Chapter 16
A letter of credit that is confirmed in the ________ country has the additional advantage of eliminating the problem of ________. a. exporter's; blocked foreign exchange b. importer's; blocked foreign exchange c. exporter's; portfolio risk d. none of the above
a
In a typical international trade transaction, the order of activity would be which of the following? a. The foreign buyer places an order; The domestic manufacturer ships to the buyer; The manufacturer's bank presents a draft and documents to the buyer's bank for acceptance; The buyer's bank submits payment to the manufacturer's bank. b. The foreign buyer places an order; The manufacturer's bank presents a draft and documents to the buyer's bank for acceptance; The domestic manufacturer ships to the buyer; The buyer's bank submits payment to the manufacturer's bank. c. the domestic manufacturer ships to the buyer; The buyer's bank submits payment to the manufacturer's bank; The foreign buyer places an order; The domestic manufacturer ships to the buyer; The manufacturer's bank presents a draft and documents to the buyer's bank for acceptance. d. The domestic manufacturer ships to the buyer; The manufacturer's bank presents a draft and documents to the buyer's bank for acceptance; The foreign buyer places an order; The buyer's bank submits payment to the manufacturer's bank.
a
In the United States, the Foreign Credit Insurance Corporation: a. provides policies that protect U.S. exporters against default by foreign importers. b. provides letters of credit for U.S. exporters. c. provides letters of credit for U.S. importers. d. is a subsidiary of the Exportminus−Import Bank
a
The exporter - importer relationship to a corporation of a foreign importer that has not previously conducted business with the firm would be an: a. unaffiliated unknown. b. affiliated party. c. unaffiliated known. d. any of the above
a
To become a negotiable instrument, a draft must conform to the following requirements EXCEPT: a. it must be written in English b. it must be payable on demand or at a fixed or determinable future date c. it must be in writing and signed by the maker or drawer d. it must be payable to order or to bearer
a
the export - Import Bank is an independent agency of the U.S. government established in 1934 to: a. facilitate and stimulate foreign trade of the United States. b. import agricultural products during the recession. c. ship money abroad. d. none of the above
a
Refer to Instruction 16.1. What is the total Cypress can expect to receive if the firm takes payment today? a. $996,000 b. $988,000 c. $995,000 d. $993,000
b
Rogue Spices Inc. has a Canadian receivables contract for $200,000 due in 270 days. The firm has been approached by a factoring firm that offers to purchase the receivables at a 12% per annum discount plus a 1% charge for a nonrecourse clause. What is the annualized percentage all in cost of this factoring alternative a. 12.00% b. 14.82% c. 13.00% d. 9.09%
b
The following parties are usually guarantors in forfaiting EXCEPT: a. government banks b. large commercial enterprises c. commercial banks d. government ministries of finance
b
Drafts that have been accepted by banks become: a. nonmarketable. b. clean drafts. c. banker's acceptances. d. none of the above
c
Polaris Corporation has made an agreement to ship goods to a foreign firm with whom they have not entered into a contract for three years. However, the firms have communicated regularly since the last sale three years ago. This is an example of an: a. affiliated party transaction. b. unaffiliated unknown party transaction. c. unaffiliated known party transaction. d. none of the above
c
Refer to Instruction 16.1. What is the size of the discount (not including the commission fee) Cypress must take for receiving the proceeds of the sale today rather than waiting for six months? a. $12,000 b. $7,000 c. $5,000 d. $14.000
c
The ________ is issued to the exporter by a common carrier transporting the merchandise. a. draft b. line of credit c. bill of lading d. banker's acceptance
c
Which of the following is NOT true about forfeiting? a. The political and commercial risk is carried by the guaranteeing bank. b. Exporter receives an unconditional cash payment at the time of the transaction. c. The exporter sells bankminus−guaranteed promissory notes at its face value. d. The exporter is responsible for the quality of delivered goods
c
Export receivables are normally sold at a discount. The size of the discount depends on the following factors EXCEPT: a. collection risk b. cost of credit insurance c. size of financing and services fees d. overdraft fees
d
The risk of default on the part of the importer - risk of noncompletion - is present as soon as: a. a price quote is given b. goods are received c. the export contract is signed d. the financing period begins
d
The risk of noncompletion is most important when: a. the international trade is recurrent in nature. b. with an outstanding agreement for recurring shipments. c. there is a sustained relationship between the buyer and seller. d. when the relationship is between countries whose currencies are considered strong.
d
Which of the following is NOT true regarding a letter of credit? a. The importer's bank cuts a sales contract based on its assessment of the creditworthiness of the importer. b. The importer applies to its local bank for the issuance of a letter of credit. c. The importer and exporter agree on a transaction. d. The exporter applies to its local bank for the issuance of a letter of credit.
d
A/An ________ letter of credit is an obligation only of the issuing bank whereas other banks honor a/an ________ letter of credit. a. revocable; confirmed b. irrevocable; unconfirmed c. confirmed; irrevocable d. unconfirmed; confirmed
d
A/An ________ letter of credit is intended to serve as a means of arranging payment, but not as a guarantee of payment. a. unconfirmed b. confirmed c. irrevocable d. revocable
d
