Exam 16: International Trade Finance

For what reason might an exporter use standard international trade documentation (letter of credit, draft, order bill of lading) on an intrafirm export to its parent or sister subsidiary?

The draft is the instrument normally used in international commerce to:

A letter of credit is an agreement by the bank to pay against documents rather than the actual merchandise.

Which of the following is NOT true about forfaiting?

Use the information to answer the following question(s). Cypress Systems Inc., of Florida, agrees to sell specialized hydroponic growing equipment to Landcaster's of Australia. Because the two companies have never done business with each other, Cypress requires a banker's acceptance as payment for the $1,000,000 order. The banker's acceptance carries a 1.4% commission per annum and payment is to be received in 6 months. If Cypress Inc. chooses to discount or sell the banker's acceptance to its bank, the discount rate is 1.00% per annum. -Refer to Instruction 16.1. ________ is an unsecured promissory note.

A draft is sometimes called a revocable letter of credit.

In effect, the forfaiter functions both as a money market firm and a specialist in packaging financial deals involving country risk.

The person or company to whom the draft or bill of exchange is addressed is the:

The major advantage of a letter of credit to the exporter is that the exporter does not receive any funds until the documents have arrived at a local port or airfield.

The Eximbank does all of the following EXCEPT:

To constitute a true letter of credit transaction, the bank's L/C must contain a specified expiration date or a definite maturity.

Use the information to answer the following question(s). Cypress Systems Inc., of Florida, agrees to sell specialized hydroponic growing equipment to Landcaster's of Australia. Because the two companies have never done business with each other, Cypress requires a banker's acceptance as payment for the $1,000,000 order. The banker's acceptance carries a 1.4% commission per annum and payment is to be received in 6 months. If Cypress Inc. chooses to discount or sell the banker's acceptance to its bank, the discount rate is 1.00% per annum. -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/An ________ letter of credit is intended to serve as a means of arranging payment, but not as a guarantee of payment.

Which of the following is NOT true regarding a letter of credit?

Drafts that have been accepted by banks become:

In the United States, the Foreign Credit Insurance Corporation:

The Export-Import Bank (also called Eximbank) is an independent agency of the U.S. government, established in 1934 to stimulate and facilitate the foreign trade of the United States.

The primary advantage of a letter of credit is that it reduces risk.

The fundamental dilemma of foreign trade is being unwilling to trust a stranger in a foreign land.

The liability of the aval is an "on balance sheet" obligation for the endorsing bank.