Deck 19: Multinational Cash Management

Question 1

If the 90-day B/A rates are 5%,determine the amount the exporter will receive if he holds the B/A until maturity.

A)$2,800,000
B)$2,807,018
C)$2,842,640
D)$3,000,000

Answer 1

C

Question 2

Which of the following services are NOT directly offered by EDC?

A)Purchase foreign customer's promissory notes
B)Provide lines of credits to foreign customers
C)Serves as a Factor (i.e., buys receivables)
D)All of these services are directly offered by EDC

Answer 2

C

Question 3

The purchase by a third party of one country's clearing agreement balance for hard currency which then in turn is sold is called

A)buy-forward
B)offset
C)switch trading
D)counterpurchase

Answer 3

C

Question 4

The primary methods of payment for foreign trades,ranked in the order of most secure to least secure for the exporter is:

A)open account, consignment, letter of credit/time draft, and cash in advance
B)consignment, letter of credit/time draft, cash in advance, and open account
C)cash in advance, letter of credit/ time draft, consignment, and open account
D)cash in advance, letter of credit/ time draft, open account, and consignment

Question 5

If the importing bank's acceptance commission is 1.25 percent,determine the amount the exporter will receive if he holds the B/A until maturity.

A)$2,945,625
B)$2,990,625
C)$3,000,000
D)$3,009,375

Question 6

A bill of lading is

A)A guarantee from the importer's bank that is will act on behalf of the importer and pay the exporter for the merchandise if all relevant documents are presented
B)Is a written order instructing the importer or his agent to pay the amount specified on its face on a certain date
C)Is a document issued by the common carrier specifying that it has received the goods for shipment
D)Is a negotiable money market instrument for which a secondary market exists

Question 7

The ________'s bank sends the letter of credit to the ________'s bank.After sending the merchandise,the ________ gives the shipping documents and time draft to his bank.

A)importer, exporter, exporter
B)exporter, importer, importer
C)importer, exporter, importer
D)exporter, importer, exporter

Question 8

Which forms of countertrade involve the use of money?

A)Barter, switch trading, buyback
B)Barter, clearing arrangement, switch trading
C)Buy-back, switch trading, counterpurchase
D)Buy-back, counterpurchase, offset

Question 9

If the market rate for 90-day B/As is 6.0 percent,calculate the amount the exporter will receive if he discounts the B/A with the importer's bank.

A)$2,945,625
B)$2,990,625
C)$3,000,000
D)$3,009,375

Question 10

A letter of credit is

A)A guarantee from the importer's bank that is will act on behalf of the importer and pay the exporter for the merchandise if all relevant documents are presented
B)Is a written order instructing the importer or his agent to pay the amount specified on its face on a certain date
C)Is a document issued by the common carrier specifying that it has received the goods for shipment
D)Is a negotiable money market instrument for which a secondary market exists

Question 11

Which forms of countertrade do not involve the use of money?

A)Barter, switch trading, buyback
B)Barter, clearing arrangement, switch trading
C)Buy-back, switch trading, counterpurchase
D)Buy-back, counterpurchase, offset

Question 12

The ________ sends a purchase order to the ________. The________ applies to his bank for a letter of credit.

A)importer, exporter, exporter
B)exporter, importer, importer
C)importer, exporter, importer
D)exporter, importer, exporter

Question 13

A banker's acceptance is

A)A guarantee from the importer's bank that is will act on behalf of the importer and pay the exporter for the merchandise if all relevant documents are presented
B)Is a written order instructing the importer or his agent to pay the amount specified on its face on a certain date
C)Is a document issued by the common carrier specifying that it has received the goods for shipment
D)Is a negotiable money market instrument for which a secondary market exists

Question 14

If the value at maturity is $2,860,000 calculate the 90-day B/A rate.

A)5.2%
B)6.4%
C)7.4%
D)8.2%

Question 15

A time draft is

A)A guarantee from the importer's bank that is will act on behalf of the importer and pay the exporter for the merchandise if all relevant documents are presented.
B)Is a written order instructing the importer or his agent to pay the amount specified on its face on a certain date
C)Is a document issued by the common carrier specifying that it has received the goods for shipment
D)Is a negotiable money market instrument for which a secondary market exists

Question 16

The term "forfaiting"

A)means relinquishing, waiving, yielding, and penalty
B)is a type of medium-term trade financing used to finance the sale of capital goods
C)involves the sale of promissory notes signed by the importer in favor of the exporter, who might sell the notes at a discount from face value
D)b and c

Question 17

The three basic documents needed in a foreign trade transaction are:

A)letter of credit, time draft, and proof of inspection
B)letter of credit, time draft, and a bill of lading
C)letter of credit, bill of lading, and insurance
D)time draft, bill of lading, and a pro forma statement

Question 18

The term "countertrade" refers to:

A)many different types of transactions in which the seller provides a buyer with goods or services and promises in return to purchase goods or services from the buyer
B)barter, clearing arrangement, and switch trading
C)buy-back, counter purchase, and offset
D)All of these

Question 19

A form of barter in which the counterparties contract to purchase a certain amount of goods and services from one another is called

A)counterpuchase
B)clearing arrangement
C)barter
D)offset

Question 20

International trade is more difficult and risky from the exporter's perspective than is domestic trade because:

A)the exporter may not be familiar with the buyer, and thus not know if the importer is a good credit risk
B)if the merchandise is exported abroad and the buyer does not pay, it may prove difficult, if not impossible, for the exporter to have any legal recourse
C)political instability makes it risky to ship merchandise abroad certain to parts of the world
D)all of these

Question 21

The time from acceptance to maturity on a banker's acceptance (B/A)is 90 days,the importing bank's acceptance commission is 1 percent and the B/A's discounted value at the time of acceptance is $1,000,000.What is the 90-day B/A rate if the value at maturity is $1,034,000?

Question 22

ABC Inc.is a manufacturer of office furniture located in Quebec.XYZ Corp.is a Romanian manufacturer of pots.XYZ Corp.has approached ABC Inc.and would like to barter pots for office furniture.You are the financial manager of ABC Inc.and your job is to explain the pros and cons of this transaction to management.

Question 23

The time from acceptance to maturity on a banker's acceptance (B/A)is 90 days,the importing bank's acceptance commission is 1 percent and the B/A's discounted value at the time of acceptance is $1,000,000.If the 90-day B/A rates are 5%,determine the amount the exporter will receive if he holds the B/A until maturity.

Question 24

Name and explain the three most important documents in a typical international trade transaction.

Question 25

Explain the major differences between international and domestic trade.