Deck 20: International Trade Finance

Question 1

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 the above

Answer 1

D

Question 2

When a bank purchases at a discount from an importer a series of promissory notes in favor of an exporter, this is called

A)accounts receivable financing.
B)asset backed commercial paper.
C)discounting.
D)forfeiting.

Answer 2

D

Question 3

A time draft

A)is a document issued by the common carrier specifying that it has received the foods for shipment; it can serve as title to the goods.
B)later becomes a banker's acceptance.
C)written order instructing the importer or his agent that calls for payment the amount specified on its face on a certain date.
D)none of the above

Answer 3

C

Question 4

Forfaiting meets Islamic finance practices.

Question 5

Suppose the face amount of a promissory note is $1,000,000 and the importer's bank charges an acceptance commission of 1.5 percent. The note is for 60 days. Calculate the amount of the acceptance commission that the bank will charge.

A)$997,500
B)$15,000 = $1,000,000 × (0.015)
C)$2,500
D)None of the above

Question 6

Banker's Acceptances usually have maturities ranging from

A)30 to 180 days.
B)90 to 360 days.
C)1 year to 5 years.
D)over 5 years.

Question 7

A time draft can become a negotiable money market instrument called

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

Question 8

A bill of lading

A)is a document issued by the common carrier specifying that it has received the foods for shipment; it can serve as title to the goods.
B)later becomes a banker's acceptance.
C)is a time draft that calls for payment upon physical delivery of goods.
D)none of the above

Question 9

Conducting international trade transactions is difficult in comparison to domestic trades. Which of the following are false statements regarding this reality?

A)Commercial and political risks enter into the equation, which are not factors in domestic trade.
B)It is important for a country to be competitively strong in international trade in order for its citizens to have the goods and services they need and demand.
C)It is generally the case that the costs of international trade outweigh the benefits.
D)All of the above are true statements

Question 10

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 11

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 12

A typical foreign trade transaction requires three basic documents:

A)letter of credit, time draft, and bill of lading.
B)letter of credit, banker's acceptance, and bill of lading.
C)letter of credit, time draft, and a banker's acceptance.
D)none of the above

Question 13

A banker's acceptance is created when

A)is a document issued by the common carrier specifying that it has received the foods for shipment; it can serve as title to the goods.
B)after taking title to the goods via a bill of lading, the importer's bank accepts the time draft.
C)a time draft that calls for payment upon physical delivery of goods matures.
D)none of the above

Question 14

In a consignment sale

A)the importer only pays the exporter once he sells the merchandise.
B)the exporter retains title to the merchandise that is shipped.
C)if the goods do not sell, the importer can return them to the exporter.
D)all of the above

Question 15

Countertrade transactions are

A)becoming obsolete as a means of conducting international trade transactions.
B)gaining renewed prominence as a means of conducting international trade transactions.
C)strictly a form of barter.
D)none of the above

Question 16

Forfaiting, in which a bank purchases at a discount from an importer a series of promissory notes in favor of an exporter,

A)is a short-term form of trade financing.
B)is a medium-term form of trade financing.
C)is a long-term form of trade financing.
D)none of the above

Question 17

There are several types of countertrade transactions:

A)none of which involve the use of money.
B)in each type, the seller provides the buyer with goods or services in return for a reciprocal promise from the seller to purchase goods or services from the buyer.
C)in each type, the seller provides the buyer with goods or services in return for a reciprocal promise from the buyer to stand ready to sell goods or services to the buyer.
D)none of the above

Question 18

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 19

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 20

The Export-Import Bank provides competitive assistance to U.S. exporters through

A)direct loans to foreign importers.
B)loan guarantees.
C)credit insurance to U.S. exporters.
D)all of the above

Question 21

Assume the time from acceptance to maturity on a $4,000,000 banker's acceptance is 180 days. Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 3.0 percent. Calculate the amount the exporter will receive if he discounts the B/A with the importer's bank.

A)$3,993,750
B)$3,915,000
C)$3,975,000
D)$3,009,375

Question 22

Assume the time from acceptance to maturity on a $1,000,000 banker's acceptance is 180 days. Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 180-day B/As is 5.0 percent. Calculate the amount the exporter will receive if he discounts the B/A with the importer's bank.

A)$906,250
B)$909,375
C)$968,750
D)$993,750

Question 23

Assume the time from acceptance to maturity on a $10,000,000 banker's acceptance is 90 days. Further assume that the importing bank's acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent. The bond equivalent yield that the bank earns in holding the B/A to maturity is:

A)22.87%
B)1.02%
C)4.06%
D)None of the above

Question 24

Assume the time from acceptance to maturity on a $10,000,000 banker's acceptance is 90 days. Further assume that the importing bank's acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent. Calculate the amount the exporter will receive if he discounts the B/A with the importer's bank.

A)$9,993,750
B)$9,900,000
C)$9,975,000
D)$9,009,375

Question 25

Assume the time from acceptance to maturity on a $5,000,000 banker's acceptance is 90 days. Further assume that the importing bank's acceptance commission is 1.5 percent and that 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)$4,981,750
B)$4,906,250
C)$4,009,375
D)none of the above

Question 26

Assume the time from acceptance to maturity on a $1,000,000 banker's acceptance is 180 days. Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 180-day B/As is 5.0 percent. Calculate the amount the exporter will receive if he holds it to maturity.

A)$906,250
B)$909,375
C)$968,750
D)$993,750

Question 27

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)both b and c

Question 28

Assume the time from acceptance to maturity on a $2,000,000 banker's acceptance is 180 days. Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 180-day B/As is 5.0 percent. The bond equivalent yield that the bank earns in holding the B/A to maturity is:

A)13.08%
B)6.54%
C)4.06%
D)None of the above

Question 29

Assume the time from acceptance to maturity on a $5,000,000 banker's acceptance is 90 days. Further assume that the importing bank's acceptance commission is 1.5 percent and that the market rate for 90-day B/As is 6.0 percent. Calculate the amount the exporter will receive if he holds it to maturity.

A)$4,981,750
B)$4,906,250
C)$4,009,375
D)none of the above

Question 30

Assume the time from acceptance to maturity on a $4,000,000 banker's acceptance is 180 days. Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 6.0 percent. Calculate the amount the exporter will receive if he holds it to maturity.

A)$3,993,750
B)$3,999,375
C)$3,975,000
D)$3,009,375

Question 31

Assume the time from acceptance to maturity on a $10,000,000 banker's acceptance is 90 days. Further assume that the importing bank's acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent. Calculate the amount the exporter will receive if he holds it to maturity.

A)$9,993,750
B)$9,999,375
C)$9,975,000
D)$9,009,375

Question 32

Assume the time from acceptance to maturity on a $2,000,000 banker's acceptance is 90 days. Further assume that the importing bank's acceptance commission is 1.25 percent and that 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)$1,993,750
B)$1,999,375
C)$1,963,750
D)$1,009,375

Question 33

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)$2,906,250
D)$3,009,375

Question 34

Assume the time from acceptance to maturity on a $10,000,000 banker's acceptance is 90 days. Further assume that the importing bank's acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent. The bond equivalent yield that the exporter pays in discounting the B/A is:

A)3.05%
B)3.01%
C)3.07%
D)None of the above

Question 35

Assume the time from acceptance to maturity on a $10,000,000 banker's acceptance is 90 days. Further assume that the importing bank's acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent. Calculate the amount the banker will receive if the exporter discounts the B/A with the importer's bank.

A)$200,000
B)$100,000
C)$25,000
D)$75,000

Question 36

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 37

Assume the time from acceptance to maturity on a $2,000,000 banker's acceptance is 90 days. Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 6.0 percent. Calculate the amount the exporter will receive if he holds it to maturity.

A)$1,993,750
B)$1,999,375
C)$1,963,750
D)$1,009,375

Question 38

The bond equivalent yield that the exporter pays in discounting the B/A is:

A)6.10%
B)9.29%
C)6.02%
D)none of the above

Question 39

In a forfaiting transaction, the forfait

A)buys the notes at a discount from face value from the importer.
B)buys the notes at a discount from face value from the exporter.
C)redeems the notes at a face value to the exporter.
D)none of the above

Question 40

In a forfaiting transaction, the forfait is usually

A)the importer.
B)the exporter.
C)the bank.
D)the title to the goods, or the bill of lading.

Question 41

Among the reasons put forth for government assistance in exporting

A)success in international trade is fundamentally important for a country.
B)success in exporting implies that there is demand for a country's products, that its labor force is employed, and that some resources are used for technological advancement.
C)to be successful in international trade means that the government is popular.
D)both a and b

Question 42

Countertrade transactions

A)are included in official trade statistics.
B)are NOT included in official trade statistics.
C)reduce trade imbalances and trade deficits.
D)both a and c

Question 43

Under the terms of Islamic finance (Shari'ah law)

A)selling debt at a reduced value is strictly forbidden.
B)charging interest is OK, but short selling stock is forbidden.
C)buying low and selling high is forbidden.
D)none of the above

Question 44

The Eximbank helps U.S. exporters develop and expand their overseas sales by

A)working capital guarantees.
B)direct loans to foreign borrowers.
C)loan guarantees.
D)credit insurance.
E)all of the above

Question 45

The British version of the Eximbank

A)helps U.S. exporters develop and expand their overseas sales.
B)is called Inland Revenue.
C)is called the Exports Credits Guarantee Department.
D)is called Eximbank U.K.

Question 46

A counterpurchase

A)involves a technology transfer via the sale of a manufacturing plant: as part of the terms, the seller of the plant agrees to purchase a certain portion of the plant output.
B)is similar to a buy-back transaction but the seller of the plant agrees to buy unrelated goods.
C)is a form of barter.
D)involves two parties agreeing to buy a specified amount of goods or services from one another.

Question 47

Through its Medium and Long-Term Guarantee Program, Eximbank helps U.S. exporters develop and expand their overseas sales by

A)protecting them against loss should a foreign buyer default.
B)guaranteeing the loans made by private financial institutions to foreign importers.
C)providing liquidity via the purchase of notes issued by Eximbank to finance the loans.
D)none of the above

Question 48

Arguments in favor of countertrade include benefits such as

A)conservation of cash or hard currency.
B)improvement of trade imbalances.
C)maintenance of export prices.
D)all of the above

Question 49

The armed forces of ____________ leads all government agencies in countertrade.

A)the United States
B)Great Britain
C)China
D)the Philippines

Question 50

A buy-back transaction

A)can be viewed as direct foreign investment in the purchasing country.
B)can be viewed as direct foreign investment in the exporting country.
C)can be viewed as indirect foreign investment in the purchasing country.
D)none of the above

Question 51

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 the above

Question 52

A clearing arrangement

A)is also called a bilateral clearing agreement.
B)is a form of barter.
C)involves two parties agreeing to buy a specified amount of goods or services from one another.
D)all of the above

Question 53

A switch trade

A)is the purchase by a third party of one country's a clearing agreement balance for hard currency.
B)is a form of barter.
C)involves two parties agreeing to buy a specified amount of goods or services from one another.
D)all of the above

Question 54

Export-Import Bank (Eximbank) is an independent agency of the United States government that facilitates and finances U.S. export trade. Eximbank's purpose is to provide financing in situations where private financial institutions are unable or unwilling to because of which of the following reasons: (i) - the loan maturity is too long
(ii) - the amount of the loan is too large
(iii) - the loan risk is too great
(iv) - the importing firm has difficulty obtaining hard currency for payment
(v) - there are no futures or forward contracts available for foreign exchange transactions

A)(i) and (ii)
B)(i), (ii), and (iii)
C)(i), (ii), (iii), and (iv)
D)(i), (ii), (iii), (iv), and (v)

Question 55

In the event of a default

A)the forfait does not have recourse against the exporter in the event of a default by the importer.
B)the forfait does have recourse against the exporter in the event of a default by the importer.
C)the exporter will have to return the goods to the importer.
D)none of the above.

Question 56

A buy-back transaction

A)is also called a bilateral clearing agreement.
B)involves a technology transfer via the sale of a manufacturing plant: as part of the terms, the seller of the plant agrees to purchase a certain portion of the plant output.
C)involves two parties agreeing to buy a specified amount of goods or services from one another.
D)all of the above

Question 57

One of the steps to follow to develop an investment fund which has been structured to adhere to Shari'ah principles whilst at the same time making use of forfaiting assets was

A)the fund sponsors had to be careful in ensuring that the pool of non-Islamic forfaiting assets was not used to directly satisfy the Islamically compliant obligations under the commodity and trade financing arrangements.
B)screening is required to ensure that the products underlying the LCs do not run counter to Shari'ah principles.
C)there had to be a signoff by Islamic scholars to verify that Shari'ah strictures had been met with.
D)all of the above

Question 58

An offset transaction

A)can be viewed as a counterpurchase trade agreement involving the aerospace/defense industry.
B)involves a technology transfer via the sale of a manufacturing plant: as part of the terms, the seller of the plant agrees to purchase a certain portion of the plant output.
C)is the purchase by a third party of one country's a clearing agreement balance for hard currency.
D)none of the above

Question 59

Through its Export Credit Insurance Program, Eximbank helps U.S. exporters develop and expand their overseas sales by

A)protecting them against loss should a foreign buyer default.
B)guaranteeing the loans made by private financial institutions to foreign importers.
C)providing liquidity via the purchase of notes issued by Eximbank to finance the loans.
D)none of the above

Question 60

A typical foreign trade transaction requires three basic documents

A)letter of credit, bill of lading, and shipping documents.
B)time draft, banker's acceptance, and bill of lading.
C)letter of credit, time draft, and bill of lading.
D)letter of credit, banker's acceptance, and bill of lading.

Question 61

Determine the amount the exporter will receive if he holds the B/A until maturity.

Question 62

Determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter.

Question 63

Determine the amount the exporter will receive if he holds the B/A until maturity.

Question 64

If the exporter's opportunity cost of capital is 11 percent, should he discount the B/A or hold it to maturity?

Question 65

Determine the amount the exporter will receive if he discounts the B/A with the importer's bank.

Question 66

Calculate the amount the banker will receive if the exporter discounts the B/A with the importer's bank.

Question 67

Determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter.

Question 68

Determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter.

Question 69

Determine the amount the exporter will receive if he discounts the B/A with the importer's bank.

Question 70

If the exporter's opportunity cost of capital is 11 percent, should he discount the B/A or hold it to maturity?

Question 71

Calculate the amount the banker will receive if the exporter discounts the B/A with the importer's bank.

Question 72

Determine the amount the exporter will receive if he holds the B/A until maturity.

Question 73

Determine the amount the exporter will receive if he discounts the B/A with the importer's bank.

Question 74

Determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter.

Question 75

Calculate the amount the banker will receive if the exporter discounts the B/A with the importer's bank.

Question 76

If the exporter's opportunity cost of capital is 11 percent, should he discount the B/A or hold it to maturity?

Question 77

Determine the amount the exporter will receive if he discounts the B/A with the importer's bank.

Question 78

Calculate the amount the banker will receive if the exporter discounts the B/A with the importer's bank.

Question 79

Determine the amount the exporter will receive if he holds the B/A until maturity.

Question 80

If the exporter's opportunity cost of capital is 11 percent, should he discount the B/A or hold it to maturity?