Question 1

The exporter-importer relationship to a corporation of a foreign importer that has not previously conducted business with the firm would be an:

Accepted Answer

Since the foreign importer has not previously conducted business with the firm, they are an unaffiliated unknown.

Question 2

The risk of default on the part of the importer - risk of noncompletion - is present as soon as:

Accepted Answer

D

Question 3

The combination of a letter of credit,a sight draft,and an order bill of lading protect both parties in international transactions from which of the following?

Accepted Answer

The combination of a letter of credit, a sight draft, and an order bill of lading helps to reduce the risk of noncompletion, foreign exchange risk, and financing availability due to foreign exchange risk. Therefore, all of these risks are reduced when using these trade implements.

Question 4

An advantage of trading with an affiliated party for an MNE,compared to an unaffiliated party,could be reduced contracting costs and less to even no need to protect against nonpayment.

Accepted Answer

When trading with an affiliated party, there is often an established relationship and trust between the two parties, leading to reduced contracting costs and a lower likelihood of nonpayment. In contrast, when trading with an unaffiliated party, more effort and resources may be needed to establish trust and contract terms, increasing contracting costs and the risk of nonpayment.

Question 5

A/An ________ letter of credit is intended to serve as a means of arranging payment,but not as a guarantee of payment.

Accepted Answer

A revocable letter of credit can be altered or canceled by the issuer or the bank without the beneficiary's consent, making it less secure and not a guarantee of payment.

Question 6

Because most international transactions are between affiliated parties,international transaction contracts are less complex,but the management of the total value of the MNE is more complex.

Accepted Answer

Most international transactions are between affiliated parties within a multinational enterprise (MNE), which means that the contracts between them are less complex. However, managing the total value of the MNE, which involves understanding and coordinating the various transactions and assets across different countries and subsidiaries, is more complex.

Question 7

From a financial management perspective,all of the following are primary risks associated with an international trade transaction EXCEPT:

Accepted Answer

All of the options listed except for interest rate risk are primary risks associated with international trade transactions. Interest rate risk is a secondary risk that may impact the primary risks.

Question 8

Which of the following is NOT a financial instrument that may be included in an international trade transaction?

Accepted Answer

Federal funds transaction is not a financial instrument typically used in international trade transactions. The other three options (Letter of Credit, Sight Draft, and Order bill of lading) are commonly used to facilitate payment and shipment in international trade.

Question 9

For what reason might an exporter use standard international trade documentation (letter of credit,draft,order bill of lading)on an intrafirm export to its parent or sister subsidiary?

Accepted Answer

The answer of For what reason might an exporter use...

Question 10

In the case of international trade,the risk of nonpayment is essentially eliminated with the use of a letter of credit issued through a trustworthy bank.

Accepted Answer

A letter of credit is a guarantee from a bank that the seller will receive payment if they meet the terms and conditions specified in the letter. This greatly reduces the risk of nonpayment in international trade. However, there are still some potential risks involved, such as fraudulent letters of credit or disputes over the terms of the agreement.

Question 11

Which of the following relationships between importing and exporting parties would require the least detailed contract to conduct business?

Accepted Answer

The answer of Which of the following relationships between importing...

Question 12

If a foreign exchange transaction calls for payment in the importer's currency,the exporter has the foreign exchange risk.

Accepted Answer

If the payment in the importer's currency is requested, the exporter is vulnerable to the risk of fluctuations in that currency's exchange rate.

Question 13

If a foreign exchange transaction calls for payment in the exporter's currency,the importer has the foreign exchange risk.

Accepted Answer

If the transaction requires payment in the exporter's currency, then the importer will have to convert their own currency to the exporter's currency to make the payment. Therefore, the importer is exposed to the foreign exchange risk, which refers to the possibility that changes in currency exchange rates will impact the value of the payment.

Question 14

Polaris Corporation has made an agreement to ship goods to a foreign firm with whom they have not entered into a contract for three years.However,the firms have communicated regularly since the last sale three years ago.This is an example of an:

Accepted Answer

This transaction involves a known party with whom the company has had communication in the past, but does not have a current contract with. This makes it an unaffiliated known party transaction.

Question 15

What is the major difference between "currency risk" and "risk of noncompletion"? How are these risks handled in a typical international trade transaction?

Accepted Answer

The answer of What is the major difference between "currency...

Question 16

Why might different documentation be used for an export to a nonaffiliated foreign buyer who is a new customer,as compared with an export to a nonaffiliated foreign buyer to whom the exporter has been selling for many years?

Accepted Answer

The answer of Why might different documentation be used for...

Question 17

The risk of noncompletion is most important when:

Accepted Answer

The answer of The risk of noncompletion is most important...

Question 18

Today,international trade is dominated by transactions between unaffiliated parties (known or unknown).

Accepted Answer

International trade is significantly influenced by transactions between affiliated parties, such as multinational corporations and their subsidiaries, which account for a substantial portion of global trade.

Question 19

The fundamental dilemma of foreign trade is being unwilling to trust a stranger in a foreign land.

Accepted Answer

The fundamental dilemma of foreign trade is the trust issue associated with dealing with strangers in foreign lands.

Question 20

Which of the following is NOT true regarding a letter of credit?

Accepted Answer

The answer of Which of the following is NOT true...

Quiz 16: International Trade Finance