Deck 7: Terms of Payment

Question 1

It is often a disadvantage to request a letter of credit because of the costs (and the cumbersome process)associated with it.

Answer 1

True

Question 2

A problem with TradeCard is that it is an extremely expensive alternative.

Answer 2

False

Question 3

The greater the exposure,the more secure terms of payment should be.

Answer 3

True

Question 4

It is possible to add a draft to a letter of credit.

Question 5

A bank guarantee payable at first request is one in which the beneficiary does not have to provide any evidence that the terms of the underlying contract between the contractor and the beneficiary have not been met.

Question 6

A procurement card is conceptually similar to a consumer credit card.

Question 7

In those few cases in which the letter of credit does not reflect exactly the pro-forma invoice (misspellings for example),it is wiser to attempt to obtain an amendment rather than to issue an invoice that matches the letter of credit.

Question 8

In most cases,it is wise to have a letter of credit confirmed by the advising bank.

Question 9

United States law prohibits bank guarantees.

Question 10

A payment guarantee is the most commonly used type of guarantee and is used to ensure that the contractor finishes the project.

Question 11

A letter of credit is more secure than cash in advance.

Question 12

Usually a bank guarantee is offered by a single bank,rather than multiple banks.

Question 13

Documentary collections are more cumbersome and expensive than letters of credit.

Question 14

An irrevocable letter of credit cannot be canceled by the issuing bank unless the applicant agrees to it.

Question 15

A date draft goes into effect at the time the draft is endorsed (signed).

Question 16

In a letter of credit,the creditworthiness of the exporter is substituted for the creditworthiness of the importer.

Question 17

A date draft transaction solves one of the problems of documentary collection in general: the date at which the importer will endorse the draft.

Question 18

Since a draft (or a bill of exchange)is a legal document in the importing country,the courts in the importing country would consider non-payment by an importer as a domestic issue.

Question 19

The responsibilities of the presenting bank in the importing country generally stop at notifying the importer that the documents have arrived and at requesting that the importer endorse the draft or at requesting payment before releasing the documents.This is called trade acceptance.

Question 20

Because some of their cash must be frozen at the issuing bank to guarantee payment,importers often prefer terms other than those of a letter of credit.

Question 21

Among country risks in international trade are labor issues.For instance,_____ has/have a strike almost every year at its/their ports.

A) Chad
B) Paraguay
C) Japan
D) All of the above
E) None of the above

Question 22

The importer's bank is called the

A) applicant.
B) beneficiary.
C) issuing bank.
D) advising bank.
E) None of the above

Question 23

The majority of transactions issued in the European Union are conducted on a "documentary collection" basis.

Question 24

Sometimes a third bank,in addition to the issuing bank and the advising bank,becomes involved with a letter of credit.This bank is called a

A) primary bank.
B) secondary bank.
C) intermediary bank.
D) amending bank.
E) None of the above

Question 25

International factoring

A) is more complicated than domestic factoring.
B) can be used to extend credit beyond what the exporter can normally afford.
C) often involves factoring firms in both the exporting and importing countries.
D) All of the above
E) None of the above

Question 26

In a letter of credit,the most important aspect is

A) the creditworthiness of the importer.
B) the documentation of the transaction.
C) the creditworthiness of the exporter.
D) the promise of eventually changing to an open account.
E) None of the above

Question 27

Following negotiations on a transaction which result in use of a letter of credit for payment,the next step is for the exporter to

A) ship the goods to the importer.
B) ask the advising bank to open a letter of credit.
C) make a security deposit in the issuing bank.
D) All of the above
E) None of the above

Question 28

An aval

A) is a used only in open accounts.
B) means funds are available.
C) makes the presenting bank a co-signer of a draft.
D) All of the above
E) None of the above

Question 29

A standby letter of credit is similar to a "simple" letter of credit except for

A) it generally has a much longer validity period.
B) it usually applies to more than one shipment from the exporter to the importer.
C) it allows the exporter to extend an open account to the importer, using the letter of credit only if the importer doesn't meet its obligations.
D) All of the above
E) None of the above

Question 30

The exporter that offers "open account" terms is less likely to clinch a sale than one that offers more secure terms,such as "letter of credit" terms.

Question 31

The bill of lading serves as

A) a certificate of title to transported goods.
B) a substitute for a letter of credit.
C) a certificate of an open account.
D) All of the above
E) None of the above

Question 32

International commercial risk can be evaluated by

A) credit report companies.
B) factoring houses.
C) some accounting firms, insurance companies, and banks.
D) All of the above
E) None of the above

Question 33

The risk(s)that an exporter takes in requesting cash in advance as a means of payment is/are

A) fluctuations in the exchange rate.
B) it puts the exporter at a competitive disadvantage.
C) it can increase inventory stockouts.
D) All of the above
E) None of the above

Question 34

The UPC 600 is

A) used only in open accounts.
B) normally not used when a letter of credit is issued through the SWIFT network.
C) the Universal Customs and Practice for Documentary Credit, 2007 revision, Publication 600 of the International Chamber of Commerce.
D) All of the above
E) None of the above

Question 35

In the European Union,it has become difficult to conduct business on any payment terms other than

A) cash in advance.
B) open accounts.
C) letters of credit.
D) factoring.
E) None of the above

Question 36

An exporter can conduct its international business in a manner similar to the way it and most companies conduct domestic business by using

A) an open account.
B) a letter of credit.
C) a documentary collection.
D) cash in advance.
E) None of the above

Question 37

In attempting a credit check of a foreign firm,a basic problem is

A) deciphering the business's organization and name.
B) most international banks are corrupt.
C) most countries avoid international trade.
D) All of the above
E) None of the above

Question 38

SWIFT stands for

A) Southwestern International Fund Transfers.
B) Sales World Institutional Financial Telecommunications.
C) Serving-the-World Institutional Financial Transactions.
D) Society for Worldwide Institutional Transfers.
E) None of the above

Question 39

Among other reasons,international transactions are perceived to have more risk of non-payment because of

A) a lack of credit information.
B) a lack of personal contact.
C) no easy legal recourse.
D) All of the above
E) None of the above

Question 40

The instruction letter is part of the documentary collection

A) that is not recognized in the United States.
B) in which the exporter, through the remitting bank, tells the presenting bank what it is expected to accomplish.
C) that is not recognized in the European Union.
D) All of the above
E) None of the above

Question 41

The most commonly used terms of payment for a customer located in the Middle East are

A) letters of credit.
B) open accounts.
C) documentary collections.
D) cash in advance terms.
E) None of the above

Question 42

Because of the risks associated with open-account transactions,when an exporter is forced for competitive reasons to offer an open account,the exporter should acquire credit ____________________ on those sales.

Question 43

In a cash-in-advance transaction,all risk is transferred to the ____________________.

Question 44

In some cases,the exporter may want to grant some credit terms to the importer but still want some means to ensure it will be paid.In that case,it can request that the bank exchange documentation against a ____________________ draft in which the importer endorses to promise to pay within a certain time period.

Question 45

A ____________________ is an instrument that legally binds the importer to pay within a certain period of time (and allows the exporter to grant commercial credit to the importer whenever it is deemed necessary).

Question 46

Among the following terms of payment,which is the one which is the most customer-friendly and still protects the exporter from the risk of non-payment?

A) a letter of credit
B) open account
C) open account with credit insurance
D) international forfeiting
E) None of the above

Question 47

While a cash-in-advance transaction shows a lack of it,an open account demonstrates that the exporter has ____________________ toward the importer.

Question 48

The most commonly used term of payment in the European Union is ____________________.

Question 49

The less developed an area of the world is,the more likely it is that an exporter will use a ____________________ term of payment.

Question 50

The issuing bank's promise to pay is contingent upon the proper ____________________ being in order.

Question 51

The rules of the URR 725 of the International Chamber of Commerce apply to ___________________ rather than to exporters.

Question 52

In documentary collection activity,the exporter's bank is called the ____________________ bank.

Question 53

A bank guarantee that is requested by a beneficiary to ensure that the contractor is bidding in good faith and will enter the contract if awarded is called a(n)

A) tender guarantee or bid guarantee.
B) performance guarantee.
C) maintenance guarantee.
D) advance payment guarantee or repayment guarantee.
E) None of the above

Question 54

Credit terms can be considerably lengthened through

A) a letter of credit.
B) trade acceptance.
C) banker's acceptance.
D) international forfaiting.
E) None of the above

Question 55

When a letter of credit and the required documents do not match perfectly,it is normally the role of the ____________________ bank to request an amendment to the letter of credit from the bank of the other party.

Question 56

In terms regarding letters of credit,the importer is called the ____________________.