Chapter 16: Exporting, Importing, and Countertrade

b. Export credit

Brett's Bicycle Shop has decided to export products to Finland without using a letter of credit. One way the shop can insure against payment default would be to purchase ________ insurance. a. Drawee b. Export credit c. Sight draft d. Time draft

b. Counterpurchase

Caitlin's U.S. firm sold paint additives to Japan and in return her company was paid by Japan but is also required to purchase plastic products produced in Japan with some of the proceeds from the sale of the paint additive. This example demonstrates __________________. a. Franchising b. Counterpurchase c. Bartering d. Licensing

d. Financing; export credit insurance

The Export-Import Bank provides _____________ while the Foreign Credit Insurance Association provides __________________. a. Export credit insurance; financing b. Investment advice; liability insurance c. Liability insurance; investment advice d. Financing; export credit insurance

d. Small Business Administration

The Service Corps of Retired Executives is an organization within the _______________. a. Better Business Bureau b. United Nations c. Department of Homeland Security d. Small Business Administration

c) Matchmaker Explanation: The matchmaker program is just one of several programs the Department of Commerce organizes to help with potential exports.

The ____________ program organized by the Department of Commerce provides representatives who accompany groups of U.S. businesses abroad to meet with qualified agents, distributors, and customers. a) Diversification b) Benchmark c) Matchmaker

b) Barter.

The direct exchange of goods and/or services between two parties without a cash transaction refers to a) Counterpurchase. b) Barter. c) Offset. d) Switch trading.

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

What is the primary task of a freight forwarder? a. Assess and collect any government-based taxes b. Combine smaller shipments into a single large shipment to lower shipping costs c. Receive any good rejected by an importer and return it to the original manufacturer d. Review all goods imported into a country to find any illegal products

c. Packaging

An export __________ company can advise companies on the best design and materials for their product packages. These companies can also help minimize packaging to maximize the number of items to be shipped. a. Trading b. Customs c. Packaging d. Broker

d. Draft

An order written by an exporter which tells the importer to pay $4,975 by June 20th is an example of a(n) __________________. a. Piggyback rate b. Bill of lading c. Letter of credit d. Draft

a. Is obligated to provide a transportation service in return for a certain charge.

As a contract, the bill of lading specifies that the carrier a. Is obligated to provide a transportation service in return for a certain charge. b. Receives payment from a third-party such as bank of trading house. c. Has obtained the merchandise described on the face of the document. d. Provides a written promise of payment before releasing the merchandise.

c. Switch trading

Countertrade agreements can result in credits. These credits can be purchased by a third party which has a better use for them. What is the name given to this type of transaction? a. Offsets b. Barter c. Switch trading d. Counterpurchase

False

Exports account for a large percentage of U.S. firms' sales.

b. Customs brokers

Freestyle Performance Group is new to the exporting business and has no understanding of the customs requirements foreign countries might place on the athletic equipment they want to export. Which type of service provider can help the company with this problem? a. CIBER network b. Customs brokers c. Export trading company d. Export packaging company

a. Freight forwarder

Jason's company is involved with the international transportation of goods. The company is able to keep costs down for its customers because it combines smaller shipments from a variety of companies into one large shipment. Jason's company is an example of a __________________. a. Freight forwarder b. Confirming house c. Customs broker d. Piggyback marketer

False

Many foreign customers do not necessarily require face-to-face negotiation when conducting business.

a. Countertrade

One drawback of ______________ is that unsaleable or poor quality goods may be exchanged in place of payment of currency. a. Countertrade b. Joint ventures c. Arbitrage d. Licensing

a) Hire an export management company. Explanation: An export management company provides services to companies that have not previously exported and can help identify export opportunities.

One way for first-time exporters to identify the opportunities in exporting and to avoid many of the associated pitfalls is to a) Hire an export management company. b) Rely heavily on the in-house expertise that has proven to be the driver of the firm's previous success. c) Avoid the use of foreign distributors, who may not understand the exporter's business.

a. Export credit

One way to avoid payment default on a foreign export sent without a letter of credit is to purchase _______________ insurance. a. Export credit b. Draft credit c. Buyer action d. Import risk

True

True or False: Large revenue and profit opportunities abound in foreign markets for most firms in most industries.

d. Franchise

What is NOT a form of countertrade? a. Offset b. Barter c. Buyback d. Franchise

c. Is issued by a bank at the request of an importer. Explanation: Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular documents.

A letter of credit is a document that a. Is secured by the exporter after shipping the product shipment. b. Awards the title of a product to the importer. c. Is issued by a bank at the request of an importer. d. Is issued by the exporter to promise that he will allow a delay in payment.

b) Increasing levels of countertrade activities involving Venezuelan firms.

Given what you know about countertrade from your text, along with the information provided in the case above, identify which situation is most likely to be present in Venezuela. a) Increases in switch trading, but decreases in buyback arrangements. b) Increasing levels of countertrade activities involving Venezuelan firms. c) Surplus hard currency reserves. d) Looser capital controls.

c) U.S. Department of Commerce.

Honeywell, Goodrich, and UTC Aerospace are among the suppliers to Embraer. If these companies want to look for other export opportunities or information on exporting, the most comprehensive source of information in the United States is the a) Center for International Business Education and Research. b) Small Business Administration. c) U.S. Department of Commerce. d) Export management company.

d) Time draft. Explanation: If Embraer wants to delay payment on an import order, it should use a time draft. A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days.

If Embraer wants to delay payment on an import order, it should use a a) Sight draft. b) Future contract. c) Forward contract. d) Time draft.

c. Countertrade

If Saudi Arabia buys jets from Boeing and pays for the jets in crude oil, it is using __________ to structure the sale. a. Piggyback marketing b. A time draft c. Countertrade d. A letter of credit

b. Maker

If a US exporter writes a draft that instructs the Bank of Thailand to pay for merchandise shipped to Thailand, then the US exporter would be considered the __________ in this scenario. a. Timer b. Maker c. Walker d. Signer

a. Countertrade

In exchange for getting an order for commercial aircraft from Air India, Boeing might be required to buy aircraft doors from an Indian company. This is an instance of using ________ as a marketing tool. a. Countertrade b. Licensing c. Franchising d. A letter of credit

b. Foreign Credit Insurance Association (FCIA)

In the United States, export credit insurance is provided by the ________, an association of private commercial institutions operating under the guidance of the Export-Import Bank. a. Service Corps of Retired Executives (SCORE) b. Foreign Credit Insurance Association (FCIA) c. Ministry of International Trade and Industry (MITI) d. Department of Commerce (DOC)

d. Exporting

Kent told the management team that there were many opportunities for market expansion of their product in western Europe. He felt they should find a means to sell there and begin shipping product immediately. What entry mode is Kent interested in? a. Importing b. Joint venture c. Licensing d. Exporting

b. Export management company

Lisette runs a small perfume business and is interested in exporting but she does not have a large enough staff to expedite the marketing needed to do this. She could find an export specialist by working with a(n) _________________. a. SCORE program b. Export management company c. Freight forwarder d. Export legal assistance network

True

Many small and medium-sized firms are reactive toward exporting.

c. Commerce

Marcus is in charge of finding out all of the available export opportunities for his company. The best source for him to begin is the US Department of ________________. a. Security b. Trade c. Commerce d. Treasury

d. Barter

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

c. Barter

Michael's company would like to sell its products to a company in Nicaragua, but it fears that the company will not pay for the products in a timely manner. Instead of asking for cash, Michael's company decides to ask for a shipment of coffee and tobacco products in exchange for their products. What type of countertrade is Michael's company using? a. Offset b. Switch trading c. Barter d. Counterpurchase

c. Knowledge

Nathan was worried that his company was missing a lot of opportunity to sell their products in China because of the separation created by language, culture, and distance. In other words, his company had a lack of _________________. a. Metrics b. Financial expertise c. Knowledge d. Manufacturing

d. Buyback

Sharon works for a cereal manufacturing company. Her company recently built a manufacturing facility in Canada and agreed to take 15 percent of the cereal produced as partial payment over a ten-year period. What form of countertrade is her company pursuing? a. Offset b. Barter c. Countertrade d. Buyback

b. Countertrade

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

a. Lack of trust

Special mechanisms for financing exports and imports have been created to deal with the issue of __________________ that is present when firms deal with strangers. a. Lack of trust b. Employee turnover c. The bystander effect d. Cultural obligations

a. US Department of Commerce

The International Trade Administration is an organization within the _____________________. a. US Department of Commerce b. US Department of Labor c. US Department of Transportation d. US Department of Interior

a. Prospects

The US Department of Commerce would supply a business with a best ______________ list if the company was interested in learning more about potential foreign markets. a. Prospects b. Product c. Supply d. Status

a) The collapse of the bolivar.

The increase in the use of barter in Venezuela has been prompted by a) The collapse of the bolivar. b) The International Monetary Fund's demand for debt repayment. c) The looming bond maturation date. d) Rapidly falling inflation rates.

c. Trust

The letter of credit and a bill of lading are both financial devices that were created in a response to a lack of __________________ that can develop when companies export products. a. Empathy b. Conflict c. Trust d. Enthusiasm

True Reason: The letter of credit is a financial liability and could prevent an importer from borrowing bunds for other purposes.

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

False Reason: An offset is more attractive than a straight counterpurchase because it gives the exporter greater flexibility to choose the goods it wishes to purchase.

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

True Reason: Large firms tend to be more proactive, while small firms are more reactive.

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

False Reason: The Ex-Im Bank is an independent agency of the US government

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

False Reason: Even when countertrade is not the only option for structuring an export transaction, many countries prefer countertrade to cash deals.

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

b) The economic impact of the drop in global oil prices.

Venezuela's new reliance on barter as a mechanism for exchange reflects in part a) EU Central Bank currency manipulation effects. b) The economic impact of the drop in global oil prices. c) The rapid increase in Venezuela's GDP. d) The newly imposed export limits on Venezuelan firms.

b. Combined Readiness to Export

What does the acronym CORE represent? a. Combined Reaction to Empathy b. Combined Readiness to Export c. Corporate Responsibility Ethics d. Customer Relationship Entities

b. Export management companies

What firms are export specialists that handle all aspects of marketing for their clients? a. Export managing corporations b. Export management companies c. Multinational enterprises d. Export multinational companies

d. Trading goods for other goods when they can't be traded for money

What is an accurate description of countertrade? a. Converting the currency of the exporting to the currency of the importer b. Manufacturing goods in a foreign country to keep costs down c. Pulling in a third party to negotiate trade agreements d. Trading goods for other goods when they can't be traded for money

b. It specifies an amount to be paid and when it should be paid

What is the purpose of a bill of exchange? a. It guarantees payment from an importer to the exporter b. It specifies an amount to be paid and when it should be paid c. It is part of a letter of credit d. It is a bartering tool that replaces physical money

c. 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? a. Federal Reserve b. World Bank c. Export-Import Bank d. Foreign Credit Insurance Association

d. Upon presentation

When a drawee receives a sight draft it should be paid _________________. a. Within 30 days b. After all goods are returned c. At half of face value d. Upon presentation

a. Letter of credit

When an importer is in a strong bargaining position and is pitting competing suppliers against one another, an exporter might be forced to forego a(n) ___________ in order to get the order. a. Letter of credit b. Bill of exchange c. Drawee d. Arbitration

b. 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 ____________ draft. a. Sight b. Time c. Place d. Line

c. Department of Commerce

Which department of the US federal government provides the most all-inclusive source of information regarding export opportunities? a. Federal Trade Regulations Office b. The Food and Drug Administration c. Department of Commerce d. Department of Homeland Security

d. CORE

Which diagnostic tool on globalEDGE helps firms assess their exporting proficiency and identifies the firm's strengths and weaknesses within the context of exporting? a. PARTNER b. FREIGHT c. DISTRIBUTOR d. CORE

b. Bill of lading

Which document shows that a carrier has received the merchandise? a. Bill of interest b. Bill of lading c. Bill of exchange d. Letter of credit

c. Exporting

Which entry mode can expand the size of the market and achieve economies of scale while not adding too much risk? a. Franchising b. Acquisitions c. Exporting d. Greenfield ventures

c) Not knowing how big and where the opportunities are for exporting.

Which of the following is a huge barrier to exporting for small and medium-sized firms? a) Not having enough capacity to meet demands that would result from exporting. b) Having to rely on others, including outside experts and business owners in other countries to learn about exporting opportunities. c) Not knowing how big and where the opportunities are for exporting.

d. Service Corps of Retired Executives

Which organization oversees volunteers who have international trade experience and who use this experience to provide one-on-one counseling to active and new export businesses? a. US Commerce Department b. Department of Commerce c. World Trade Organization d. Service Corps of Retired Executives

d. Drawee

While a maker initiates a draft, the party of whom the draft is presented is called the ________________. a. Creditor b. Debtor c. Control d. Drawee

c) The dollar shortage in Venezuela made paying the bill in dollars very difficult.

Why did Venezuela's Health Minister offer to settle a $5 million bill to a group of pharmaceutical companies in the form of diamonds, golds, and coltan rather than cash? a) Prices are almost always more favorable when barter is used rather than cash. b) Increasing imports have created a shortage of euros. c) The dollar shortage in Venezuela made paying the bill in dollars very difficult. d) Declining exports have created a surplus of goods.

c) Be reactive and wait for opportunities to come to them.

With regard to exporting, studies have shown that unlike big firms, small and medium-sized firms tend to a) Seek out the market niches that big companies are overlooking. b) Achieve economies of scale by being strong in the domestic markets. c) Be reactive and wait for opportunities to come to them.

a. An offset

_________________ occurs when a firm agrees to purchase goods from any firm in a country where a sale has been made with a percentage of the proceeds from an original sale. a. An offset b. Switch trading c. Counterpurchase d. Bartering

d. Letter of credit

Gina's company is in competition with four other suppliers who are trying to get similar products into France. One way Gina's company could boost its appeal with the importer would be to forgo a ________________. a. Tax allowance b. Loan guarantee c. Bill of lading d. Letter of credit

d. Letter of credit

At the request of the importer, the national bank paid the exporting company upon presentation of the documents that had been issued. What document did the importer request? a. Bill of lading b. Bill of exchange c. Letter of lading d. Letter of credit

True

By expanding the size of the market, exporting can enable firms to achieve economies of scale.

d) A letter of credit Explanation: A letter of credit can introduce trust into the importer/exporter relationship. Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents.

Embraer is one of Brazil's biggest importers. Which mechanism can help introduce trust into the relationship between an importer and an exporter? a) A bill of exchange b) A customs declaration c) The SBA d) A letter of credit

c) Excessive foreign market knowledge Explanation: Common pitfalls for exporters include poor market analysis, a poor understanding of competitive conditions in the foreign market, a failure to customize the product offering to the needs of foreign customers, a lack of an effective distribution program, a poorly executed promotional campaign, and problems securing financing.

Embraer relies on a large number of exporters for the raw materials for its aircraft. Which is not a common pitfall of exporters? a) A lack of an effective distribution program b) Problems securing financing c) Excessive foreign market knowledge d) A poorly executed promotional campaign

d) Export management companies

Exporters to Brazil, headquarters of Embraer, face numerous trade barriers. For help, they should utilize ________ which are export specialists that act as an export marketing company for client firms. a) Export agents b) The U.S. Trade Department c) Trade facilitators d) Export management companies

True

Many novice exporters underestimate the time and expense needed to cultivate business in foreign countries.

True Reason: By focusing on one market when initially entering the export market, a company will minimize the amount of risk it is undertaking. A firm that enters many markets at once runs the risk of spreading its limited management resources too thin.

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

b. Countertrade

What did the Soviet Union rely on to purchase imports in the 1960s since its currencies were generally nonconvertible? a. Joint ventures b. Countertrade c. Acquisitions d. Licensing