Deck 17: Financing International Trade

Question 1

____ promises to pay the beneficiary if they buyer fails to pay as agreed.

A) A standby L/C
B) A transferable L/C
C) Assignment of proceeds
D) None of the above

Answer 1

A

Question 2

Who bears the payment risk in a letter of credit?

A) The exporter
B) The importer
C) The issuing bank
D) Both the exporter and importer

Answer 2

C

Question 3

The commission earned by the bank for accepting a draft is reflected in the all-in-rate.

Answer 3

True

Question 4

In a countertrade transaction, banks on both ends act as intermediaries in the processing of shipping documents and the collection of payment.

Question 5

The all-in-rate a bank charges its customer(s) for accepting drafts includes both the discount rate and the acceptance commission.

Question 6

Under a letter of credit, the exporter will not ship the goods until the buyer has remitted payment to the exporter.

Question 7

The term counterpurchase denotes the exchange of goods between two parties under two distinct contracts expressed in monetary terms.

Question 8

A banker's acceptance is a draft drawn on and accepted by a(n) ____.

A) bank
B) importer
C) exporter
D) None of the above

Question 9

An exchange of goods between two parties under two distinct contracts expressed in monetary terms is:

A) compensation.
B) counterpurchase.
C) factoring.
D) accounts receivable financing.

Question 10

In an open account transaction, the exporter ships the goods to the importer but retains title to the goods until they have been sold.

Question 11

There is an active secondary market for banker's acceptances.

Question 12

From a bank's viewpoint, issuing a letter of credit is analogous to making a loan as far as risk is concerned.

Question 13

If shipment is made under a forfaiting draft, the exporter is paid once shipment has been made and the draft is presented to the buyer for payments.

Question 14

The risk to the exporter is highest with the ____ method.

A) prepayment
B) letter of credit
C) consignment
D) open account

Question 15

Which of the following is not a payment method used for international trade?

A) consignment.
B) open account.
C) factoring.
D) draft.
E) letter of credit.

Question 16

MNCs can use ____ to sell their existing accounts receivable as a means of obtaining cash.

A) factoring
B) a bill of lading
C) a banker's acceptance
D) a letter of credit

Question 17

Under a(n) ____ arrangement, the exporter ships the goods to the importer while still retaining actual title to the merchandise.

A) draft
B) consignment
C) prepayment
D) open account

Question 18

Under prepayment, the exporter will not ship the goods until the buyer has remitted payment to the exporter.

Question 19

With ____, the exporter ships the goods to the importer while still retaining actual title to the merchandise.

A) a letter of credit arrangement
B) an open account arrangement
C) a draft arrangement
D) a consignment arrangement

Question 20

A bill of exchange requesting the bank to pay the face amount at a future date is a:

A) banker's acceptance.
B) time draft.
C) letter of credit.
D) sight draft.

Question 21

Which of the following is not true regarding letters of credit?

A) They are issued by banks on behalf of the importer promising to pay the exporter.
B) A revocable letter of credit can be cancelled or revoked at any time without prior notification to the beneficiary.
C) They guarantee that the goods shipped are the goods purchased.
D) All of the above are true.

Question 22

Consider an importer that issues a promissory note to pay for the imported capital goods over a period of five years. The notes are extended to an exporter who sells them at a discount to a bank. This reflects:

A) accounts receivable financing.
B) forfaiting.
C) factoring.
D) a letter of credit.

Question 23

When using factoring to finance international trade, a bank will provide a loan to the exporter secured by an assignment of the account receivable.

Question 24

The exchange of goods between two parties without the use of any currency as a medium of exchange is called factoring.

Question 25

Which of the following is not true regarding a banker's acceptance?

A) It can be beneficial to the exporter, as he does not have to worry about the credit risk of the importer.
B) It can be beneficial to the importer, as he may have greater access to foreign markets when purchasing supplies.
C) It can be beneficial to the bank accepting the draft in that it earns a commission for creating an acceptance.
D) It is a sight draft.
E) All of the above are true.

Question 26

In ____, the exporter sells accounts receivable without recourse.

A) accounts receivable financing
B) factoring
C) working capital financing
D) countertrade

Question 27

Countertrade represents foreign trade:

A) restrictions imposed by the government on imports from another country.
B) restrictions imposed by the government on exports sent from the country.
C) transactions that force the sales of goods of one country to be linked to the purchase or exchange of goods from the country.
D) financing provided to an exporter in exchange for goods provided to the creditor by the exporter.

Question 28

Under a countertrade arrangement, the exporter ships the goods to the importer while retaining title to the merchandise until it is sold.

Question 29

The sale of accounts receivable to a third party for a discount is called factoring.

Question 30

Consider a bank that acknowledges that it will make payments on behalf of a beer importer after the beer is delivered to the importer. This reflects:

A) accounts receivable financing.
B) forfaiting.
C) factoring.
D) a letter of credit.

Question 31

According to the text, international trade activity has generally ____ over time. This should cause the popularity of trade finance techniques to ____ over time.

A) increased; increase
B) increased; decrease
C) decreased; increase
D) decreased; decrease

Question 32

A ____ provides a summary of freight charges and conveys title to the merchandise.

A) letter of credit
B) banker's acceptance
C) bill of lading
D) bill of exchange

Question 33

With ____, a bank purchases a receivable without recourse to the exporter.

A) accounts receivable financing
B) factoring
C) a banker's acceptance
D) a letter of credit

Question 34

Which of the following is a reason why commercial banks can facilitate international trade?

A) The exporter may not wish to accept credit risk of the importer.
B) The government may impose exchange contracts that prevent payment by the importer to the exporter.
C) The exporter may need financing until payment for the goods is received.
D) All of the above.

Question 35

____ refers to the purchase of financial obligations, such as bills of exchange or promissory notes, without recourse to the original holder, usually the exporter.

A) Factoring
B) Accounts receivable financing
C) Forfaiting
D) None of the above

Question 36

A bill of exchange requesting the bank to pay the face amount upon presentation of documents is a:

A) banker's acceptance.
B) time draft.
C) letter of credit.
D) sight draft.

Question 37

Which of the following payment terms provides the supplier with the greatest degree of protection?

A) Letters of credit
B) Consignment
C) Prepayment
D) Drafts (sight/time)

Question 38

A(n) ____ is an unconditional promise drawn by one party, instructing the buyer to pay the face amount upon presentation.

A) draft
B) bill of lading
C) trade acceptance
D) letter of credit

Question 39

A letter of credit does not guarantee that the goods purchased will be those invoiced and shipped.

Question 40

In ____, a bank arranges to fund a loan to pay the exporter instead of charging the importer's account immediately.

A) refinancing of a sight letter of credit
B) a banker's acceptance
C) a short-term bank loan
D) accounts receivable financing

Question 41

An irrevocable L/C obligates the issuing bank to honor all drawings presented in conformity with the terms of the L/C.

Question 42

The interest rate the bank charges the customer in a banker's acceptance is referred to as the all-in rate; it entirely consists of the acceptance commission.

Question 43

All types of foreign trade transactions in which the sale of goods to one country is linked to the purchase or exchange of goods from that same country are called countertrade.

Question 44

A(n) ____ letter of credit is not a trade-related letter of credit.

A) commercial
B) import/export
C) revocable
D) irrevocable
E) all of the above are trade-related letters of credit

Question 45

Under a letter of credit arrangement, the bank issuing the letter of credit is known as the ____ bank, the correspondent bank in the beneficiary's country to which the issuing bank sends the letter of credit is known as the ____ bank, and the bank that agrees to examine documents under the letter of credit and pay the beneficiary is called the ____ bank.

A) issuing; negotiating; advising
B) issuing; advising; negotiating
C) advising; issuing; negotiating
D) negotiating; issuing; advising
E) advising; negotiating; issuing

Question 46

A draft drawn on and accepted by a bank is called a banker's acceptance.

Question 47

Consider an exporter that sells its accounts receivables off to another firm that becomes responsible for obtaining cash from the various importers. This reflects:

A) accounts receivable financing.
B) consignment.
C) factoring.
D) a letter of credit.

Question 48

Consider an exporter that is willing to send goods to the importer without a guaranteed payment by the bank. The bank provides a loan to the exporter that is backed by the value of the exported goods. This reflects:

A) accounts receivable financing.
B) forfaiting.
C) factoring.
D) a letter of credit.