Question 1

________ is the risk that interest rates will change between signing the contract and payment for goods and services.

Accepted Answer

A)  Currency risk 
B)  Risk of non-completion 
C)  Default risk 
D)  Portfolio risk 
A)  Currency risk 
B)  Risk of non-completion 
C)  Default risk 
D)  Portfolio risk A

Question 2

Instruction 20.1:
Use the information to answer following question(s).
Jackson Automotive Inc. of California agrees to sell specialized automotive parts to Hidatsi of Korea. Because the two companies have never done business with each other, Jackson 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 Jackson Inc. chooses to discount or sell the bankers acceptance to its bank, the discount rate is 1.00% per annum.
-Refer to Instruction 20.1. What is the size of the commission Jackson Automotive will pay the bank for the banker's acceptance?

Accepted Answer

A)  $7,000 
B)  $5,000 
C)  $12,000 
D)  $14,000 
A)  $7,000 
B)  $5,000 
C)  $12,000 
D)  $14,000 A

Question 3

Because most international transactions are between affiliated parties, international transaction contracts are less complex, but the management of the total value of the MNE is more complex.

Accepted Answer

A) True 
 B)False  True

Question 4

A signed ________ is issued by the exporter and contains a precise description of the merchandise.

Accepted Answer

A)  packing list 
B)  bill of lading 
C)  commercial invoice 
D)  banker's acceptance 
A)  packing list 
B)  bill of lading 
C)  commercial invoice 
D)  banker's acceptance

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The letter of credit is designed to

Accepted Answer

A)  allow the buyer to obtain title to the goods before they are received. 
B)  free the seller from concerns over the payment abilities of the buyer. 
C)  free the seller from any merchandise guarantees. 
D)  be issued by the bank at the request of an exporter. 
A)  allow the buyer to obtain title to the goods before they are received. 
B)  free the seller from concerns over the payment abilities of the buyer. 
C)  free the seller from any merchandise guarantees. 
D)  be issued by the bank at the request of an exporter.

Question 7

When a confirmed letter of credit is used, the exporting firm gains because

Accepted Answer

A)  the government in effect subsidizes shipping costs. 
B)  the time involved in shipping is generally reduced. 
C)  the firm can sell against the promise of a local bank rather than a firm. 
D)  the exporting firm is considered of higher risk. 
A)  the government in effect subsidizes shipping costs. 
B)  the time involved in shipping is generally reduced. 
C)  the firm can sell against the promise of a local bank rather than a firm. 
D)  the exporting firm is considered of higher risk.

Question 8

Most drafts in international trade are "clean."

Accepted Answer

A) True 
 B)False

Question 9

________ drafts are unaccompanied by any other documents, and are usually used between MNEs and ________.

Accepted Answer

A)  Clean; new trading partners 
B)  Documentary; their own affiliates 
C)  Clean; their own affiliates 
D)  None of the above 
A)  Clean; new trading partners 
B)  Documentary; their own affiliates 
C)  Clean; their own affiliates 
D)  None of the above

Question 10

Which of the following is NOT a requirement for a draft to become a negotiable instrument?

Accepted Answer

A)  It must be payable to order or to bearer. 
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)  All of the above. 
A)  It must be payable to order or to bearer. 
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)  All of the above.

Question 11

An exporter has just received a banker's acceptance created by an international transaction. If the banker's acceptance has a face value of $250,000, current rates on banker's acceptances are 6%, and the bank charges a commission of 1% per annum, how much will the exporter receive if he sells the acceptance in the secondary market six months prior to maturity?

Accepted Answer

A)  $250,000 
B)  $244,000 
C)  $242,500 
D)  $241,250 
A)  $250,000 
B)  $244,000 
C)  $242,500 
D)  $241,250

Question 12

A bill of exchange or draft drawn on a bank and commonly used to guarantee exporters that they will receive payment on goods delivered to importers is a/an

Accepted Answer

A)  banker's acceptance. 
B)  clean draft. 
C)  bill of lading. 
D)  letter of credit. 
A)  banker's acceptance. 
B)  clean draft. 
C)  bill of lading. 
D)  letter of credit.

Question 13

Instruction 20.1:
Use the information to answer following question(s).
Jackson Automotive Inc. of California agrees to sell specialized automotive parts to Hidatsi of Korea. Because the two companies have never done business with each other, Jackson 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 Jackson Inc. chooses to discount or sell the bankers acceptance to its bank, the discount rate is 1.00% per annum.
-Refer to Instruction 20.1. What is the size of the discount (not including the commission fee) Jackson must take for receiving the proceeds of the sale today rather than waiting for six months?

Accepted Answer

A)  $7,000 
B)  $5,000 
C)  $12,000 
D)  $14.000 
A)  $7,000 
B)  $5,000 
C)  $12,000 
D)  $14.000

Question 14

Which of the following documents is NOT part of a system designed to protect both the importer and exporter from non-completion of trade?

Accepted Answer

A)  letter of credit 
B)  draft 
C)  bill of lading 
D)  All of the above are important protective documents. 
A)  letter of credit 
B)  draft 
C)  bill of lading 
D)  All of the above are important protective documents.

Question 15

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

Accepted Answer

A)  drawee. 
B)  drawer. 
C)  maker. 
D)  originator. 
A)  drawee. 
B)  drawer. 
C)  maker. 
D)  originator.

Question 16

A/An ________ letter of credit is intended to serve as a means of arranging payment, but not as a guarantee of payment.

Accepted Answer

A)  irrevocable 
B)  revocable 
C)  confirmed 
D)  unconfirmed 
A)  irrevocable 
B)  revocable 
C)  confirmed 
D)  unconfirmed

Question 17

In the United States, the Foreign Credit Insurance Corporation

Accepted Answer

A)  is a subsidiary of the Export-Import Bank. 
B)  provides letters of credit for U.S. importers. 
C)  provides letters of credit for U.S. exporters. 
D)  provides policies that protect U.S. exporters against default by foreign importers. 
A)  is a subsidiary of the Export-Import Bank. 
B)  provides letters of credit for U.S. importers. 
C)  provides letters of credit for U.S. exporters. 
D)  provides policies that protect U.S. exporters against default by foreign importers.

Question 18

The Foreign Credit Insurance Association is a branch of the U.S. federal government.

Accepted Answer

A) True 
 B)False

Question 19

A letter of credit that is confirmed in the ________ country has the additional advantage of eliminating the problem of ________.

Accepted Answer

A)  exporter's; portfolio risk 
B)  importer's; blocked foreign exchange 
C)  exporter's; blocked foreign exchange 
D)  none of the above 
A)  exporter's; portfolio risk 
B)  importer's; blocked foreign exchange 
C)  exporter's; blocked foreign exchange 
D)  none of the above

Question 20

A/An ________ letter of credit is an obligation only of the issuing bank whereas other banks honor a/an ________ letter of credit.

Accepted Answer

A)  irrevocable; unconfirmed 
B)  revocable; confirmed 
C)  confirmed; irrevocable 
D)  unconfirmed; confirmed 
A)  irrevocable; unconfirmed 
B)  revocable; confirmed 
C)  confirmed; irrevocable 
D)  unconfirmed; confirmed

________ is the risk that interest rates will change between signing the contract and payment for goods and services.

Because most international transactions are between affiliated parties, international transaction contracts are less complex, but the management of the total value of the MNE is more complex.

A signed ________ is issued by the exporter and contains a precise description of the merchandise.

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

The letter of credit is designed to

When a confirmed letter of credit is used, the exporting firm gains because

Most drafts in international trade are "clean."

drafts are unaccompanied by any other documents, and are usually used between MNEs and .

Which of the following is NOT a requirement for a draft to become a negotiable instrument?

A bill of exchange or draft drawn on a bank and commonly used to guarantee exporters that they will receive payment on goods delivered to importers is a/an

Which of the following documents is NOT part of a system designed to protect both the importer and exporter from non-completion of trade?

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

A/An ________ letter of credit is intended to serve as a means of arranging payment, but not as a guarantee of payment.

In the United States, the Foreign Credit Insurance Corporation

The Foreign Credit Insurance Association is a branch of the U.S. federal government.

A letter of credit that is confirmed in the country has the additional advantage of eliminating the problem of .

A/An letter of credit is an obligation only of the issuing bank whereas other banks honor a/an letter of credit.

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

Multinational Tax Management

Working Capital Management

Filters

Exam 20: International Trade Finance

________ is the risk that interest rates will change between signing the contract and payment for goods and services.

Because most international transactions are between affiliated parties, international transaction contracts are less complex, but the management of the total value of the MNE is more complex.

A signed ________ is issued by the exporter and contains a precise description of the merchandise.

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

The letter of credit is designed to

When a confirmed letter of credit is used, the exporting firm gains because

Most drafts in international trade are "clean."

________ drafts are unaccompanied by any other documents, and are usually used between MNEs and ________.

Which of the following is NOT a requirement for a draft to become a negotiable instrument?

A bill of exchange or draft drawn on a bank and commonly used to guarantee exporters that they will receive payment on goods delivered to importers is a/an

Which of the following documents is NOT part of a system designed to protect both the importer and exporter from non-completion of trade?

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

A/An ________ letter of credit is intended to serve as a means of arranging payment, but not as a guarantee of payment.

In the United States, the Foreign Credit Insurance Corporation

The Foreign Credit Insurance Association is a branch of the U.S. federal government.

A letter of credit that is confirmed in the ________ country has the additional advantage of eliminating the problem of ________.

A/An ________ letter of credit is an obligation only of the issuing bank whereas other banks honor a/an ________ letter of credit.

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

Multinational Tax Management

Working Capital Management

Filters

drafts are unaccompanied by any other documents, and are usually used between MNEs and .

A letter of credit that is confirmed in the country has the additional advantage of eliminating the problem of .

A/An letter of credit is an obligation only of the issuing bank whereas other banks honor a/an letter of credit.