________ is a payment method commonly used when there is an ongoing relationship between the involved parties.
A)Advance payment
B)Documentary collection
C)Letter of credit
D)Open account

Accepted Answer

The answer of ________ is a payment method commonly used...

Question 18

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

Accepted Answer

A sight draft requires the importer to pay for the imported goods upon delivery, while a time draft allows for a delay in payment. Inland bill of lading and air way bill of lading are transportation documents that do not directly involve payment.

Question 19

Buyback is defined as ________.
A)the export of industrial equipment in return for products produced by that equipment
B)an agreement that a company will offset a hard-currency sale to a nation by making a hard-currency purchase of an unspecified product from that nation in the future
C)the sale of goods or services to a country by a company that promises to make a future purchase of a specific product from that country
D)the exchange of goods or services for a certain amount of money

Accepted Answer

The answer of Buyback is defined as ________.
A)the export of...

Question 20

A company proposes that in exchange for a hard-currency sale,it will make a hard-currency purchase of an unspecified product from the buyer nation in the future.Which of the following is the company proposing?
A)a counterpurchase
B)an offset
C)a buyback
D)a barter

Accepted Answer

The company is proposing an offset arrangement, which involves a hard-currency sale followed by a hard-currency purchase in the future. In an offset, the company using this arrangement may purchase any goods and services from the supplying nation, not necessarily any specific product. Counterpurchase, buyback, and barter do not fit the scenario described in the question.

Quiz 13: Selecting and Managing Entry Modes

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

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

________ is a countertrade whereby one company sells to another its obligation to make a purchase in a given country.

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

A form of countertrade that usually typifies long-term relationships between the companies involved is called ________.

A(n) ________ becomes a negotiable instrument that can be traded among financial institutions when inscribed "accepted" by an importer.

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

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?

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 is the oldest known form of countertrade?

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

Which of the following statements is true of countertrade?

The sale of goods and services to a country by a company that promises to buy a specific product from that country in the future is called a(n) ________.

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

An offset agreement differs from a counterpurchase agreement in that an offset agreement ________.

Which of the following refers to a contract between the exporter and shipper that specifies merchandise destination and shipping costs?

________ is a payment method commonly used when there is an ongoing relationship between the involved parties.

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

Buyback is defined as ________.

A company proposes that in exchange for a hard-currency sale,it will make a hard-currency purchase of an unspecified product from the buyer nation in the future.Which of the following is the company proposing?