Deck 13: International Trade

Question 1

A consignment arrangement allows:

A)an exporter to reduce the risks that the purchase price of the goods exported will not be paid.
B)an importer to use its bargaining power to get the lowest price that the exporter can offer.
C)an importer to acquire goods for immediate resale without increasing inventory risk.
D)an exporter to avoid the delays that can be experienced in getting foreign goods cleared through customs.

Answer 1

an importer to acquire goods for immediate resale without increasing inventory risk.

Question 2

What is the difference between an order bill of lading and a straight bill of lading?

A)An order bill of lading contains a special provision that allows the holder of the bill of lading to direct that the goods covered by the bill of lading be delivered to an alternate destination,while a straight bill of lading does not contain that provision.
B)An order bill of lading allows the holder of the bill of lading to return the goods covered by the bill of lading to the exporter,while the straight bill of lading does not contain that provision.
C)An order bill of lading allows for an adjustment to the sale price of the goods covered by the bill of lading while the straight bill of lading does not allow that adjustment.
D)An order bill of lading transfers title to the goods being shipped to the holder of the order bill of lading,while the straight bill of lading does not transfer title.

Answer 2

An order bill of lading transfers title to the goods being shipped to the holder of the order bill of lading,while the straight bill of lading does not transfer title.

Question 3

If the importer pays for a shipment of foreign goods before the goods are shipped:

A)the transaction is referred to as using the cash advance method.
B)the importer will require that the exporter guarantee that the shipment will be made by having the shipment insured by the government of the exporter's country.
C)the transaction is referred to as using the "trust-the-exporter" method.
D)all of the risks of the transaction are transferred to the exporter.

Answer 3

the transaction is referred to as using the cash advance method.

Question 4

What is a cash cycle?

A)The cash cycle identifies the gap between the time a business pays for raw materials and the time that buyer of the goods produced with those raw materials pays the business for those goods.
B)The cash cycle is the time between the sale of goods and the time that the seller receives payment for the goods.
C)The cash cycle is the time that it takes a seller on credit to collect the amount of the credit sale.
D)The cash cycle is the gap between the time that a business borrows money and the time the borrowed funds are completely repaid.

Question 5

What kind of products usually face higher import/export regulation than most other products?

A)Industrial products
B)Consumer products
C)Products used to product other products
D)Agricultural products

Question 6

What is an open account in the context of international trade?

A)An open account is an arrangement whereby the exporter automatically ships a specific quantity of a specific good to the importer at regular intervals.
B)An open account is an arrangement whereby the importer and the exporter agree on a time of payment after the importer receives the goods sold by the exporter.
C)An open account is an arrangement in which the importer and exporter agree to trade goods and net the amount owed rather than each paying the other for goods purchased.
D)An open account is an arrangement in which the importer agrees to pay the exporter for goods that have been shipped by the exporter but not received by the importer.

Question 7

What are some of the product quality risks that importers face?

A)Importers face the risk that imported goods will not be of the quality expected,so,if they have paid for the goods before receipt,they may have a difficult time obtaining replacement goods or recovering the payment that they made.
B)Importers face the risk that the imported goods will be of a higher quality than domestic goods so that importers will have to charge more for the goods than the price of domestic goods.
C)Importers do not face product quality risks since importers can specify the required quality of goods in their contracts.
D)Importers face the risk that the imported goods will be of varying quality so that importers will have to charge different prices for similar goods.

Question 8

In international trade matters,counterparty risk refers to the:

A)possibility that other parties may be affected by performance of a contract.
B)risk that the other party to a contract will not perform their duties under the contract.
C)possibility that other parties should have been made parties to the contract.
D)risk that one party to a contract may make more profit from the contract than was anticipated by the other party.

Question 9

If an exporter provides goods to an importer,but the exporter retains title to those goods until they are sold even though the goods are in the possession of the importer,the transaction is identified as a(n):

A)bailment.
B)consignment.
C)open account.
D)installment.

Question 10

In economic terms,_____________________ occur when the benefit of defaulting on a payment is less than the present value of future benefits in a relationship.

A)transactions
B)barter transactions
C)open accounts
D)financing

Question 11

What characteristics do open account arrangements and consignment arrangements have in common?

A)Both arrangements require the intervention of a third party to ensure that the arrangement is carried out on all sides.
B)Both arrangements are based on the assumption that the exchange rate between the importer's currency and the exporter's currency will not change.
C)Both arrangements require that the exporter rely on the importer's promise to pay for the goods at a specific time in the future.
D)Both arrangements rely on government guarantees to reduce counterparty risk.

Question 12

If an importer has an intermediary guarantee payment to the exporter for the goods purchased from the exporter as soon as specific requirements are met,the guarantee provided by that intermediary is called a:

A)payment guarantee.
B)bill of lading.
C)letter of credit.
D)banker's acceptance.

Question 13

A documentary credit is so named because:

A)it provides a credit that the holder can use like a short-term loan.
B)the credit that it represents must be documented by the importer before the importer can take advantage of the credit.
C)it allows partial payment or credit even if all of the required documents are not provided.
D)the payment it guarantees is conditioned on the receipt of specified documents.

Question 14

What factors can reduce or eliminate the many of the risks that importer and exporters face in international transactions?

A)Counterparty knowledge and trust
B)Well drafted contracts and liquidated damage provisions
C)Security deposits and established collection policies
D)Limitations on credit sales and factoring

Question 15

What are the unique causes of delay that may be encountered in shipping goods by cargo ship?

A)Transit workers' strikes
B)Wars and political unrest
C)Loading and unloading and transportation to and from the ship
D)The time required for the goods to clear customs

Question 16

In an international transaction,the document issued by the exporter that describes the goods being sold in detail is called the:

A)letter of credit.
B)bill of lading.
C)commercial invoice.
D)trade receipt.

Question 17

What are some of the primary reasons that countries impose trade barriers?

A)Revenue production and limitation of consumer choices
B)Economic protection and safety
C)Taxation and protection of industrial technology secrets
D)Protection of domestic industries and retaliation against other countries

Question 18

What kind of currency risk is faced by both importers and exporters in international transactions in goods?

A)Translation risk
B)Interest rate risk
C)Transaction risk
D)Investment risk

Question 19

The receipt issued by the carrier of goods,usually to the exporter,that confirms that the goods have been delivered to the carrier for shipment to the importer is called a:

A)bill of lading.
B)letter of credit.
C)banker's acceptance.
D)invoice for shipment.

Question 20

If there is informational asymmetry in a transaction,who bears the primary risk of default?

A)The exporter
B)The importer
C)Both the exporter and importer have the same risk of default
D)The financial institution financing the transaction

Question 21

What was one of the most important results of the Uruguay Round of GATT?

A)The creation of the World Trade organization.
B)The establishment of global rules protecting intellectual properties.
C)The admission of China to the WTO.
D)The creation of the International Monetary Fund.

Question 22

In a documentary collection transaction,the exporter has an increased risk that is not so prominent in a letter of credit transaction? What is that risk?

A)If the importer does not pay for the goods,the exporter will have to take action in the country where the importer is to force the return of the goods.
B)In a documentary collection transaction,the exporter has had to pay a fee to a bank for the documentary collection that is not required in a letter of credit transaction.
C)If the importer rejects the goods in a letter of credit transaction,the exporter still receives payment,but if the importer rejects the goods in a documentary collection transaction,the exporter does not get paid.
D)In a documentary collection,the exporter is depending on the importer to make payment and take title to and possession of the goods.If the importer does not do that,the exporter has an inventory of unsold goods in a foreign country.

Question 23

What has been the greatest concern for labor interests arising from NAFTA?

A)U.S.labor interests have been concerned that the minimum wage in the U.S.would decrease.
B)U.S.labor interests have been concerned that U.S.companies would close their U.S.operations and move them to Mexico.
C)Mexican labor interests have been concerned that U.S.companies would move to Mexico and bring their U.S.workers with them.
D)Mexican labor interests have been concerned that Mexican workers would be drawn to jobs in the U.S.

Question 24

What development in the 1990's diminished the importance of banker's acceptances?

A)Export-credit insurance became available and minimized the need for letters of credit.
B)Import-export banks began to refuse to accept the default risk imposed on them by letters of credit.
C)Improved wire-transfers of funds eliminated most of the need for letters of credit.
D)International credit markets replaced letters of credit with derivatives that assumed the risk addressed by letters of credit.

Question 25

What is the difference between a revocable letter of credit and an irrevocable letter of credit?

A)A revocable letter of credit can be cancelled at any time by either the importer or the exporter,but an irrevocable letter of credit cannot be cancelled.
B)A revocable letter of credit can be assigned to anyone,but an irrevocable letter of credit can only be assigned upon the consent of the issuing bank.
C)The terms of an irrevocable letter of credit cannot be changed without the consent of the beneficiary of the letter of credit.
D)Since the terms of letters of credit are standardized and apply whatever name is given to a letter of credit,there is no distinction between revocable and irrevocable letters of credit.

Question 26

The periodic negotiations of the WTO aimed at eliminating specific forms of unfair trade practices are called:

A)conferences.
B)rounds.
C)agreements.
D)accords.

Question 27

How can an exporter use a letter of credit to obtain financing?

A)There is an active secondary market for letters of credit,and an exporter can sell a letter of credit on that market.
B)Since a letter of credit is an assurance of payment of a specific amount in the future,an exporter can accumulate several letters of credit,securitize those letters of credit,and sell interests in the securitized letters of credit.
C)Since a letter of credit represents only the possibility of future payment,a letter of credit is of no use to an exporter in obtaining financing.
D)Since a letter of credit represents a future payment to an exporter for goods sold,the exporter can use the letter of credit as collateral for a loan.

Question 28

An order or demand issued by one party to another party to pay a specific sum of money is called a:

A)letter of credit.
B)bill of lading.
C)draft.
D)consignment.

Question 29

When an importer receives title to the goods shipped by the exporter only upon the importers payment for those goods,the transaction is referred to as:

A)documents against acceptance.
B)documents against payment.
C)an open account.
D)a consignment.

Question 30

In evaluating applicants seeking membership in the World Trade Organization,the initial evaluation of the applicant considers:

A)the consistency between the applicant's trade policies and the policies of the WTO.
B)how well-developed the economic system of the applicant is compared to other countries around the world.
C)the ability of the applicant to contribute its share of the operating costs of the WTO.
D)the terms of international trade agreements that the applicant has already joined.

Question 31

If a bank issuing a letter of credit accepts the time draft that is issued in connection with the letter of credit,a _______________________ results.

A)sight draft
B)banker's acceptance
C)bill of lading
D)transfer of title

Question 32

The participants in NAFTA are:

A)The United States,Canada,and Mexico.
B)The United States,Canada,and Panama.
C)The United States,Mexico,and Panama.
D)The United States,Canada,and Cuba.

Question 33

A prohibited subsidy,in the view of the WTO,is one that:

A)gives a domestic firm an advantage in international trade.
B)imposes serious prejudice on another country.
C)gives an advantage to domestic industrial research.
D)distorts international trade.

Question 34

In a transaction involving a letter of credit,in addition to the importer and the exporter,what other two parties are usually involved?

A)The extending bank and the receiving bank
B)The issuing bank and the confirming bank
C)The paying banks and the paid bank
D)The authorizing bank and the approving bank

Question 35

GATT was succeeded in 1995 by the:

A)renewal of the General Agreement on Tariffs and Trade.
B)World Trade Organization.
C)Uruguay Round.
D)Dora Round.

Question 36

If an issuing bank pays its obligation under a letter of credit without collecting the amount paid from the importer receiving the goods that are subject to the letter of credit:

A)the bank has essentially financed the purchase of those goods for the importer,and the importer will have had to made arrangements to repay the bank for the amount that it paid plus interest.
B)the bank can reclaim from the importer the goods that were purchased under the letter of credit.
C)both the bank and the exporter who supplied the goods covered by the letter of credit have a claim against the importer receiving the goods.
D)the exporter can reclaim the goods from the importer.

Question 37

The __________________________ is the primary decision-making body of the WTO.

A)General Council
B)Security Council
C)General Assembly
D)Ministerial Conference

Question 38

One of the most important post-World War II developments related to trade was the:

A)Bretton Woods Agreement.
B)multilateral reduction of tariffs and non-tariff barriers to trade.
C)creation of the General Agreement on Tariffs and Trade.
D)establishment of the North American Free Trade Agreement organization.

Question 39

A government-sponsored institution that is intended to assist the import and export activities with the country by providing information,financing,and insurance is called a(n):

A)trade improvement council.
B)foreign trade organization.
C)export-import bank.
D)foreign exchange market.

Question 40

The accounting system that measures transactions between one country and all other countries is called the:

A)balance of trade system.
B)balance of payments system.
C)balance of current accounts system.
D)balance of goods and services system.

Question 41

The G8 includes seven major nations that are members of the Organization for Economic Co-operation and Development plus:

A)Canada.
B)Japan.
C)Russia.
D)Brazil.

Question 42

The International Bank for Reconstruction and Development is primarily funded by:

A)interest collected on loans made in past years.
B)the member nations of the United Nations.
C)issuing bonds in global debt markets.
D)fines imposed by the World Trade Organization for trade restriction violations.

Question 43

The explicit mission of the IMF is to:

A)encourage foreign direct investment in developing countries.
B)facilitate the expansion and balanced growth of world trade.
C)act as the lender of last resort for world financial institutions.
D)buy and sell currencies to control exchange rates around the world.

Question 44

Describe the process by which a letter of credit is paid.

Question 45

Explain the process of documentary collections.

Question 46

Explain the relationship between GATT and WTO.

Question 47

Explain the mechanics of open accounts in international transactions.

Question 48

The organization that oversees the international payment system is the:

A)World Bank.
B)International Monetary Fund.
C)International Center for the Settlement of Investment Disputes.
D)World Trade organization.

Question 49

Explain the differences between accounts receivable financing and accounts receivable factoring.

Question 50

The mission of the G8:

A)is to provide loans and grants to member nations.
B)seeks to encourage foreign direct investment in developing nations.
C)states that all nations are entitled to balanced economic growth.
D)is not stated but,rather,is developing.