Question 1

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)usance letter of credit

Accepted Answer

A revocable letter of credit can be modified without obtaining approval from either the exporter or the importer, by the bank issuing the letter of credit. However, it is not recommended to use a revocable letter of credit as it provides less security to the exporter.

Question 2

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 has both the exporter's bank and importer's bank guaranteeing payment. This provides additional assurance to the exporter that payment will be received, as both banks are involved in the process. Transferable and revocable letters of credit do not necessarily involve both banks, and an irrevocable letter of credit only involves the importer's bank.

Question 3

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 only acts as an intermediary to facilitate the transaction and transfer of documents between the buyer and seller. The bank does not provide financing or take on financial risk, making it the correct option in this scenario. Counterpurchase and buyback involve a higher level of financial risk and direct involvement from the bank, while an open account does not involve any intermediary or bank involvement.

Question 4

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 when they are delivered. This means that the importer cannot delay payment, as they would be able to with a time draft. An inland bill of lading is a document that represents the goods being shipped within a country, not between countries. An air way bill of lading is a document that represents goods being shipped by air.

Question 5

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 called a letter of credit, where the importer's bank acts as an intermediary and guarantees payment to the exporter once the terms of the agreement are met. The other options listed are also involved in the process of export/import financing, but do not directly relate to this specific method.

Question 6

A(n)________ exports products on behalf of an indirect exporter.
A)local distributor
B)subsidiary
C)sales representative
D)export management company

Accepted Answer

An export management company is a type of intermediary that exports products on behalf of an indirect exporter. They act as the export department for the manufacturer and may provide a range of services such as market research, distribution, logistics, and financing. A local distributor typically purchases products from a manufacturer and resells them in a specific market, while a subsidiary is a separate company that is majority-owned by a parent company. A sales representative may work on a commission basis to sell products but does not typically handle the entire export process.

Question 7

A(n)________ allows the bank to modify the terms of the letter only after obtaining the approval of both exporter and importer.
A)bill of exchange
B)bill of lading
C)confirmed letter of credit
D)irrevocable letter of credit

Accepted Answer

An irrevocable letter of credit cannot be altered or canceled without the consent of all parties involved, including the exporter and importer.

Question 8

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, also known as a draft, is a document ordering the importer to pay the exporter a specified sum of money at a specified time. A bill of lading is a document issued by a carrier acknowledging receipt of goods for shipment. A letter of credit is a document issued by a bank guaranteeing payment to the exporter on behalf of the importer. A management contract is an agreement between a company and a management team to run the company's operations.

Question 9

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

Open account entails the greatest risk for exporters as this method involves shipping the goods and then waiting for the buyer to make the payment at a later date. This can result in the exporter not receiving payment or facing delays in receiving the payment, which can cause financial strain and impact the cash flow of the business. Other options like supersedeas bond, advance payment, and letter of credit offer more security and certainty of payment for exporters.

Question 10

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 a situation where the importer pays for the merchandise before it is shipped. This is usually done via wire transfer from the importer's bank account to that of the exporter. Making advance payment reduces the risk of non-payment to the exporter and increases the chances of receiving preferential prices and terms.

Question 11

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

The practice where people exchange goods instead of money is known as barter, making option D the correct choice. Option A (offset) refers to a type of trade where the exporter offsets the cost of imported goods by exporting goods of equivalent value. Option B (counterpurchase) involves a type of trade where the exporter agrees to import goods from the importing country in return for an equivalent value of exported goods. Option C (switch trading) involves a type of trade where a third party buys the exporter's goods for their own use and sells goods of equal value to the importing country.

Question 12

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 is a type of draft that is payable at a certain future date. When an importer "accepts" the time draft, they are agreeing to pay the amount due on the specified future date. This acceptance turns the time draft into a negotiable instrument that can be traded among financial institutions until the date of payment arrives. A sight draft is payable on demand and does not require an acceptance to become negotiable. An ocean bill of lading and inland bill of lading are documents that relate to shipments of goods, but they are not negotiable instruments.

Question 13

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

Wang's Techno Toys' bank is using the method of documentary collection. This method involves the bank acting as an intermediary between the buyer and seller, but without assuming any financial risk. The bank collects payment for the exported goods from the buyer upon delivery and forwards it to the seller. This method is often used for low-risk transactions where the buyer and seller have an established relationship.

Question 14

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

Advance payment entails the greatest risk for importers because they have to pay the exporter before receiving the goods, leaving them vulnerable if the exporter fails to deliver.

Question 15

________ 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 16

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

Accepted Answer

Banks assume most of the risks associated with letters of credit, such as non-payment or delivery of goods. This makes it a popular choice for traders who want to reduce their financial risks.

Question 17

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 the buyer will make payment, and to the buyer that the seller will deliver the goods. It is a risk management technique to avoid non-payment or non-delivery.

Question 18

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 exporter entrusts the handling of shipping and financial documents to their bank, which forwards them to the importer's bank with instructions for release of the goods to the importer upon payment. This method is considered relatively low-risk and low-cost for both parties involved. Offset, buyback, and switch trading are types of countertrade, which involve the exchange of goods or services instead of payment in cash.

Question 19

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 20

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 specifies merchandise destination and shipping costs. A sight draft is a payment document, a letter of credit is a payment guarantee, and a bill of exchange is a payment instrument.

Quiz 13: Selecting and Managing Entry Modes

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

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

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

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(n) ________ exports products on behalf of an indirect exporter.

A(n) ________ allows the bank to modify the terms of the letter only after obtaining the approval of both exporter and importer.

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

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

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(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?

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

Letters of credit are popular among traders because most of the risks are assumed by ________.

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

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

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

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