Question 1

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

Accepted Answer

The term "switch trading" refers to the purchase of one country's clearing agreement balance for hard currency by a third party, which is then sold in turn. The other options, such as buy-forward, offset, and counterpurchase, do not accurately describe this type of transaction.

Question 2

If the value at maturity is $2,860,000 calculate the 90-day B/A rate.(Round your intermediate values to four decimal places.Assume 360 days in a year.)

Accepted Answer

If the exporter discounts the B/A with the importer bank he will receive:$2,860,000 × [1 - ((X + 0.01) × 90/360)] = $2,800,000to solve for X:1[1 - ((X + 0.01) × 90/360)] = $2,800,000/2,860,000 =.97900.0210 = ((X + 0.01) × 90/360)0.0210 = 0.25X +.00250.0185 = 0.25XX = 0.074

Question 3

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

Accepted Answer

EDC does not serve as a factor.

Question 4

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

Accepted Answer

Barter and switch trading do not involve the immediate use of money. In clearing arrangements, goods are traded and the balance of payments is settled later with a third currency or through money transfer, but there is still an involvement of money. Buy-back and counterpurchase involve the sale of goods to a foreign party in exchange for a commitment to purchase goods or services in the future, but this commitment may involve the use of money or credit. Offset involves the requirement for the foreign party to invest in the domestic economy or purchase goods or services from domestic suppliers, which may involve the use of money.

Question 5

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.

Accepted Answer

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

Question 6

The term "countertrade" refers to:

Accepted Answer

Countertrade includes many different types of transactions, including barter, clearing arrangement, switch trading, buy-back, counter purchase, and offset. Therefore, all of the options are correct.

Question 7

Which of the following financial support mechanisms of export is offered by the EDC?

Accepted Answer

EDC offers all of the mentioned financial support mechanisms for exports. Note purchases allow exporters to sell their accounts receivable to EDC for immediate cash. Lines of credit provide access to working capital for ongoing export activities. Security compliance loan helps exporters meet security compliance requirements for specific export transactions.

Question 8

Which forms of countertrade involve immediate use of money?

Accepted Answer

Buy-back, counterpurchase, and offset involve monetary transactions or financial arrangements, unlike barter or switch trading which do not involve immediate use of money.

Question 9

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

Accepted Answer

The importer sends a purchase order to the exporter, indicating the products or goods needed. Then, the importer applies to his/her bank for a letter of credit, which acts as a guarantee of payment to the exporter. Finally, the exporter ships the goods and presents the documents required by the letter of credit to the importer's bank for payment. Therefore, the correct sequence is importer, exporter, importer.

Question 10

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

Accepted Answer

All three options - not knowing if the importer is a good credit risk, difficulty in having legal recourse if the buyer does not pay, and political instability in certain parts of the world - make international trade more difficult and risky from the exporter's perspective compared to domestic trade. Therefore, option D is the correct answer.

Question 11

A letter of credit is:

Accepted Answer

A letter of credit is a guarantee from the importer's bank that it will act on behalf of the importer and pay the exporter for the merchandise if all relevant documents are presented. This provides security for the exporter as they are assured they will be paid as long as they meet the requirements outlined in the letter of credit.

Question 12

The term "forfaiting":

Accepted Answer

Forfaiting is a type of medium-term trade financing used to finance the sale of capital goods, where the exporter sells their receivables at a discount to a forfaiter.

Question 13

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.(Assume 360 days in a year)

Accepted Answer

If the exporter holds the B/A to maturity he will receive: $3,000,000 × [1 - (0.0125 × 90/360)] = $2,990,625

Question 14

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

Accepted Answer

A clearing arrangement is a barter system where two parties agree to trade goods and services instead of using money as a medium of exchange. However, instead of trading directly, the counterparties agree to purchase a certain amount of goods and services from one another. This helps to balance out any discrepancies in value and allows for more efficient trade.

Question 15

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

Accepted Answer

The three basic documents needed in a foreign trade transaction are letter of credit (to ensure payment), time draft (to set the terms of payment), and a bill of lading (to document the shipment of goods). Insurance may also be required but it is not one of the three basic documents. A pro forma statement can be useful for informational purposes but it is not one of the three basic documents needed for a foreign trade transaction. Therefore, the correct answer is B) letter of credit, time draft, and a bill of lading.

Question 16

A direct exchange of goods between two parties is called:

Accepted Answer

A direct exchange of goods between two parties is called barter. Counterpurchase, buy-back, and offset involve more complex arrangements and additional parties.

Question 17

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.(Assume 360 days in a year)

Accepted Answer

If the exporter discounts the B/A with the importer's bank he will receive:$3,000,000 × [1 - ((0.060 + 0.0125) × 90/360)] = $2,945,625

Question 18

If the 90-day B/A rates are 5%,determine the amount the exporter will receive if he holds the B/A until maturity.(Round your final value to nearest whole dollar.Assume 360 days in a year.)

Accepted Answer

If the exporter holds the B/A to maturity he will receive: $2,800,000/ [1 - ((0.01 + 0.05) × 90/360)] = $2,842,640

Question 19

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

Accepted Answer

Cash in advance is the most secure method for the exporter as payment is received before the ownership of the goods is transferred. A letter of credit or time draft offers a guarantee of payment from the buyer's bank, providing a high level of security. Consignment is less secure as the exporter only receives payment after the goods are sold by the distributor. Open account is the least secure as the exporter ships the goods before receiving payment, relying on the buyer's promise to pay.

Question 20

Which of the following is the fundamental forms of countertrade?

Accepted Answer

All of the options - barter, counterpurchase, and buy-back - are considered fundamental forms of countertrade, meaning they involve the exchange of goods and services instead of traditional monetary exchange.

Quiz 19: Exports and Imports