Question 1

Which of the following is an advantage of having a letter of credit?

Accepted Answer

A letter of credit can facilitate an exporter to obtain pre-export financing, which can be beneficial for cash flow management and reducing financial risk. Option A and C are incorrect as a letter of credit ensures payment to the exporter, it does not allow payment after delivery nor does it necessarily result in higher prices for goods. Option D is incorrect as shipping costs are determined by the shipping company and not by the use of a letter of credit. Option E is incorrect as there are fees associated with the issuance and management of a letter of credit, although these fees may be negotiated between the parties involved.

Question 2

Which of the following stands at the center of international commercial transactions and is issued by a bank at the request of an importer?

Accepted Answer

The letter of credit stands at the center of international commercial transactions and is issued by a bank at the request of an importer to ensure that payment will be made to the exporter once the goods have been shipped and the exporter has met the terms of the agreement. A bill of lading is a document that serves as proof of shipment of goods, a time draft is a type of payment in which the buyer is given time to pay the seller, a sight draft is a type of payment in which the buyer must pay immediately upon presentation of the draft, and a bill of exchange is a type of negotiable instrument used in international trade. None of these documents stand at the center of international commercial transactions in the way that the letter of credit does.

Question 3

Which of the following is true with respect to the international and domestic practices of settling trade transactions?

Accepted Answer

The answer of Which of the following is true with...

Question 4

A _____ is issued by a bank,and it indicates that the bank will make payments under specific circumstances.

Accepted Answer

A letter of credit is a document issued by a bank that guarantees the payment of a customer's obligation up to a specified amount and under specific conditions. It assures the seller that they will receive payment for the goods or services they provide to the buyer, even if the buyer defaults on the payment. It serves as a financial instrument to reduce the risk of non-payment in international trade transactions.

Question 5

A lack of trust between two parties engaged in international trade is exacerbated by the:

Accepted Answer

The lack of trust in international trade is worsened by the difficulty of using an underdeveloped international legal system to enforce contractual obligations. This can make it hard for parties to have confidence in each other's ability to fulfill their end of the bargain, which can lead to a breakdown in trust and ultimately harm the business relationship.

Question 6

Which of the following is true of a letter of credit in international trade?

Accepted Answer

The letter of credit states that the bank will pay the exporter for the merchandise as long as it is shipped in accordance with specified instructions and conditions. At this point, the letter of credit becomes a financial contract between the bank and the exporter.

Question 7

Which of the following is true of an export management company (EMC)?

Accepted Answer

An export management company (EMC) specializes in serving firms in particular industries and in particular areas of the world, helping them to export their products by handling various aspects of the export process.

Question 8

In international trade,an exporter wants to be paid before a consignment is shipped.Correspondingly,the importer wants to pay only upon receipt of the consignment.These conflicting preferences of the parties are a manifestation of _____.

Accepted Answer

The conflicting preferences of the exporter and importer regarding payment and receipt of the consignment are indicative of lack of trust between the parties. Both parties are concerned about protecting their interests, and their preferences reflect a lack of confidence in the other party's ability or willingness to fulfill their obligations.

Question 9

Which of the following is true of a letter of credit?

Accepted Answer

A letter of credit is a financial instrument issued by a bank on behalf of its customer, promising to pay a specified sum of money to a beneficiary (usually the exporter) upon the presentation of particular, specified documents (such as a bill of lading or commercial invoice). It assures the exporter that they will be paid as long as they meet the terms and conditions of the letter of credit.

Question 10

A firm that enters many markets at once:

Accepted Answer

Entering multiple markets at once can strain a firm's limited resources, making it difficult to effectively manage and succeed in all of them.

Question 11

In international commerce,a _____ refers to an order written by an exporter instructing an importer to pay a specified amount of money at a specified time.

Accepted Answer

The description provided is that of a draft, which is a type of a payment instrument in international trade. A bill of lading is a document that serves as evidence of shipment or delivery of goods, a letter of credit is a document where a bank guarantees payment to a seller on behalf of a buyer, counterpurchase is a type of international trade where two countries agree to buy products from each other, and buyback is a type of agreement where a seller agrees to buy back goods from a buyer at a specified time or price.

Question 12

Which of the following is a function of an export management company?

Accepted Answer

Export Management Companies (EMCs) normally accept two types of export assignments. They start exporting operations for a firm with the understanding that the firm will take over operations after they are well established. In another type, start-up services are performed with the understanding that the EMC will have continuing responsibility for selling the firm's products.

Question 13

For an importer,which of the following is a disadvantage of using a letter of credit for international transactions?

Accepted Answer

A letter of credit ties up the importer's credit capacity, making it more difficult for them to borrow for other purposes.

Question 14

Which of the following is a drawback of relying on an export management company (EMC)?

Accepted Answer

Relying on an EMC can lead to the exporting company not developing its own exporting capabilities, which can limit their options in the long run.

Question 15

In international commerce,a draft is sometimes referred to as a _____.

Accepted Answer

A draft is a type of bill of exchange, which is a written order from one person or entity to another requesting payment of a certain amount on a specific date. It is commonly used in international commerce as a way to facilitate payment between parties in different countries.

Question 16

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

Dealing with people from different countries, languages, and legal systems can increase the level of uncertainty and unfamiliarity, leading to a lack of trust between the parties.

Question 17

Which of the following is an advantage of a letter of credit for an importer?

Accepted Answer

A letter of credit allows the importer to delay payment until the required documents (such as a bill of lading) have been received, giving the importer time to inspect the goods and verify that they have been shipped according to the agreed-upon terms. This can help reduce the risk of fraud or non-performance by the exporter.

Question 18

Which of the following is a strategic step taken to increase a firm's probability of exporting successfully?

Accepted Answer

Entering a foreign market on a small scale is a strategic step that can increase a firm's probability of exporting successfully. This allows the firm to test the receptiveness of the foreign market and minimize the risks and costs of entering a new market. Avoiding the use of export management companies to contain costs or waiting for export opportunities may not be effective strategies for successfully exporting. Entering several markets simultaneously may increase the firm's risk and require significant resources. Avoiding recruitment of local personnel may limit the firm's ability to understand and navigate the foreign market.

Question 19

A letter of credit reduces an importer's ability to borrow funds for other purposes because:

Accepted Answer

A letter of credit is a commitment from a bank to pay the seller, which means the bank is taking on a financial liability against the importer. This reduces the importer's ability to borrow funds for other purposes since lenders take into account any outstanding liabilities when assessing creditworthiness.

Question 20

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

The answer of In terms of using a third party...

Quiz 14: Exporting, Importing, and Countertrade