Chapter 16: Exporting, Importing, and Countertrade

______ occurs when a firm agrees to purchase goods from any firm in a country where a sale has been made with a percentage of the proceeds from an original sale.

An offset

When a time draft is drawn on and accepted by a bank

Banker's acceptance

Direct exchange of goods and/or services between two parties without a cash transaction

Barter

An order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time

Bill of Exhchange

Issued to the exporter by the common carrier transporting the merchandise

Bill of Lading

Occurs when a firm builds a plant in a country--or supplies technology, equipment, training, or other services to the country--and agrees to take a certain percentage of the plant's output as a partial payment for the contract

Buyback

Which diagnostic tool on globalEDGE helps firms assess their exporting proficiency and identifies the firm's strengths and weaknesses within the context of exporting?

CORE

What is the primary task of a freight forwarder?

Combine smaller shipments into a single large shipment to lower shipping costs

Marcus is in charge of finding out all of the available export opportunities for his company based in Nashville. The best source for him to begin is the US Department of ______.

Commerce

What does the acronym CORE represent?

Company Readiness to Export

A reciprocal buying agreement

Counterpurchase

Denotes a range of barterlike agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money

Countertrade

Which department of the US federal government provides the most all-inclusive source of information regarding export opportunities?

Department of Commerce

An order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time

Draft

Offers services to companies that have not previously exported products

Export Management Company

What firms are specialists that handle all aspects of exporting for their clients?

Export management companies

What organization is an independent agency of the US government that was set up to provide financing to facilitate exports, imports, and the exchange of commodities?

Export-Import Bank

Kent told the management team that there were many opportunities for market expansion of their product in western Europe. He felt they should begin shipping product immediately to retailers in that part of the world. What entry mode is Kent interested in?

Exporting

True or false: An exporter has greater flexibility when using a straight counterpurchase agreement rather than an offset agreement.

False

True or false: For export transactions, many countries prefer cash deals rather than countertrade.

False

True or false: The Export-Import Bank was developed by the European Community with the advent of the euro.

False

The government provides two sources of assistance to US exporters to finance their export programs. The two sources are ______.

Foreign Credit Insurance Association Export-Import Bank

Which company is taking steps to minimize risk as it enters the export market? Instead of trying to spread itself too thin by going after 22 foreign markets, Natalie's company focused on three potential foreign markets. Rather than hire local personnel to oversee her company's exports, Jenna's company decided to keep all personnel in the US office. After Robert's company made its initial successful exports to Chile, it decided to wait for other Chilean companies to request products.

Instead of trying to spread itself too thin by going after 22 foreign markets, Natalie's company focused on three potential foreign markets.

What are the two organizations found within the US Department of Commerce that provide businesses with intelligence and assistance for going after foreign markets?

International Trade Administration US and Foreign Commercial Service

States that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents

Letter of Credit

Japan's Ministry of International Trade and Industry

MITI

Similar to a counterpurchase insofar as one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale

Offset

Which organization oversees volunteers who have international trade experience and who use this experience to provide one-on-one counseling to active and new export businesses?

Service Corps of Retired Executives

Payable on presentation to the drawee

Sight draft

What are two drawbacks of bartering? Bartering must be combined with a cash transaction. Firms can trade in an environment where type of payment is restricted Since the exchange of goods are not simultaneous, one firm finances the other Firms may not get what they want or can use

Since the exchange of goods are not simultaneous, one firm finances the other Firms may not get what they want or can use

The Service Corps of Retired Executives is an organization within the ______.

Small Business Administration

Japanese trading companies; a key part of the keiretsu, the large Japanese industrial groups

Sogo Shosha

Countertrade agreements can result in credits. These credits can be purchased by a third party which has a better use for them. What is the name given to this type of transaction?

Switch trading

Refers to the use of a specialized third-party trading house in a countertrade arrangement

Switch trading

A wholly owned US government corporation that was established in 1934

The Export-Import Bank (EXIM Bank)

Allows for a delay in payment--normally 30, 60, 90, or 120 days

Time draft

When it is drawn on and accepted by a business firm

Trade acceptance

True or false: A letter of credit may place limitations on an importer's ability to secure a loan.

True

True or false: In order to reduce the risks associated with exporting, it is a good idea for a company to initially focus on one market.

True

True or false: Smaller firms tend to be more reactive than large firms when it comes to exporting.

True

The International Trade Administration is an organization within the ______.

US Department of Commerce

The bill of lading acts as ______. a receipt a contract a credit letter an injunction a document of title

a receipt a contract a document of title

Michael doesn't have the money to buy a new car and he wishes he could trade in his old car, his bike, and his computer to buy a new car. If Michael was running a company this way, what type of countertrade would he be thinking about?

barter

Which document shows that a carrier has received the merchandise?

bill of lading

Counterpurchase is a reciprocal _________ ________.

buying or purchasing agreement

Caitlin's U.S. firm sold paint additives to Japan and in return her company was paid by Japan but is also required to purchase plastic products produced in Japan with some of the proceeds from the sale of the paint additive. This example demonstrates ______.

counterpurchase

If Saudi Arabia buys jets from Boeing and pays for the jets in crude oil, it is using ______ to structure the sale.

countertrade

In exchange for getting an order for commercial aircraft from Air India, Boeing might be required to buy aircraft doors from an Indian company. This is an instance of using ______ as a marketing tool.

countertrade

One drawback of ______ is that unsaleable or poor quality goods may be exchanged in place of payment of currency.

countertrade

Since the developing country was not able to pay in hard currency, Daveed's company agreed to accept motor parts for use in their motorcycle product line as payment. Unfortunately, the motor parts they received were all broken. This is an example of a disadvantage of ______.

countertrade

What did the Soviet Union rely on as a way to purchase imports in the 1960s since its currencies were generally nonconvertible?

countertrade

Freestyle Performance Group is new to the exporting business and has no understanding of the customs requirements foreign countries might place on the athletic equipment they want to export. Which type of service provider can help the company with this problem?

customs brokers

Countertrade would be more likely used by a ______ nation when importing products.

developing

After the US completed a counterpurchase agreement with Indonesia, it ended up with counterpurchase credits. Since it had no use for these credits, it sold them to a third-party trading house. These credits would be sold to the third-party at a ______.

discount

Which three factors might make it difficult for some companies to gain knowledge of opportunities available in foreign countries? distance manufacturing language taxes time

distance language time

The two factors that lead to a lack of trust in an export transaction are ______. distance between the two parties multiple legal avenues to uphold contracts similarity in language and culture problems enforcing contractual obligations

distance between the two parties problems enforcing contractual obligations

An order written by an exporter which tells the importer to pay $4,975 by June 20th is an example of a(n) ______.

draft

While a maker initiates a draft, the party to whom the draft is presented is called the ______.

drawee

The introduction of GATT made exporting ______ companies.

easier for

Brett's Bicycle Shop has decided to export products to Finland without using a letter of credit. One way the shop can insure against payment default would be to purchase ______ insurance.

export credit

One way to avoid payment default on a foreign export sent without a letter of credit is to purchase ______ insurance.

export credit

Lisette runs a small perfume business and is interested in exporting but she does not have a large enough staff to expedite the marketing needed to do this. She could find an export specialist by working with a(n) ______.

export management company

The Export-Import Bank provides ______ while the Foreign Credit Insurance Association provides ______.

financing; export credit insurance

What is NOT a form of countertrade? franchise barter offset buyback

franchise

Jason's company is involved with the international transportation of goods. The company is able to keep costs down for its customers because it combines smaller shipments from a variety of companies into one large shipment. Jason's company is an example of a ______.

freight forwarder

A letter of credit is requested by the ________ (importer or exporter?) from a bank.

importer

What is the purpose of a bill of exchange?

it specifies an amount to be paid and when it should be paid

Nathan was worried that his company was missing a lot of opportunity to sell their products in China because of the separation created by language, culture, and distance. In other words, his company had a lack of ______.

knowledge

Special mechanisms for financing exports and imports have been created to deal with the issue of ______ that is present when firms deal with strangers.

lack of trust

At the request of the importer, the national bank paid the exporting company upon presentation of the documents that had been issued. What document did the importer request?

letter of credit

Gina's company is in competition with four other suppliers who are trying to get similar products into France. One way Gina's company could boost its appeal with the importer would be to forgo a ______.

letter of credit

When an importer is in a strong bargaining position and is pitting competing suppliers against one another, an exporter might be forced to forego a(n) ______ in order to get the order.

letter of credit

If a US exporter writes a draft that instructs the Bank of Thailand to pay for merchandise shipped to Thailand, then the US exporter would be considered the ______ in this scenario.

maker

What are three forms of countertrade? licensing offset bait & trade counterpurchase buyback

offset counterpurchase buyback

An export ______ company can advise businesses on the best design and materials for their product packages. These companies can also help minimize packaging to maximize the number of items to be shipped.

packaging

Lila warned the management team that if they didn't try to enter the foreign market now, it would be hard to expect growth experience because all of their competition would saturate the market. Lila would like her company to be _________ (reactive or proactive?).

proactive

What two items would be included on a "best prospects" list supplied by the US Department of Commerce? financial analysis of a potential distributor in a foreign market products sold by potential distributors in a foreign market list of competitors of a potential distributor in a foreign market name of potential distributor in a foreign market

products sold by potential distributors in a foreign market name of potential distributor in a foreign market

The US Department of Commerce would supply a business with a best ______ list if the company was interested in learning more about potential foreign markets.

prospects

If a payment is made before products are shipped, an importer may be concerned about ______.

receiving a defective product not receiving the product

What are the two negatives associated with a letter of credit? it could limit the exporter's ability to borrow the exporter has to pay the bank's fee for the letter of credit the importer has to pay the bank's fee for the letter of credit it could limit the importer's ability to borrow since it is a liability

the importer has to pay the bank's fee for the letter of credit it could limit the importer's ability to borrow since it is a liability

When the warehouse manager received the draft with the shipment of textiles, he noticed that payment for the materials was not due for 60 days. This is an example of a ______ draft.

time

What is an accurate description of countertrade?

trading goods for other goods when they can't be traded for money

The letter of credit and a bill of lading are both financial devices that were created in a response to a lack of ______ that can develop when companies export products.

trust

When a drawee receives a sight draft it should be paid ______.

upon presentation