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.

Accepted Answer

C

Question 2

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

Accepted Answer

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

Accepted Answer

The scenario described is known as switch trading, which involves the purchase of a country's clearing agreement balance for hard currency, and then selling it to a third party. This is a common practice in international trade, where parties seek to maximize their foreign exchange positions and minimize their risk exposure. The other options (buy-forward, offset, counterpurchase) do not accurately describe this process.

Question 4

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. Letters of credit and time drafts offer a level of security through bank intermediaries. Consignment is less secure as payment is made only after the goods are sold. Open account is the least secure for the exporter as goods are shipped before payment is made.

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.

Accepted Answer

The exporter will receive the face value of the B/A minus the acceptance commission. If the face value is $3,000,000, the commission is 1.25% of $3,000,000, which is $37,500. Therefore, the exporter will receive $3,000,000 - $37,500 = $2,962,500. However, the closest option to this calculation is $2,990,625, which suggests a possible error in the problem setup or options.

Question 6

A bill of lading is

Accepted Answer

A bill of lading is a document issued by the common carrier specifying that it has received the goods for shipment. It serves as a receipt for the goods, evidence of the contract of carriage, and a document of title to the goods. Options A, B, and D refer to different financial instruments and are not related to a bill of lading.

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.

Accepted Answer

In international trade, the importer's bank issues the letter of credit and sends it to the exporter's bank. After shipping the goods, the exporter presents the shipping documents and time draft to their bank to receive payment.

Question 8

Which forms of countertrade involve the use of money?

Accepted Answer

Buy-back, counterpurchase, and offset all involve the use of money.

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.

Accepted Answer

The answer of If the market rate for 90-day B/As...

Question 10

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 to both parties involved in the transaction.

Question 11

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

Accepted Answer

Barter and clearing arrangement do not involve the use of money, while switch trading does involve money but in a non-traditional way. Buyback, counterpurchase, and offset all involve the use of money.

Question 12

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

Accepted Answer

The importer sends the purchase order to the exporter, indicating that they want to import goods. The importer then applies to their bank for a letter of credit, which assures the exporter that they will be paid once the goods are received. Therefore, the correct order is importer, exporter, importer.

Question 13

A banker's acceptance is

Accepted Answer

A banker's acceptance is a negotiable money market instrument for which a secondary market exists. It is a time draft drawn on and accepted by a bank, which guarantees payment to the exporter at a specific future date. It is used in international trade transactions where the exporter requires assurance of payment before they ship the goods.

Question 14

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

Accepted Answer

The formula to calculate the B/A rate is:

B/A rate = (face value - purchase price) / (purchase price) x (360 / days to maturity)

Assuming a face value of $3,000,000 and a 90-day maturity period, we have:

$2,860,000 = ($3,000,000 - purchase price)

Purchase price = $140,000

B/A rate = ($3,000,000 - $140,000) / ($140,000) x (360 / 90) = 7.4%

Therefore, the correct answer is C) 7.4%.

Question 15

A time draft is

Accepted Answer

A time draft is a written order for payment that specifies a future date when payment is due. It is similar to a post-dated check, where the recipient cannot cash it until the specified date. It is also known as a "term draft" or "usance draft".

Question 16

The term "forfaiting"

Accepted Answer

Forfaiting is a type of medium-term trade financing used to finance the sale of capital goods, and it 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. Therefore, both option B and C are correct.

Question 17

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, time draft, and a bill of lading. The letter of credit assures the seller of payment, the time draft is a demand for payment at a future date, and the bill of lading is a receipt for the goods being shipped.

Question 18

The term "countertrade" refers to:

Accepted Answer

Countertrade includes many different types of transactions, such as barter, clearing arrangement, and switch trading. It also includes buy-back, counter purchase, and offset. Therefore, option D is the correct answer.

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

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 20

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

Accepted Answer

All three options mentioned (A, B, and C) contribute to the difficulty and risk involved in international trade from the exporter's perspective. The unfamiliarity with the buyer, the lack of legal recourse in case of non-payment, and political instability are all factors that make it a challenging process to export goods abroad.

Quiz 19: Multinational Cash Management