INTB Chapter 14

A ______ is a business tool provided by the US Department of Commerce which provides the name, address and basic business information of potential distributors in foreign markets.

"best prospects list"

Steps of an international transaction

1. Foreign importer places an order with an exporter and asks them to ship under a letter of credit 2. Exporter agrees and specifies prices and delivery terms 3. Importer applies to the bank for a letter of credit to be issues in favor of the exporter for the merchandise being imported 4. Bank issues a letter of credit for the importer and sends it to exporter's bank 5. Exporter's bank advises the exporter of the opening of a letter of credit in his favor 6. The exporter ships the goods to the importer on a common carrier. The carrier gives the exporter a bill of lading 7. The exporter presents a 90-day time draft drawn on the importer's bank in accordance with its letter of credit and the bill of lading to the exporter's bank. The exporter endorses the bill of lading so the title of goods is transferred to the exporter's bank. 8. The exporter's bank sends the draft and bill of lading to the importer's bank. The bank accepts the draft, takes possession of the documents, and promises to pay the now-accepted draft in 90 days. 9. The importer's bank returns the accepted draft to the exporter's bank They confirm that they've received it 10. The exporter sells the draft to their bank at a discount from its face value and receives the discounted cash value of the draft in return 11. The importer's bank notifies the importer of the arrival of the documents. She agrees to pay the bank in 90 days. The bank releases the documents so the importer can take possession of the shipment. 12. In 90 days, the importer's bank receives the importer's payment, so it has the funds to pay the draft 13. In 90 days, the holder of the matured acceptance (the exporter) presents it to the importer's bank for payment, and the importer's bank pays.

bill of lading

A document issued to an exporter by a common carrier transporting merchandise. It serves as a receipt, a contract, and a document of title.

What is a disadvantage of relying on an export management company (EMC)?

A firm will fail to develop its own exporting capabilities.

What is the biggest advantage of using an EMC?

Access to experienced specialists

What is considered the most restrictive form of countertrade?

Barter

______ is the direct exchange of goods between two parties without a cash transaction.

Barter

Why did many Asian countries turn to countertrade following the 1997 currency crisis?

Because of a lack of hard currency

______ occurs when a company agrees to purchase a certain amount of product back from a country to which a sale is made.

Counterpurchase

The main reason a company would consider ______ is that it provides a firm with a way to finance its export deal when other methods of financing are not available.

Countertrade

What is a reciprocal form of international trade in which goods or services are exchanged for other goods or services, rather than for hard currency?

Countertrade

What four impediments would make it difficult for some companies to gain knowledge of opportunities available in foreign countries?

Culture, Language Distance, and Time

As a result of their lack of foreign exchange reserves, countertrade has grown in popularity among which type of countries?

Developing

Sunny Soups has never exported their products before but would like to start. What company can provide Sunny Soups with a full menu of services to handle all aspects of their exporting needs?

EMC (Export management company)

What firms are export specialists that act as an export department for their clients?

Export management companies

The Foreign Credit Insurance Association and the _____ are two forms of government-backed assistance in the United States that help finance export programs.

Export-Import Bank

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

What two sources of assistance does the government provide to US exporters to finance their export programs?

Export-Import Bank Foreign Credit Insurance Association

True or false: Small and medium-sized businesses are very proactive in identifying opportunities to export.

False

Which type of draft should a company use if it wants immediate payment from the drawee upon receipt?

Sight draft

After the exporter presents the draft to the bank in a typical international trade transaction, what happens next?

The exporter's bank presents the draft to the importer's bank.

What risk does the lack of a letter of credit would an exporter face?

The importer could default on a payment. They can also insure against this with export credit insurance so the insurance firm covers a major portion of the loss

True or false: An offset is similar to a counterpurchase except the party can fulfill its obligation with any firm in the country where the sale is made.

True

True or false: Since the international market is significantly larger than the domestic market, exporting is nearly always a way to increase a company's revenue.

True

The Export-Import Bank was chartered by the _____.

US government

Exquisite Jewelery Company, based in New York, isn't sure it wants to start exporting to Europe. The company is concerned that it won't be paid unless it receives it upfront and the European companies don't want to pay until they receive the products. This situation demonstrates how _____ can affect exporting.

a lack of trust

When an importer is in a strong bargaining position and is having suppliers compete against one another, an exporter might be forced to forgo ______ in order to get the order.

a letter of credit

banker's acceptance

a promise that the bank will pay some specified amount at a particular time

draft/bill of exchange

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.

A ______ is a business tool provided by the US Department of Commerce which provides the name, address and basic business information of potential distributors in foreign markets.

best prospects list

The draft, sometimes called the _____ is used in international commerce to effect payment.

bill of exchange

The ______ is a document issued to the exporter by the common carrier transporting the merchandise and acts as a receipt of goods.

bill of lading

Which document indicates that the carrier has received the merchandise described in the document?

bill of lading

What are two problems associated with bartering?

companies may have to accept goods that they don't want, goods have to be exchanged simultaneously or else one company may be subsidizing another

Offset is superior to straight counterpurchase because a(n)

company can choose the goods it wants.

For a small fee, the Department of Commerce provides a company with a market research survey on a product of its choice. This is called a(n) ______.

comparison shopping service

A reciprocal buying agreement whereby a firm agrees to buy a specific amount of goods back from a country to which a sale is made is called ______.

counterpurchase

Boeing often enters into agreements in which the company has to purchase certain components parts from the country in which it hopes to do business. This arrangement is an example of _____.

countertrade

When conventional means of payment are difficult in an international sale, ______ is an alternative means of structuring the sale and allows for the trade of goods and services.

countertrade

Phase Two Athletics is located in the United States. The company would like to export to Italy but preliminary meetings with representatives from Italy have proven difficult. The representatives don't understand the value of the company's fitness gear because they feel most Italians prefer to exercise at a health club where the gear is provided. What impediment to exporting is Phase Two Athletics facing?

culture

What are two factors that can foster a lack of trust in an export transaction?

distance between the two parties & problems enforcing contractual obligations

An order written by an exporter that instructs an importer to pay a specified amount of money at a specified time is called a _____.

draft

Businesses would use the CORE diagnostic tool when making decisions regarding _____.

exporting

A letter of credit is issued by a bank after being requested by an _____

importer

A letter of credit is issued by a bank after being requested by an _____.

importer

In a typical international trade transaction, after the importer arranges for a letter of credit, the next step is that the

importer's bank sends a letter of credit to the exporter's bank.

The CORE diagnostic tool on the globalEDGE website helps a company assess

its readiness to export a product

A document issued by a bank at the request of an importer that directs the bank to pay money to the exporter upon presentation of specified documents is called a

letter of credit

Brett's company is in competition with four other suppliers who are trying to get similar products into France. One way Brett's company could boost its appeal with the importer would be to forgo a _____ even though it will expose the company to default risk.

letter of credit

When a company is able to expand its operations by exporting globally, it can often achieve greater economies of scale which results in ______.

lower unit costs

Of all the companies using the global marketplace, _____ prefer exporting as a form of foreign market entry.

more than 90%

When considering the international marketplace, small and medium-sized firms tend to

not pay attention to foreign markets; rather they focus on their energies on local market.

Two categories of drafts

sight drafts (payable on presentation to the drawee) and time drafts (allows for a delay in payment, typically 30, 60, 90, or 120 days)

What is the main reason exporting is preferred by such a large portion of companies using the global marketplace?

small- and medium-sized companies view exporting as a relatively low commitment to gaining global distribution

A(n) _____ draft allows the drawee to delay payment -- normally for 30 or more days.

time

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 transaction using a ______ draft.

time

Due to a lack of ______, special mechanisms for financing exports and imports have been created to deal with conducting transactions with strangers.

trust

XYZ Company asked an international trade partner to pay for goods prior to delivery. XYZ Company was not fully aware of the company's background and wanted to be sure that it got paid. This is an example of why the lack of ______ has resulted in the development of special mechanisms for financing exports and imports.

trust

trade acceptance

when a time draft is drawn on and accepted by a business firm