4360 exam 2
How is it possible to sell internationally on an open account basis and still take little risk?
By transferring the risk of non-payment to an insurance company.
Under the DDP, unloading costs are borne by the ___.
Importer
Who does the issuing bank represent in a letter of credit?
Importer
Usually, a distributor is located
Importing country
Under the Incoterms® Rule FOB, responsibility for the cargo
In FOB, the responsibility shifts from the exporter to the importer when the goods are onboard the ship. F*$*in on board
Its much harder to find credit information for a person who is _______________
In another country
Trademarks, Patents, and Copyrights (Element of Contract)
In the event that an agent or distributor creates intellectual property, this clause determines the ownership of that intellectual property.
Under DAP incoterms rule the exporter and importer generally agree to use what location?
In the importing country. Countries that import are dapper, and for DAP the location is in the importing country.
Incoterms Rules stands for
Incoterms® Rules is the acronym for International Commerce Terms.
What are Incoterm rules and who created them?
International commerce of trade rules Created by the international chamber of commerce
Credit terms can be considerably lengthened through ___________
International forfaiting
Are lawsuits in international trade more or less expensive than domestic lawsuits?
International lawsuits are much more expensive and complicated compared to domestic cases.
6. The importer's bank is called the ___.
Issuing bank
What are some commercial risks?
It is difficult to find reliable credit information on international firms. However, to minimize commercial risk, exporters should collect information about importers. Information can be obtained from and evaluated by credit report companies, factoring houses, insurance firms, banks, etc.
Because some ports are becoming increasingly limited in their ability to handle ever-larger ships it is possible that
It is likely there will be a need to create large port hubs for large ships, while smaller ports would service "feeder" ships.
Contract between unequal partners falls under what type of law?
Labor law
The MAJORITY governments generally place all distribution contracts under what type of law?
Labor law
Under what law will the courts protect an agent?
Labor law Under labor law, the court will protect the agent.
If an exporter has no pre-existing business relationship with an importer a ________________________ will be used.
Letter of credit
Whats the difference between letter of credit and credit insurance?
Letter of credit promises that the importers bank will pay if non-payment occurs. Credit insurance is an insurance company that will pay if the importer doesn't pay.
DRP (Distribution Requirements Planning) is a system that allows manufacturers, wholesalers, and retailers of consumer products to manage their inventory "just-in-time:" DPR works as a
MRP, MRP II, and DRP are all considered to be "pull" systems, in which the sale to a final user/ consumer is the event triggering the replenishment of inventories.
Who was the person who popularized the idea of sea-going containers that could be loaded directly onto a ship, a truck, or a railroad car?
Malcom McLean,
Maquiladoras are located on the border between
Maquiladoras are companies in Mexico that import goods from the United States to transform them into products to export back to the United States.
The busiest cargo airport in the US is
Memphis
What is a currency option?
Method used to protect against fluctuations in the value of a currency in the future. A firm can purchase options to buy, or options to sell, a particular currency at a particular price on a given date.
Because of the many issues that occur in international trade this has sometimes led to a climate of _________
Mistrust
The following mathematical expression Ft + 1(et) = S(et + 1) is of what theory of exchange rate determination?
NONE OF THE BELOW ARE CORRECT a. Interest Rate Parity b. Fisher effect c. Purchasing Power Parity d. Big Mac Index
What is the Syntax of Cost and Freight (CFR)
CFR [Address of the dock in the Port of Destination where goods are delivered], Incoterms ® 2010.
What is the syntax of Cost, Insurance and Freight (CIF)
CFR [Address of the dock in the Port of Destination where goods are delivered], Incoterms ® 2010.
Whats the syntax of the incoterm Carriage and Insurance Paid To (CIP)
CIP [Address in the City of Destination where goods are delivered], Incoterms ® 2010. Example: CIP - Ulitsa Poruchik Nedelcho Bonchev, Sofia, Bulgaria, Incoterms 2010
What is the syntax of the incoterm Carriage Paid To (CPT)
CPT [Address in the City of Destination where goods are delivered], Incoterms ® 2010. Example: CPT - Graacher Strabe 20, Koln Deutschland D-50969, Incoterms 2010
What is the modality of the incoterm Carriage Paid To (CPT)
Carriage Paid To can be used for any mode of transportation.
What is the scope of the incoterm Carriage Paid To (CPT) (The scope is the type of products for which it can be used)
Carriage Paid To can be used for any type of product.
Whats the modality of the incoterm Carriage and Insurance Paid To (CIP)
Carriage and Insurance Paid To can be used for any mode of transportation.
Whats the scope of the incoterm Carriage and Insurance Paid To (CIP)
Carriage and Insurance Paid To can be used for any type of product.
What are the traditional methods of payment?
Cash in advance Open account Letter of credit Documentary collection
Methods of payment and their differing probability to loose a sale.
Cash in advance - High Open account- Zero Letter of credit- fairly high Purchasing card- low Tradecard- low
Which payment method is totally risk free to the exporter?
Cash in advance. no collections worries, no foreign exchange fluctuations exposure, no cash-flow problem, and only nominal fees to pay to banks.
The choice of a proper Incoterms® Rule is a critical decision because
Choosing the proper Incoterms® Rule is crucial because it can be an integral part of an export strategy, and it is linked to the level of customer service the firm is attempting to provide, while the competitive advantage is implied.
Sometimes a third bank, in addition to the issuing bank and the advising bank, becomes involved with a letter of credit. This bank is called a ___.
Confirming bank
DAT is an Incoterm designed specifically for _____________
Containerized transportation
when entering into a contact with a foreign distributor or agent is whether this relationship will be considered a "contract between equals" or a "contract between unequal partners" by the courts of the country in which the agent or distributor is located.
Contract between equals falls under contract law Contract between unequal partners falls under labor law. Under contract law, the court will settle disputes by following the terms of the contract. Under labor law, the court will protect the agent.
Contract between equal partners falls under what type of law?
Contract law
What does CISG stand for
Convention for the International Sale of Goods
What is the scope of Cost, Insurance and Freight (CIF)
Cost Insurance and Freight can be used for any type of product. However, the International Chamber of Commerce would like FAS to be used only for non-containerized cargo.
What is the modality of Cost, Insurance and Freight (CIF)
Cost Insurance and Freight can only be used for ocean transportation.
What is the scope of Cost and Freight (CFR)
Cost and Freight can be used for any type of product. However, FAS should be used only for non-containerized cargo.
What is the modality of Cost and Freight (CFR)
Cost and Freight can only be used for ocean transportation.
What two incoterms rules require the exporter to provide minimum insurance for the goods at 110% of their value?
Cost, Insurance and Freight (CIF) and Carriage and Insurance Paid to (CIP)
Exporters in the EU frequently use what kind of insurance when selling on an open account?
Credit insurance
Insurance companies sell a policy that will cover non-payment by the importer. What kind of insurance is that?
Credit insurance
What is the syntax of the incoterms rule Delivered Duty Paid (DDP)
DDP - [Address in the City of Destination where goods are delivered], Incoterms ® 2010.`
With this type of draft once the importer accepts the draft by signing it, the importer has to pay the exporter a certain number of days after the date of the shipment of goods.
Date draft
Delivered At Place is an Incoterms® Rule designed specifically for
Delivered At Place is for any merchandise, and any mode of transportation.
What is the scope for delivered at terminal (DAT)?
Delivered At Terminal can be used for any type of product, BUT ITS DESIGNED FOR CONTAINERIZED CARGO.
A process by which an exporter asks a bank located in the importing country to safeguard its interests by not releasing the documents until the importer satisfies certain requirements.
Documentary collection
What process is less cumbersome and cheaper than a letter of credit?
Documentary collection The exporter keeps control of the documents (and therefore title) until the importer accepts the draft or makes payment.
Why are the new 2010 incoterms rules to be used in domestic trade?
Domestic trade and international trade often use the same terminologies. In an attempt to simplify trade, the ICC would like domestic and international shipments to use ) Incoterms® rules.
Whenever there is no transport document, the exporter can still send an _______.
EDI notice to the importer which acts as a proof of delivery for both parties.
There are 11 total incoterms rules. What are they?
EXW • Ex-Works FCA • Free Carrier CPT • Carriage Paid To CIP • Carriage and Insurance Paid To DAT • Delivered At Terminal DAP • Delivered At Place DDP • Delivered Duty Paid FAS • Free Alongside Ship FOB • Free On Board CFR • Cost and Freight CIF • Cost, Insurance and Freight
What is the Syntax for the incoterm Ex-Works (EXW)
EXW [Address in the City of Departure where goods are made available], Incoterms ® 2010. Example: EXW - 2400 Progress Drive, Poughkeepsie, New York 12601, USA, Incoterms 2010
International banking institutions
Every country in the world has a Central Bank, or some institution that acts as one. They are responsible for the creation and control of the monetary supply, and they function as a check clearinghouse. International Monetary Fund The IMF was created to oversee the fixed exchange rate system created by the Bretton-Woods Conference. Today it helps countries manage their balance of payments and lends them money when they experience difficulties with their balance of payments.
In terms of cost and responsibility, the easiest Incoterm for the exporter which is, in turn, the most difficult for the importer is
Ex-Works (EXW)
Whats the easiest Incoterm for the exporter and the most difficult for the importer (in terms of cost and responsibility).
Ex-Works EXW mnemonic device: "Ex's are easy export."
What is the syntax for DAP?
Ex: DAP 97 Brisbane Street, Sydenham 8023, New Zealand, Incoterms 2010
What is the syntax for DAT?
Ex: DAT - Paranagua container terminal, avenida portuaria.....
An example of forward market hedging for exporter
Example: U.S. firm entering a forward contract with a bank, in which it would promise to sell € 159,617.00 to the bank on June 2, 201_, at the predetermined (forward) exchange rate of U.S. $1.2530/€. On that date, the U.S. company presents €159,617.00 to the bank and collects the U.S. $200,000 it wanted to collect. The U.S. firm is unconcerned about the spot exchange rate of the euro on June 2, 201_.
An intermediary that purchases goods in the exporting country and resells them to a customer in a foreign country is called a(n)
Export trading company
The choice of the incoterm is almost always the decision of the _________
Exporter
Who does the advising bank represent in a letter of credit?
Exporter
Under DAP who beats the unloading cost?
Exporter DaPex bears unload cost
Responsibilities implied by Delivered at Terminal (DAT)
Exporter must: Packaging the goods for the international voyage, Providing the documents necessary to clear Customs in the importing country, Arranging and pay for transportation to the terminal at which the goods are to be delivered. Importer must: Do everything else Point at which the responsibility shifts from exporter to importer is when the exporter delivers the goods, UNLOADED FROM THE MODE OF TRANSPORTATION TO THE TERMINAL. UNLOAD DAT international container from the mode of transportation, to the terminal.
Incoterms are deisgned to facilitate the division of responsibility between who?
Exporters and importers.
What is the syntax of Free Alongside Ship (FAS)?
FAS [Address of the dock in the Port of Departure where the goods are delivered], Incoterms ® 2010.
What is the syntax of the incoterm Free Carrier (FCA)
FCA [Address in the City of Departure where goods are delivered to carrier], Incoterms ® 2010. Example: FCA - Baitment B, 46 Allee Corbiere, F-81000 Castres, France, Incoterms 2010
What is the syntax for Free on Board (FOB)
FOB [dock (or ship) in the Port of Departure where the goods are delivered], Incoterms ® 2010.
The mathematical representation (1 + real interest rate) x (1 + inflation rate) = 1 + nominal interest rate is of what theory of exchange rate determination?
Fisher effect
3. Countries representing the greatest percentage of world trade all have _____ currencies.
Floating currencies
Countries representing the greatest percentage of world trade all have ______ currencies.
Floating currencies
What are the 4 Types of currencies
Floating currency Pegged currency Artificial currency Currency bloc
This type of exchange rate is for a foreign currency to be delivered any number of days in the future.
Forward exchange rate The party entering into a forward currency contract with a bank is committing to purchasing one currency with another at a certain price on a certain date. (30, 90, 180, 365 days) Forward exchange rates are only published in financial newspapers like the wallstreet journal or financial times.
Hedging techniques
Forward market hedging- A technique that utilizes the forward market for currencies to manage a firm's transaction exposure. Money-market hedging- A technique that utilizes the banking system in the foreign country to manage a firm's transaction exposure. Options-market hedging- A technique that utilizes the options market for currencies to manage a firm's transaction exposure
The following mathematical expression Ft + 1(et) = S(et + 1) is of what theory of exchange rate determination?
Forward rate as unbiased predictor of spot rate
How many traditional methods of payments are there?
Four Cash in advance Open Account Letter of credit Documentary collection
What are methods of entry into another country for an exporter?
Franchising B. Active exporting C. A marketing subsidiary A wholly-owned subsidiary
What is the scope of Free Alongside Ship (FAS)?
Free Alongside Ship can be used for any type of product. However, FAS is to be used only for non-containerized cargo. FAS F($8ckin A son, no containerized cargo!
What is the modality of Free Alongside Ship (FAS)?
Free Alongside Ship can only be used for ocean transportation.
An inexperienced exporter will use "FOB Factory" rather than the correct term, ____________.
Free Carrier Seller's Premises (FCA)
What is the modality of the incoterm Free Carrier (FCA) (The mode of transport for which it can be used)
Free Carrier can be used for any mode of transportation
What is the scope of the incoterm Free Carrier (FCA) (Scope is the type of products for which it can be used)
Free Carrier can be used for any type of goods.
What is the scope for Free on Board (FOB)
Free On Board can be used for any type of product. However, FAS should be used only for non-containerized cargo.
What is the modality for Free on Board (FOB)
Free On Board can only be used for ocean transportation.
As ships move through the Panama Canal, the locks they traverse use an inordinate amount of fresh water, including water from the reserve at
Gatun lake
What type of bank guarantee occurs in which A bank guarantee is made conditional upon presentation of certain documents rather than "on first demand." The beneficiary must present documents that demonstrate that the contractor is not meeting its obligations.
Guarantee based upon documents
What type of bank guarantee occurs in which the beneficiary DOES NOT have to provide any evidence that the terms of the contract between have not been met; the issuing bank has to pay at the first request of the beneficiary.
Guarantee payable at first demand
4 Types of currency convertibility
Hard currency- a currency that can easily be converted to another currency Convertible currency- A currency that can be converted to another currency Soft currency- A currency that cannot be easily converted into another currency. Inconvertible currency- Cant be converted. Shocker.
Forward market hedging for an importer
A German firm is purchasing a machine from a British firm for £250,000.00. The machine is delivered on April 4, 201_, and payment is expected (in pounds) on July 6, 201_. On April 4, 201_, this amount was equivalent to € 272,200.00 because the spot exchange rate between the U.K. pound and the euro was € 1.1008/£. However, on April 4, 201_, the pound was expected to rise in value, and the 90-day forward exchange rate with the euro was € 1.1220/£. A forward market hedge in this case would consist of the German firm entering into a contract with a bank from which it promises to purchase £250,000 on July 6, 201_, at a predetermined (forward) exchange rate of € 1.1220/£. On that date, the German firm hands € 280,500.00 to the bank and obtains in exchange the £250,000 that it needs to pay its British supplier. The German firm could determine on April 4, 201_, exactly how much it had to pay for the machine and is unconcerned about the spot exchange rate of the British pound on July 6, 201_.
Termination for Convenience
A contract is terminated for "convenience" when it is for any reason other than just cause. It can be initiated by any of the parties (but it is normally the exporter that seeks to terminate the agreement in such a way). This is typically a painful way to end a contract, as the opposite party feels slighted. In most instances, the opposite party should be given some form of compensation by the party seeking the termination, despite the terms of the contract that may call for no compensation. Otherwise, it is possible that courts will side with the slighted party, and impose significant compensation under the terms prescribed by labor law.
Each incoterms rule has three components. What are they?
A scope — The type of products for which it can be used A modality — The mode of transport for which it can be used A syntax — The way it has to be stated on invoices and paperwork
Responsibilities implied by Free Alongside Ship (FAS)
ARRANGE AND PAY FOR PRE-CARRIAGE TO THE PORT OF DEPARTURE. Responsibilities of the Importer The importer must do everything else. Responsibility shifts When the exporter DELIVERS THE GOODS TO THE PORT OF DEPARTURE, unloaded from the mode of transportation.
Competing Lines (Element of Contract)
Competing lines clause spells out how agent or distributor will be allowed to handle competitor's products Usually agent cannot carry competing lines Usually distributor can carry competing lines
There are two possible strategies for a firm with transaction exposures:
Determine what its decision should be on an invoice-byinvoice basis Set a policy that the firm follows for all of its foreign currency receivables and payable.
For FCA Incoterms® rule, there are two choices regarding the delivery of the goods. The exporter and importer should agree on:
FCA Exporter's Premises: The exporter loads the goods at its place of business on a truck provided by the importer. FCA Carrier's Premises: The exporter loads the goods on its own truck and delivers them to the carrier's place of business, still loaded on the truck. It is the responsibility of the carrier to unload them from the truck.
Forward exchange rate
Forward exchange rates theory is an economic theory that holds that forward exchange rates for currencies are good predictors of the future spot exchange rates of that currency
Interest rate parity
Interest Rate Parity is an economic theory that holds that the forward exchange rate between two currencies should reflect the differences in the interest rates in those two countries.
UCC Versus CISG ( Difference in Creation of the Contract)
Length of time an offer is outstanding: Under UCC seller can withdraw an offer at anytime Under CISG seller cannot withdraw an offer until an agreed upon date that offer is good for Written vs. oral contracts: UCC - written contracts CISG - oral contracts
Mediation
Mediation is a process by which an independent mediator will attempt to find a middle ground between the parties who are having a dispute. Mediation is less formal that court proceedings or arbitration, and its recommendations are not binding on the contract parties, unlike court decisions or arbitration outcomes. Mediation is more practical for small disputes that have arisen from a misunderstanding, or when parties are interested in keeping a business relationship. Mediators tend to be trade professionals with a wealth of experience in solving such disputes and who can quickly determine a solution acceptable to both parties.
What is the modality for the incoterm Ex-Works (EXW) (Modality is the mode of transport for which it can be used)
Modality Ex-Works can be used for any mode of transportation.
Contract formation of CISG
Offer Initial step in the formation of the contract when one party contacts another and offers to sell or purchase something. Acceptance If the second party accepts all the terms of the offer, the contract is formed. Rejection If the second party does not accept all the terms of the original offer, it is a rejection of the initial offer. Counter-offer If the second party reject the first offer, it may make a counter -offer with new terms.
Each international sale includes three types of carriage.
Pre-carriage, the domestic transportation in the exporting country Main carriage, the international transportation between the exporting country and the importing country On-carriage, the domestic transportation in the importing country
Responsibilities of importer and exporter for the incoterm Carriage Paid To (CPT)
Responsibilities of the Exporter Packaging the goods for the international voyage, Providing the documents necessary to clear Customs in the importing country, Arranging and pay for pre-carriage, main carriage and oncarriage to the city of destination. Responsibilities of the Importer The importer must do everything else. Point at which the responsibility for the good shifts from exporter to importer When the exporter delivers the goods to the first carrier in the exporting country.
Responsibilities of importer and exporter for the incoterms rule FCA
Responsibilities of the Exporter The exporter must package the goods for the international voyage , provide the importer with the documents necessary to clear Customs in the importing country, and deliver the goods on the truck either at its own place of business or the carrier's place of business. Responsibilities of the Importer The importer must do everything else. Point at which the responsibility for the good shifts from exporter to importer: WHEN THE GOODS ARE DELIVERED TO THE CARRIER AND LOADED ON THE TRUCK.
Responsibilities implied by Delivered Duty Paid (DDP)
Responsibilities of the Exporter The exporter must package the goods for the international voyage, ARRANGE AND PAY FOR PRE-CARRIAGE, MAIN CARRIAGE AND ON CARRIAGE TO THE CITY OF DESTINATION, and clear Customs in the importing country. Responsibilities of the Importer The importer must unload the goods from the means of conveyance. Point at which the responsibility for the good shifts from exporter to importer When the exporter delivers the goods to the delivery location, STILL LOADED ONTO THE MODE OF TRANSPORTATION. For DDP you don't have to unload for responsibility to change.
Responsibilities implied by Free on Board (FOB)
Responsibilities of the Exporter The exporter must package the goods for the international voyage, provide the importer with the documents necessary to clear Customs in the importing country, ARRANGE AND PAY FOR PRE-CARRIAGE TO THE PORT OF DEPARTURE AND LOADING ONTO THE SHIP. Responsibilities of the Importer The importer must handle everything else. Point at which the responsibility for the good shifts from exporter to importer When the EXPORTER DELIVERS THE GOODS ONBOARD THE SHIP in the port of departure.
Responsibilities implied by the incoterms rule Cost, Insurance and Freight (CIF)
Responsibilities of the Exporter The exporter must package the goods for the international voyage, provide the importer with the documents necessary to clear Customs in the importing country, as well as arrange and pay for pre-carriage, main carriage and INSURANCE TO THE PORT OF DESTINATION. Responsibilities of the Importer The importer must do everything else. Point at which the responsibility for the good shifts from exporter to importer When the exporter delivers the goods onboard the ship in the port of departure.
Responsibilities implied by Delivered at Place (DAP)
Responsibilities of the Exporter The exporter must package the goods for the international voyage, provide the importer with the documents necessary to clear Customs in the importing country, as well as arrange and pay for pre-carriage, main carriage and on-carriage to the city of destination. Responsibilities of the Importer The importer must do everything else. Point at which the responsibility for the good shifts from exporter to importer. WHEN THE EXPORTER DELIVERS THE GOODS TO THE PLACE OF DELIVERY still loaded on the mode of transportation. DAP= DaPlace of delivery is where responsibility changes.
There are two different groups of incoterms rules. What are they?
Seven Incoterms rules that can be used for any means of transportation (ocean, road, air, train). Four Incoterms rules that can only be used for ocean transportation (these are the oldest terms of trade).
Exchange rate forcasting
Technical Forecasting A method of forecasting exchange rates based upon time-series analysis. Future movements in the value of a currency are "mathematically" linked to its past movements. Such technical forecasts are valuable in determining the possible variations of a currency's exchange rate in the shortrun In the long run, they tend to accumulate errors fairly quickly, as they ignore the economic fundamentals of exchange rate determination
UCC Versus CISG ( Difference in business forms)
The UCC - standard pre-written contract forms between seller and buyer may not exactly match The CIGS - terms of contract determined by business form of party "firing the last shot"
UCC Versus CISG ( Difference in terms)
The UCC - when a seller makes an offer, and the buyer agrees to it, that is considered to be an acceptance, despite the minor differences The CISG - when there are such minor differences between the seller and potential buyer, it results in a rejection of the offer and a counteroffer by the buyer. (So for UCC when seller makes an offer nad buyer agrees this is acceptance. For CISG when the seller makes an offer and there are minor differences it results in a rejection of the offer and a counter offer by the buyer.)
Distribution Contract
The contract between an exporter and its representatives abroad is called a distribution contract. It is a contract between the exporter and an agent or a distributor. There is no uniform international agreement mandating how these relationships should work. However the parties often agree to abide by the model contracts of the International Chamber of Commerce.
Third countrys currency
The exporter and the importer can agree that the currency of the transaction will be a third country's currency. The exporter and the importer each bear the risks of currency fluctuation of their respective country's currency against the currency of the transaction. In some cases, the exporter and the importer choose an artificial currency (a non-circulating currency) for the transaction, the Special Drawing Rights (SDRs) of the International Monetary Fund. International liability conventions are expressed in SDRs.
An exporter and an importer can agree on three possible alternatives when choosing the currency in which a sales contract will be paid:
The exporter's country's currency The importer's country's currency A third country's currency
What factors should be considered when choosing the correct incoterms rule?
The type of product being sold (weight, volume, perishability, value, sensitivity to temperature changes, and so on) The method of shipment The ability and willingness of either of the exporter and importer to perform the tasks involved The amount of trust placed by either of the parties in the other party
What do Incoterms formally define?
Which tasks will be performed by the exporter Which tasks will be performed by the importer Which activities will be paid by the exporter Which activities will be paid by the importer The exact point at which the responsibility for the goods transfers from the exporter to the importer In summary, each Incoterms rule defines: The responsibilities of the exporter The responsibilities of the importer A specific transfer point at which the responsibilities for the goods shifts from the exporter to the importer
The risk resulting from possible fluctuations in currency exchange rates is called ___.
b. transaction exposure
Of the following, the best definition of a logistics infrastructure would be that it consists of
"all of the elements in place to facilitate transportation, communication, and business exchanges" incorporates all aspects of logistics infrastructure.
Which of the following is NOT among the challenges of international logistics?
"superstructure"
Elements of a contract
-Choice of law -Good faith -Term of appointment -Choice of venue -Scope of appointment -Arbitration clause -Force Majeure -Territory -Mediation Clause -Contract Language -Corporate Accounts -Profitability or commission
FOB is ________
-Free on Board -an incoterm that can be used for any merchandise -an incoterm specifically designed for ocean transport
International factoring ____
-Is more complicated than domestic factoring -Can be used to extend credit beyond what the exporter can normally afford -Often involves factoring firms in both the exporting and importing countries
A standby letter of credit is similar to a "simple" letter of credit except for ___.
-It generally has a much longer validity period -it usually applies to more than one shipment from the exporter to the importer -it allows the exporter to extend an open account to the importer, using the letter of credit only if the importer doesn't meet its obligations
What are some country risks?
-Possibility of not getting paid because a customer's country does not have the foreign currency to pay the debt, or the customer is not allowed to pay. -Political unrest, chances of a strike, and variations in interest and exchange rates should also be taken into account.
Market-based forecasting of exchange rates
. does not take into account potential government interventions. B. attempts to capture the collective knowledge of sophisticated speculators in the future spot rate of a currency. C. is based on the premise that "the market knows best." All of these options are relevant to market-based forecasting.
5. The Incoterm EXW specifies what regarding delivery?
. None of the below . the mode of transportation for delivery b. who pays for delivery c. who buys insurance for delivery d. All of the above
The mathematical representation (1 + real interest rate) x (1 + inflation rate) = 1 + nominal interest rate is of what theory of exchange rate determination?
. The Fisher effect determines that a country's nominal interest rate comprises both the inflation rate in that country and the real interest rate that borrowers are paying.
What is the process of documentary collection?
1. The exporter and the importer agree to conduct business on a documentary collection basis. The exporter sends the goods to the importer, but sends the documents to the exporter's bank, which acts as the remitting bank. 2. The remitting bank sends the documents to a bank in the importing country, called the presenting bank. 3. Upon receipt of the documents, the presenting bank notifies the importer that the documents are available.
Whats the process for issuing a letter of credit?
1. The exporter and the importer agree to conduct business on a letter of credit basis. The exporter sends a pro forma invoice to the importer. 2. The importer asks his bank, called the issuing bank, to provide him a letter of credit, naming the exporter as the beneficiary. 3. The importer's bank sends the letter of credit to the exporter's bank, called the advising bank. 4. The exporter's bank reviews ("advises") the letter of credit, making sure that it is conform to the terms to which the exporter agreed.
The issuance of a letter of credit is 4 steps and goes through four different parties. What are those parties in order?
1.Exporter 2.Importer 3.Importers bank (issuing bank) 4.Exporters bank (Advising bank)
Force Majeure (Element of Contract)
A French expression meaning roughly "overwhelming power." This is a clause releasing all parties from their obligations due to events outside of their control.
Confidentiality (Element of Contract)
A clause that binds all parties to promise not to reveal what is learned about the other's business practices for the duration of the business relationship and often after the relationship is terminated.
When a company is engaged in an international transaction and agrees to use a foreign currency to conduct the transaction
A company is exposed to a certain amount of risk, due to possible fluctuations in the currency exchange rates, in an international transaction when it agrees to use a foreign currency.
Termination of Contract
A contract can be terminated under two scenarios: Just cause One of the parties to the contract did not perform what it was expected to do under the terms of the contract. Convenience One of the parties to the contract wants to end the contract for reasons other than non-performance. Most often, it is the exporter/principal who wants to end the contract.
Good Faith (Element of Contract)
A contract is entered into under "good faith" and assumes that neither of the parties has an ulterior motive. This clause states that both parties entered the agreement in good faith: neither party will attempt to distort the terms of the agreement.
A bank in the importers country with which the exporters bank has an established relationship is called ______________.
A correspondent bank Its possible to have as many as two correspondent banks involved in a letter of credit.
A document in which the importers bank essentially promises to pay the exporter if the importer does not pay.
A letter of credit (Also called documentary credit)
UCC
A positive response when asking for change is considered an acceptance. Offer can be withdrawn at any time. The buyer cannot change the terms of the contract unless the seller performs a fundamental breach.
CISG
A positive response when asking for change is considered a rejection. A contract is not been accepted until both parties agree to all terms. An offer is open until a certain date and cannot be withdrawn until said date. The buyer is allowed to apply a price reduction to the amount in the contract for nonconforming or damaged goods.
Warehouse infrastructure of a country may determine
How the goods are packaged Warehouse infrastructure can vary by country so it is important to obtain information about the specific location so it can be determined how to correctly package the shipment.
Money-market hedging
A technique that utilizes the banking system in the foreign country to manage a firm's transaction exposure Is effective since it allows the firm to use the exchange rate as of the date of the transaction rather than speculate on the value of the exchange rate at the date of payment Minimizes the risks of currency fluctuations A firm located in Switzerland sells a piece of machinery to a firm located in Japan for the equivalent of SwF 150,000.00. It bills the customer in Japanese yen. The transaction takes place on January 16, 201_, with a payment date of March 15, 201_. The transaction amount is ¥12,115,545.00, because the exchange rate on January 16, 201_, is ¥80.7703/SwF. The Swiss firm can use a money market hedge, by borrowing from a Japanese bank the present value (as of January 16, 201_) of ¥12,115,545.00 on March 15, 201_. If the commercial lending rate in Japan is 3 percent per annum (about 0.5 percent for two months), the amount the Swiss firm borrows is ¥ (1-0.005) x 12,115,545.00 = 12,054,967.28. On March 15, 201_, the Swiss firm pays the bank back, using the payment of ¥12,115,545.00 made by its customer.
Options-market hedging
A technique that utilizes the options market for currencies to manage a firm's transaction exposure. This strategy involves purchasing put or call options, or the option to sell or purchase certain currencies at a certain exchange rate on or before a certain date. This agreed upon exchange rate is called the strike price Options are very expensive Options are only commonly traded for a limited number of currencies Amounts are not as flexible as in forward markets Some banks will write options that are tailored to their customers' needs For firms sophisticated in international trade, this strategy has great potential A company located in the United States sells a large piece of equipment to a firm located in the United Kingdom and agrees to be paid in pounds. The invoice, for £1,000,000, is issued on December 10, 201_, but is not payable until March 10, 201_. The exporting firm can minimize its currency fluctuation risk by using an option hedge; on December 10, 201_, it purchases a put option—the right to sell £1,000,000 on March 10, 201_—at an agreed-upon exchange rate of U.S. $1.3615/£. If the spot exchange rate on March 10, 201_, is lower than U.S. $1.3615/£, then the American firm will exercise its option and sell the currency at that price. If the spot rate is higher than U.S. $1.3615/£, the firm will let its option lapse and will sell the currency it received at the spot market rate.
The definition of "international supply chain management" is the same as the definition of "supply chain management," except that it makes explicit the fact that SCM
ALL OF THE BELOW ARE TRUE is international. includes international activities. is global. All options are essentially identical: all deal with international concepts.
The ICC has modified the incoterms rules every decade since 1980. Several exporters are failing to ________.
Adapt to the new incoterms rules and will use an obsolete incoterms rule.
The advertising clause of a contract between an exporter and an agent/distributor spells out the obligations of both parties in the areas of
Advertising trade show attendance ownership of ideas
Among the companies that are exposed to risks in currency fluctuation are ___.
All of the above
A standby letter of credit is similar to a "simple" letter of credit except for
All of the below it generally has a much longer validity period. it usually applies to more than one shipment from the exporter to the importer. it allows the exporter to extend an open account to the importer, using the letter of credit only if the importer doesn't meet its obligations.
7. As of the revision in 2010, the Incoterms which require the exporter to clear the merchandise for export from the country from which it is coming is ___.
All of the below Free Alongside Ship Cost and Freight Delivered At Terminal
3. Information about the international commercial risk can be obtained from ___.
All of the below a. credit report companies b. factoring houses c. some accounting firms, insurance companies, and banks
9. Which of the following companies are exposed to the risk of currency fluctuations?
All of the below a. firms that do not evaluate international currency transaction risks clearly. b. firms that do not follow a specific policy on currency exchange. c. firms that have management that is not well-versed in the intricacies of international trade. d. firms that do not hedge their foreign receivables.
5. Market-based forecasting of exchange rates
All of the below a. is based on the premise that "the market knows best." b. attempts to capture the collective knowledge of sophisticated speculators in the future spot rate of a currency. c. does not take into account potential government interventions.
5. International factoring ___.
All of the below a. is more complicated than domestic factoring b. can be used to extend credit beyond what the exporter can normally afford c. often involves factoring firms in both the exporting and importing countries
1. The advertising clause of a contract between an exporter and an agent/distributor spells out the obligations of both parties in the areas of ___.
All of the below advertising trade show attendance ownership of ideas
1. Among other reasons, international transactions are perceived to have more risk of non-payment because of ___.
All of the below lack of credit information a lack of personal contact no easy legal recourse
4. FOB is ___.
All of the below Free On Board b. an Incoterm that can be used for any merchandise c. an Incoterm specifically designed for ocean transportation
FOB is
All of the below are true. Free On Board. an Incoterms® Rule that can be used for any merchandise. an Incoterms® Rule specifically designed for ocean transportation
There are sometimes problems with electrical supply in
All of these areas have had electrical supply problems in the last decade, including California. . Saudi Arabia. B. Sub-Sahara Africa. C. some parts of a developed country like the United States. D. All of the above
Which one is NOT correct about international contracts?
An agent can negotiate prices, delivery, or other sales terms with the buyer (importer) without direction from the exporter.
Purchasing power parity
An economic theory that holds that exchange rates should reflect the price differences of each and every product between countries. The idea is that exchange rates should fluctuate in such a way as to "equalize" the price differences of similar products between countries, so that a set amount of currency would purchase the same goods in any country of the world.
In its relationship with an agent, an exporter is known as the
An exporter is known as the principal.
Whats a call option?
An option with which a firm agrees to BUY a particular currency at a particular price on a given date. Suppose a U.S. firm purchases an option to buy euros for $1.35/€ on 01/01/201_. It pays U.S. $5,000 for that option. Two scenarios can take place on 01/01/201_: If the spot exchange rate is lower than $1.35/€, the firm will purchase the euros on the spot market, and forgo the option. If the spot exchange rate is higher than $1.35/€, the firm will exercise the option, and pay $1.35/€ for the euros.
What is a put option?
An option with which a firm agrees to SELL a particular currency at a particular price on a given date. Suppose a U.S. firm purchases an option to sell British pounds for $1.25/£ on 03/01/201_. It pays U.S. $2,000 for that option. Two scenarios can take place on 03/01/201_: If the spot exchange rate is higher than $1.25/£, the firm will sell the pounds on the spot market, and forgo the option. If the spot exchange rate is lower than $1.25/£ , the firm will exercise the option, and obtain $1.25/£ for its pounds.
What is the modality of delivered at terminal?
Any mode of transportation can be used.
Arbitration
Arbitration is a form of dispute resolution in which a panel of arbitrators is asked to reach a decision on the facts of the dispute. The decision of the arbitration panel is binding on the parties to the contract. Many arbitration panels are made up of three arbitrators: one selected by each of the party, and one selected by another party, such as the International Chamber of Commerce. Arbitration is perceived as fair, even-handed and independent. It is also much quicker and more efficient than litigation through the courts, by using a more flexible process to accept evidence, for example. Arbitration has other advantages as well: It is more "creative" Arbitrators can find solutions to the dispute that a court would not be allowed to use. It is very efficient Arbitrators are professionals who know the industry and are able to quickly understand a situation. It is private Unlike court proceedings, arbitration decisions are not open to the public, and the facts of the dispute are not made public.
The increased usage of air transport for international trade has had which consequence?
As customer's expectations of speedy delivery increased, delivery speed became one of the main criteria in selecting a suppliers
What type of letter of credit is used by the exporter naming its supplier as the beneficiary?
Back-to-back letter of credit
A ______ ___________ is usually requested to secure the performance of the seller (exporter), rather than to ensure that payment will be made by the buyer (importer).
Bank Guarantee Bank guarantees are prohibited in the united states but they offer the same type of financial instrument through their stand-by letters of credit.
What type of acceptance occurs when the exporter asks the presenting bank to accept the draft "on behalf" of the importer.
Bankers acceptance bank acceptance = bankers acceptance
Another name for sea-going containers is
Boxes are sea-going containers.
Is there a single court that has jurisprudence over all international trade disputes?
No, no single court has direct jurisprudence.
If either an importer or exporter choose to use their own countries currency they take on how much risk?
None. The party that uses a different currency than their own countries is responsible for convertibility problems.
Which of the following group of countries is more likely to lag in terms of green practices, according to the IBM study mentioned in the text?
North America lags is all areas of "green" practices.
Where is the Cash in Advance method usually implemented?
Only recommended for doing business in very few countries; those in which fraud is rampant, where there is POLITICAL INSTABILITY , where THE CURRENCY IS NON-CONVERTIBLE or where there is the POSSIBILITY OF FOREIGN EXCHANGE FREEZES Not recommended for business conducted in developed countries and in countries in which there is some level of sophistication in international business.
Which payment method entail the exporter sending an invoice to the customer and expects them to pay it promptly (or within an arranged period of time)
Open account
The minority of governments treat agents or distributors under what type of law?
Other governments use contract law in all cases but most treat agent under labor law and distributors under contract law. (In other words, most governments place all agent/distributor contracts under labor law. If that's not the case then, they probably use contract law
Contracts contain a force majeure clause which dissolves the contract in the event of a major unforeseen event, like a ship sinking in a storm. Loosely translated, force majeure means
Overwhelming power
An exporter's termination of a relationship with an agent/distributor on the basis of "convenience" is
Potential damages to the spurned party can be substantial. Courts can intervene.
What are the alternative methods of payment?
Purchasing cards TradeCard Bank Guarantees
What type of letter of credit needed when the exporter may not have enough working capital to finance the manufacturing of the goods its selling to the importer?
Red-clause letter of credit In that case, it is possible to ask the importer to issue a red-clause letter of credit, with which the importer provides the exporter with a cash down payment, prior to shipment, to finance the production of the goods.
During documentary collection the exporters bank is called the
Remitting bank
Responsibilities for the importer and exporter for the incoterm Carriage and Insurance Paid To (CIP)
Responsibilities of the Exporter Packaging the goods for the international voyage, Providing the documents necessary to clear Customs in the importing country, Arranging and pay for pre-carriage, main carriage and on-carriage to the city of destination. Paying the insurance. Responsibilities of the Importer The importer must do everything else. Point at which the responsibility for the good shifts from exporter to importer When the exporter delivers the goods to the first carrier in the exporting country.
Responsibilities implied by Ex-Works (EXW)
Responsibilities of the Exporter The exporter must package the goods for the international voyage and provide the importer with the documents necessary to clear the goods for export in the exporting country and to clear Customs in the importing country. Responsibilities of the Importer The importer must do everything else. Responsibility for the good shifts from exporter to importer When the exporter makes the goods available to the importer. EXW is the easiest Incoterm for the exporter and the most difficult for the importer is (in terms of cost and responsibility).
A German corporation is involved in the Grüne Punkt program and recycles its final consumer packaging after the consumer has used the product. How are these types of activities called?
Reverse logistics involves the handling of goods after they have been sold to the customer and which are then returned to the manufacturer.
Two factors should be considered when choosing a currency for a sales contract.
Risk of currency fluctuation Risk of currency convertability
What contract clause determines if it will be an agency or a distributorship agreement.
Scope of appointment
What is the scope of the incoterm Ex-Works (Type of products for which it can be used)
Scope: Ex-Works can be used for any type of goods. However, EXW should be used for small packages that are picked up by express packages services, such as FedEx or DHL.
SDRs of the International Monetary Fund can be used in international transactions:
Special Drawing Rights (SDRs) are an artificial currency whose value is determined by the value of a basket of four currencies: the euro, the Japanese yen, the U.S. dollar, and the British pound.
What is the most commonly used exchange rate?
Spot exchange rate
This type of exchange rate is for a foreign currency for immediate delivery.
Spot exchange rate (Immediate differs here and there but usually its within 48 hours)
Types of exchange rates
Spot exchange rate Forward exchange rate Currency futures Currency options
What type of letter of credit is valid for multiple shipments and allows for bills of lading issued on multiple dates.
Stand-by letter of credit
The individuals who are handling goods in the ports, loading and unloading merchandise, are called
Stevedores
Lex Mercatoria
Sum total of all the international trade customs that complement the domestic laws of any given country. is the sum total of all the international agreements, international conventions, and other international trade customs that complement the domestic laws of any given country, and to which all international trade transactions are subject. It is difficult to comprehensively grasp Lex Mercatoria because it can include agreements from many different areas, such as the United Nations, World Trade Organization, multinational conventions, free trade agreements, and any number of bi-lateral agreements. Lex mercatoria is the Latin expression for a body of trading principles used by merchants throughout Europe in the medieval. Literally, it means "merchant law". It evolved as a system of custom and practice, which was enforced through a system of merchant courts along the main trade routes.
Under DAT who bears the unloading cost?
THe importer
Termination for Just cause
Termination for "just cause" is triggered when either of the parties is not honoring the terms of the contract. It is generally quite easy to end a contract this way. However, if the contract had been renewed under similar circumstances in the past (inadequate performance), there is a possibility that a court will consider that the contract is evergreen, which means that there was an expectation it would never be cancelled. It is therefore important for either party to notify the other than the contract is renewed despite the non-performance, and to include a warning that future non-performance will result in termination.
What are the three SALES contract elements?
Terms of Trade-Incoterms® rules determine the costs the exporter should pay, the costs the importer should pay, and the point at which the responsibility for the cargo shifts from one to the other. Terms of Sale- The terms of sale determine the method of payment and the intermediaries involved in the payment and the handling of the documents from the importer to the exporter. Currency- The currency in which the transaction is undertaken: it can be the exporter's country's currency, the importer's country's currency, or a third country's currency.
The fisher effect
The Fisher effect is an economic theory that holds that the interest rates that businesses and individuals pay to borrow money should be uniform throughout the world and that the nominal interest rates that they actually pay in a given country are composed of this common ("real") interest rate and the inflation rate of that country
Attempts to reduce business practices that include corruption and bribery have been made by the
The Organisation for Economic Co-operation and Development developed an Anti-Bribery Convention.
SWIFT
The Society for Worldwide Interbank Financial Telecommunication is a corporation supporting an Electronic Data Interchange network that was created by banks to obtain a secure and reliable means of transferring financial information internationally. It allows the communication of Letters of Credit and miscellaneous fund transfers.
The TGV trains connecting London and Paris
The TGV trains connecting London and Paris provide high-speed passenger service that competes with airlines.
Convention for the international sale of goods
The United Nations' Convention for the International Sale of Goods (CISG) was adopted in 1980 as a way to oversee international contracts. The CISG allows parties from different countries to enter into contracts with reasonable assurance that the provisions of the contract will be enforced. More than 84 countries have ratified this agreement. Trade between these countries represents 80 percent of all word trade. The CISG allows exporters to avoid choice of law issues, as the CISG offers "accepted substantive rules on which contracting parties, courts, and arbitrators may rely".[3] Unless excluded by the express terms of a contract,[4]the CISG is deemed to be incorporated into (and supplant) any otherwise applicable domestic law(s) with respect to a transaction in goods between parties from different Contracting States.[5]
The busiest cargo airport in the world is
The busiest cargo airport in the world is Hong Kong International Airport
Contract language (Element of Contract)
The contract is signed by parties who speak different languages. This clause specifies the official language of the contract. If a copy of the contract exists in the other language, it is considered a translation.
Under labor law
The court will protect the agent.
In valuing a currency, the direct quote is
The direct quote is the value of the foreign currency expressed in units of the domestic currency, You are being direct so they dont have to convert it. You already converted it for them to be direct. while the indirect quote is the value of the domestic currency and refers to the traditional way of expressing the value of a currency like the Canadian dollar and the Japanese yen.
Advantages of a purchasing card
The exporter is essentially paid "in advance," because it is paid almost immediately after the goods have shipped. The importer does not have to pay until the monthly purchasing card bill is due, or about 30 days after the purchase is made. The non-payment issue is transferred to the bank that issued the card and granted the credit to the importer. The exporter bears no risk of non-payment. The company purchasing the goods can de-centralize its small purchases so that the central purchasing department can concentrate on big items. Purchasing cards make a lot of sense for small transactions, for which a letter of credit or a documentary collection would be too cumbersome.
Responsibilites implied by Cost and Freight (CFR)
The exporter must package the goods for the international voyage, provide the importer with the documents necessary to clear Customs in the importing country, as well as ARRANGE AND PAY FOR PRE-CARRIAGE AND MAIN CARRIAGE TO THE PORT OF DESTINATION. Responsibilities of the Importer The importer must do everything else. Point at which the responsibility for the good shifts is when the exporter delivers the goods onboard the ship IN THE PORT OF DEPARTURE.
Under CIP incoterms rule who must provide insurance for the goods?
The exporter must provide insurance for the goods. (It is minimum coverage) The amount of insurance is always 110 percent of the value of the goods. Incoterms® rule Variant It is possible for the exporter and the importer to agree to a higher level of insurance (coverage A). In this case, the Incoterms syntax changes to say maximum coverage.
What is a Cash in advance payment method?
The exporter requests that the customer provide payment in advance, before shipment of the goods can take place.
What is an open account payment method?
The exporter send an invoice to the customer and expects the customer to pay it promptly (or within a pre-arranged period). This method poses many risks for the exporter. Open account payment be used with well established customers or with customers the exporter expects to have a long term relationship. The customers credit should be checked before using an oppen account payment method. In this method the exporter conducts international business in a manner similar to the way it conducts business domestically.
International exchange rates began to float
The gold standard ended in 1971 and exchange rates began to float. Prior to that time, the IMF oversaw the fixed exchange rate system.
What is the risk of non-payment?
The probability of not getting paid or of being paid late.
The fee a licensee pays a licensor for each use of an intellectual property is called a(n)
The royalty is the amount of money paid by the licensee to the licensor.
Whats an indirect quotation?
The value of the domestic currency expressed in units of the foreign currency. For example, the indirect quotation for the yen against the U.S. dollar was ¥99.54/$ on August 1, 2013. Most currencies are expressed as indirect quotations: the Canadian dollar, the Swiss franc, and the Japanese yen, for example
Whats a direct quotation?
The value of the foreign currency expressed in units of the domestic currency. For example, the direct quotation for the euro in U.S. dollar terms was $1.3236/€, on August 1, 2013. This is the preferred way of quoting the euro, the British pound, and the Australian dollar.
Territory (Element of Contract)
This clause defines the geographical limits within which the agent or distributor is authorized to sell. It can be a region, a country, or a group of countries.
Term of Appointment (Element of Contract)
This clause defines the period for which representative will be appointed. This must be a specific time period and is generally renewable, as long as the agent or distributor performs adequately. Must always be a definite period, usually dictated by market conditions, type of product sold. Time needs to be long enough to develop the market Time needs to be short enough to terminate ineffective performers
Arbitration (Element of Contract)
This clause identified the process of arbitration. Arbitrators are empowered by the parties involved in a contract dispute to reach a decision on the facts of a dispute. Their decisions are binding. (An arbitrator is an independent person or body officially appointed to settle a dispute.)
Mediation (Element of Contract)
This clause identifies the process by which the parties to a contract can attempt to settle a dispute, generally involving a third independent party, a mediator, who can suggest a compromise solution.
Ownership of Customers List (Element of Contract)
This clause outlines who owns the customers' list, which is considered an asset. Generally, the exporter is aware of the customers' list of an agent, but does not know who the distributor's customers are.
Profitability or Commission (Element of Contract)
This clause spells out the amount of commission that the agent will earn or the price at which the distributor is expected to sell the product. Spells out amount of commission the agent earns: Usually about 5 percent, although it depends on the industry Agents usually get paid their commission when the buyer pays the exporter Spells out price for which the distributor is expected to sell the product or the margin that it is expected to add to its costs If distributor can set its own prices, it may result in different prices in different countries, resulting in parallel imports. If exporter attempts to control distributor's prices, it may be construed as "price fixing" in an attempt to reduce competition.
Post-Panamax ships have resulted in
This extra width of the ship has been a challenge for ports' cranes to reach across them.
How many alternative methods of payment are there and what are they?
Three Purchasing cards Tradecard Bank Guarantees
With this type of draft the importer has to pay the exporter in a certain number of days.
Time draft
What type of acceptance occurs when the exporter expects the importer to accept and sign the draft in a reasonable amount of time after being notified that the presenting bank has the documents in its possession.
Trade acceptance Importer acceptance = trade acceptance
What combines the advantages of letters of credit with procurement cards?
TradeCards The system is efficient: documents are transmitted electronically, and payments are made at the inter-bank exchange rates. They are extremely inexpensive compared to letters of credit. However it has not been widely adopted yet.
A type of letter of credit that the beneficiary (exporter) uses to secure its own payment to others.
Transferable letter of credit. used when the exporter needs to purchase raw materials before it can produce what is sold to the importer.
UCC Versus CISG ( Difference in breach of contract )
UCC applies the "perfect tender" principle: goods and their delivery must conform exactly to terms of contract. CISG says the buyer is obligated to contract unless nonconforming performance substantially denies the buyer what it was promised in the contract
Certain countries do not allow importers to purchase insurance abroad. Which Incoterm is therefore not available to importers located in these countries?
Under CIP, the exporter provides insurance, which means that the importer purchases insurance "abroad."
One of the differences between the Delivered At Terminal Incoterms® Rule and the Delivered At Place Incoterms® Rule
Under DAP, the unloading costs are borne by the exporter. They are borne by the importer in a DAT transaction.
The Incoterms® Rule EXW specifies what regarding delivery?
Under EXW delivery takes place when the goods are made available by the exporter for pick up.
Which is NOT correct about the terms of trade or incoterms rules?
Under the Free On Board Incoterms® Rule, if a piece of cargo breaks loose while it is loaded onto the ship, it becomes the responsibility of the importer. Responsibility shifts when it is loaded onto the exporters ship.
What is the law that is used to form contracts in domestic transactions?
Uniform Commercial Code
In 2010 the incoterms rule Delivered at Terminal was created. What was DATs purpose?
Used for containerized cargo delivered to a port, and to replace maritime cargo terms. (FCA, FOB, CFR, CIF)
Regarding water availability in the infrastructure
Water is critical to economic development, indeed, to supporting life. Less than 80 percent of the world population even lives within one kilometer of clean water. However, many cities do have old leaky pipes.
When does the responsibility shift from exporter to importer when using Ex-Works (EXW)
When the exporter makes the goods available to the importer.
The incoterm DAP specifies what regarding delivery?
Who unloads from the means of conveyance.
An aval is
a promise by the presenting bank that the importer will honor the draft
What are TradeCards
a proprietary electronic system that combines payment and document handling. importer doesnt have to pay tradecard for about 30 days.
The document that corresponds clearly to the transfer of responsibility for a Free Carrier shipment is the receipt given by the carrier to the exporter. This receipt can be
a sea waybill. B. an air waybill. C. a multi-modal bill of lading. Each of these can function as a receipt indicating responsibility transfer.
4. An exporter can conduct its international business in a manner similar to the way it and most companies conduct domestic business by using ___.
a. an open account
6. Companies that will successfully and regularly retain their risk of currency fluctuation are those that
a. are very large traders, sophisticated in international finance. are very large trades, sophisticated in international finance
4. Courts generally look at two criteria to determine if a contract is international. Those criteria are ___.
a. economic and judicial criteria
7. Under the United Nations Convention on Contracts for the International Sale of Goods (CISG), when an offer is made ___.
a. it cannot be withdrawn by the buyer or seller before its expiration date
8. A standby letter of credit is similar to a "simple" letter of credit except for ___.
a. it generally has a much longer validity period b. it usually applies to more than one shipment from the exporter to the importer c. it allows the exporter to extend an open account to the importer, using the letter of credit only if the importer doesn't meet its obligations
When a firm realizes that it wants to exploit the possibilities that sales abroad can bring, and decides to become directly involved in its exporting activities, it is said to be involved in
active exporting
Which of the following companies are exposed to the risk of currency fluctuations?
all of the below firms that have management that is not well-versed in the intricacies of international trade. firms that do not follow a specific policy on currency exchange. firms that do not hedge their foreign receivables. firms that do not evaluate international currency transaction risks clearly.
The most frequent misuse is when FOB is used for _________________.
an air shipment: FOB is designed to be used only with an ocean shipment term. The correct Incoterms® rule to use for an air shipment should be Free Carrier (FCA), to clearly outline the responsibilities of the exporter and of the importer.
Instead of using courts to settle disputes, an increasing number of contracts call for disputes to be settled by
arbitration panel
SDRs of the International Monetary Fund can be used in exchanges ___.
as an artificial currency
5. A legal dispute in which the loser bears court costs is said to be operating under ___.
b. European rules It sucks to be a loser, especially in Europe.
3. In terms of cost and responsibility, the easiest Incoterm for the exporter which is, in turn, the most difficult for the importer is ___.
b. Ex-Works (EXW)
6. A termination for "convenience" is ___.
b. a termination for any reason other than non-performance
9. The instruction letter is part of the documentary collection ___.
b. in which the exporter, through the remitting bank, tells the presenting bank what it is expected to accomplish The instruction letter is part of the documentary collection in which the exporter, through the remitting bank, tells the presenting bank what it is expected to accomplish
8. When a company is engaged in an international transaction and agrees to use a foreign currency to conduct the transaction
b. it is exposed to a certain amount of risk.
10. Contracts between an exporter and an agent are usually considered under___, and contracts between an exporter and a distributor are usually considered under ___.
b. labor law, contract law
2. The risk that an exporter takes in requesting cash in advance as a means of payment ___.
b. puts the exporter at a competitive disadvantage Not all exporter do this and the importer could find a differnt exporter who will use a different payment method.
8. Under the Cost, Insurance, and Freight Incoterm, ___.
b. the insurance must total at least 110 percent of the value of the goods
1. In valuing a currency, the direct quote is
b. the value of the foreign currency expressed in units of the domestic currency. Expressed as domestic
7. The risk resulting from possible fluctuations in currency exchange rates is called
b. transaction exposure.
FOB change in responsibility
before 2010, once the cargo passed the ships outter railing the responsibility switched. It has now changed to on board,
Regarding the open account payment method the exporter conducts international business in a manner similar to the way it conducts ______________
business domestically
3. An exporter's termination of a relationship with an agent/distributor on the basis of "convenience" is ___.
c. courts will side with the slighted party, and impose significant compensation under labor law.
What is the scope of the incoterms rule Delivered Duty Paid (DDP)
can be used any type of product
What is the modality of the incoterms rule Delivered Duty Paid (DDP)
can be used for any mode of transportation.
What is the modality of Delivered at Place?
can be used for any mode of transportation.
What is the scope of Delivered at Place?
can be used for any type of product.
Letters of credit are documentary which means the bank is only obliged to pay upon presentation of certain ___________ by the ____________.
certain documents by the importer.
If a customer fails to pay it is difficult and expensive to
collect on the past due account
Agents usually sell more than one product and represent more than one company. The products they sell are
complementray
DAT incoterms rules reflects the practice of companies that utilize ________ .
containers in international trade. Associate DAT with containers in international trade. Dat international trade container
_____ is not truly a method of entry into a country for an exporter.
contract manufacturing is not a true method of entry.
7. Sometimes a third bank, in addition to the issuing bank and the advising bank, becomes involved with a letter of credit. This bank is called a ___.
d. confirming bank
10. Credit terms can be considerably lengthened through ___.
d. international forfaiting
8. In judging whether or not a contract has been breached, the Uniform Commercial Code (UCC) applies the principle of "perfect tender." This means that ___.
d. the goods and their delivery must exactly conform to what was written in the contract
9. An agreement between an exporter and an agent may state that the laws of the exporter's country apply to governing of the contract. This can be complicated by ___.
d. the government of the country where the agent is located
Scope of Appointment (Element of Contract)
defines the functions that the representative will perform; it is the clause that spells out whether it will be an agency or a distributorship agreement.
Unless otherwise specified, contracts between an exporter and an agent and contracts between an exporter and a distributor are called
distribution contracts
During documentary collection the exporter can give the documents to the importer in exchange for a signature on draft. This type of transaction is called
documents against acceptance or d/a
During documentary collection the exporter can give the documents to the importer in exchange for the payment. This transaction is called
documents against payment or d/p
9. DAT is an Incoterm designed specifically for ___.
e. containerized transportation
4. As a theory of exchange rate determination, the Fisher effect
e. holds that a country's nominal interest rate is comprised of the inflation rate and the real interest rate of money, essentially identical for all countries.
10. Under the DDP, unloading costs are borne by the ___.
e. importer DDP unloading cost borne by the importer
6. The Incoterm DAP specifies what regarding delivery?
e. who unloads the goods from the means of conveyance
Courts generally look at two criteria to determine if a contract is international. Those criteria are
economic and judicial criteria
International fisher effect
economic theory that holds that the spot exchange rates between two countries' currencies should change in function of the differences between these two countries' nominal interest rates. If a country has a higher nominal interest rate, it means (based on the Fisher effect), that it has a higher inflation rate. Therefore, if a country has a higher nominal interest rate than other countries, the value of that country's currency will decrease over time.
Choosing the correct incoterms rule depends on which _______ _______ a company is following.
export strategy
2. The choice of the Incoterm is almost always the decision of the ___.
exporter
2. When an international distribution contract between an exporter and an agent/distributor is terminated for "just cause," in most cases the termination is made by the ___.
exporter
When an international distribution contract between an exporter and an agent/distributor is terminated for "just cause," in most cases the termination is made by the
exporter
Under contract law the court will settle disputes by:
following the terms of the contract.
10. One strategy a company can follow to protect itself from currency fluctuations is use of
forward market hedges forward market hedges protect a company from currency fluctuations.
The following mathematical expression Ft + 1(et) = S(et + 1) is of what theory of exchange rate determination?
forward rate as unbiased predictor of spot rate.
2. In the United States, the Wall Street Journal publishes the forward rates for the currencies of _____ countries.
four
The lack of personal contact in international trade makes it hard to ______________-
get to know a person
As a theory of exchange rate determination, the Fisher effect
holds that a country's nominal interest rate is comprised of the inflation rate and the real interest rate of money, essentially identical for all countries.
The instruction letter is part of the documentary collection ___.
in which the exporter, through the remitting bank, tells the presenting bank what it is expected to accomplish.
A forward market hedge
involves selling forward the currency necessary to cover a foreign payable. A forward market hedge consists of selling forward the currency that will eventually be collected from a foreign receivable.
The International Bank for Reconstruction ___.
is also known as the World Bank
Uniform Commercial Code
is the commercial law of the United States. This is the law that is used to form contracts in domestic transactions. The UCC and the CISG are different in its provisions. CISG has different provisions and the United States has only partially ratified the CISG.
When a company is engaged in an international transaction and agrees to use a foreign currency to conduct the transaction
it is exposed to a certain amount of risk.
When the advising bank checks the documents against the letter of credit and notices discrepancies between the documents submitted by the exporter and the documents requested by the letter of credit ______________________________
it is only after the letter of credit has been amended with the agreement of all parties that the advising bank forwards the documents to the issuing bank.
Because agents tend to be individuals or very small firms, governments in some countries put them under
labor law.
The idea that containerized ocean cargo needs to take a shortcut across a landmass by rail has resulted in the development of
land bridges,
An aval
makes the presenting bank a co-signer of a draft.
A stand by letter of credit covers more than ______________
one shipment; it allows for multiple bills of lading, issued on different dates. With stand by letters of credit the bank is obligated to pay if the exporter presents the documents required by the letter of credit and the importer has not paid. The bank that issues the letter of credit is obligated to pay the importer, if the importer provides documents showing that the exporter has not performed its obligations
A draft is a promissory note (also called a bill of exchange) with which the importer promises to __________________________
pay the exporter within a defined timeframe.
During documentary collection the importers bank is called the
presenting bank
The risk that an exporter takes in requesting cash in advance as a means of payment ___.
puts the exporter at a competitive disadvantage. (This puts more stress on the importer so they are more likely to choose a different exporter.)
TradeCard makes no payment to the exporter until TradeCard has
received all documents and they are in order.
Which of the following is an emerging element of international logistics, according to the author, although it is fully part of domestic logistics, according to the CSCMP?
reverse logistics.
Under the Incoterms® Rule FOB, responsibility for the cargo
shifts from exporter to importer when the goods are loaded onto the ship in the country from which the goods are leaving.
With this type of draft the importer has to pay the exporter immediately.
sight draft
The international monetary fund has an artificial currency called a
special drawing rights SDR's value is determined by a basket of four currencies (U.S. dollar, European euro, British pound, and Japanese yen) SDR not often used by businesses Often used by governments to settle their debts with each other Also used in the settlement of disputes under the liability conventions of ocean cargo shipping
Choice of venue (Choice of Forum) (Element of Contract)
specifies the location of the COURT that will be used to render a judgment in the case of a dispute. It is generally in the country whose laws are specified in the "Choice of Law" clause.
Choice of Law (Element of Contract)
specifies which country's laws will be used in the case of a dispute between the exporter and the agent or distributor.
Corporate Accounts (Element of Contract)
specifies which customers the exporter will continue to sell directly, and to which agents or distributors are not allowed to sell.
Facilities and Activities (Element of Contract)
spells out what specific facilities an agent or a distributor will maintain (buildings, store, inventory) , and what specific activities each (exporter and agent or distributor) is authorized and expected to perform.
In an options market hedge there is the option to sell or purchase certain currencies at a certain exchange rate either on or before a certain date. The agreed-upon exchange rate is called the
strike price
When a party to a contract is continually looking for loopholes to avoid living up to the obligations of that contract, it can be said that
that party is not acting in good faith
What is a swap rate
the method used by banks and other financial institutions to express a forward exchange rate and is expressed in points
Letters of credit are frequently used in international transactions especially in cases where ____________________________________
the exporter has no pre-existing business relationship with the importer.
An agreement between an exporter and an agent/distributor may state that the laws of the exporter's country apply to governing of the contract. This can be complicated by
the government of the country where the agent/distributor is located, as it may say it has jurisdiction over the contract
An agreement between an exporter and an agent/distributor may state that the laws of the exporter's country apply to governing of the contract. This can be complicated by
the government of the country where the agent/distributor is located, as it may say it has jurisdiction over the contract.
Whats an outright rate?
the rate at which a commercial customer would purchase the currency
Transaction exposure is
the risk represented by the fluctuation in exchange rates
Hedging is a term used to represent techniques designed to reduce _____________________
the uncertainty of the exchange rate fluctuations
One of the differences between the Delivered At Terminal Incoterms® Rule and the Delivered At Place Incoterms® Rule
the unloading costs are borne by the exporter under DAP and by the importer under DAT.
In valuing a currency, the direct quote is
the value of the foreign currency expressed in units of the domestic currency.
Lex mercatoria is
trade law made up of a multitude of different sources of law and jurisprudence
The United Nations Convention on Contracts for the International Sale of Goods (CISG) considers a contract to have been accepted
when a contract has been accepted until both parties agree to all of its terms.
Incoterms® Rules determine
which tasks will be perform by who.
