Question 1

Explain what a letter of credit (L/C) is, who the principle parties are, what the principle advantage is, and how the L/C facilitates international trade.

Accepted Answer

A letter of credit (L/C) is a bank's conditional promise to pay issued by a bank at the request of an importer. The primary advantage of an L/C is the reduction in risk. This reduction in risk makes it easier for the exporter to sell goods to the importer because it no longer need rely on the ability of the importing firm to pay for the goods, but rather it can rely on the bank.
There are three primary parties involved with a letter of credit. Party number one is the exporter, who makes a sale to the importer in exchange for the bank's L/C. Party number two is the importer who receives the goods and promises to pay the bank. And third, the bank that contracts with the importer and agrees to pay the exporter upon presentation of documents as specified in the L/C.
The advantage to an exporter is the increased likelihood of receiving payment because funds are due from a known international commercial bank as opposed to a relatively unknown importer. Furthermore, an exporter with a good reputation for delivery may be able to sell the L/C at a discount in the secondary market prior to shipping and speed up cash flow.
The importer benefits because it doesn't need to pay for goods purchased until they actually reach port. The bank benefits from the fees they charge.

Question 2

A Firm sells its 90 days receivables through recourse base factoring thus

Accepted Answer

A)  it avoids the costs of determining counterparty creditworthiness. 
B)  increases political and FX risk. 
C)  receives cash proceeds at lower cost compared to standard credit line. 
D)  accepts the risk that not all receivables will be collected. 
A)  it avoids the costs of determining counterparty creditworthiness. 
B)  increases political and FX risk. 
C)  receives cash proceeds at lower cost compared to standard credit line. 
D)  accepts the risk that not all receivables will be collected. D

Question 3

A banker's acceptance is a ________ that has been accepted by a bank.

Accepted Answer

A)  credit certificate 
B)  time draft 
C)  line of credit 
D)  bill of lading 
A)  credit certificate 
B)  time draft 
C)  line of credit 
D)  bill of lading B

Question 4

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 5

The ________ is the instrument normally used to actually effect payment in international commerce.

Accepted Answer

A)  banker's acceptance 
B)  bill of exchange 
C)  bill of lading 
D)  letter of credit 
A)  banker's acceptance 
B)  bill of exchange 
C)  bill of lading 
D)  letter of credit

Question 6

Custom Granite 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?

Accepted Answer

A)  14.82% 
B)  13.00% 
C)  12.00% 
D)  9.09% 
A)  14.82% 
B)  13.00% 
C)  12.00% 
D)  9.09%

Question 7

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 8

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 9

The main disadvantage of the Letter of Credit (L/C) is

Accepted Answer

A)  L/C reduces counterparty and foreign exchange risk. 
B)  L/C can serve as collateral for pre-export financing vehicle. 
C)  L/C can entail significant bank fees and reduce borrowing line of credit. 
D)  All of the above 
A)  L/C reduces counterparty and foreign exchange risk. 
B)  L/C can serve as collateral for pre-export financing vehicle. 
C)  L/C can entail significant bank fees and reduce borrowing line of credit. 
D)  All of the above

Question 10

The essence of forfaiting is the non-recourse sale by an exporter of bank-guaranteed promissory notes, bills of exchange, or similar documents received from an importer in another country.

Accepted Answer

A) True 
 B)False

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 and the bank charges a commission of 1% per annum, how much will the exporter receive from the banker if the acceptance is held until maturity six months from today?

Accepted Answer

A)  $250,000 
B)  $247,500 
C)  $248,750 
D)  $1,250 
A)  $250,000 
B)  $247,500 
C)  $248,750 
D)  $1,250

Question 12

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

Question 13

Most drafts in international trade are "clean."

Accepted Answer

A) True 
 B)False

Question 14

The nature of the relationship between the exporter and the importer is critical to understanding the methods for import-export financing utilized in industry. Provide an overview of the three categories of relationships: unaffiliated unknown, unaffiliated known, and affiliated.

Accepted Answer

A foreign importer with which a firm has

Question 15

The draft is the instrument normally used in international commerce to

Accepted Answer

A)  transfer product. 
B)  prove ownership. 
C)  transfer title. 
D)  initiate the sale. 
A)  transfer product. 
B)  prove ownership. 
C)  transfer title. 
D)  initiate the sale.

Question 16

An instrument issued by a bank, at the request of an importer, in which the bank promises to pay a beneficiary upon presentation of specified documents is a

Accepted Answer

A)  time certificate of deposit. 
B)  time draft. 
C)  sight draft. 
D)  letter of credit. 
A)  time certificate of deposit. 
B)  time draft. 
C)  sight draft. 
D)  letter of credit.

Question 17

________ 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

Question 18

Which of the following purposes is NOT served by the bill of lading?

Accepted Answer

A)  It acts as a receipt. 
B)  It acts as a contract. 
C)  It acts as a document of title. 
D)  It acts as all of the above. 
A)  It acts as a receipt. 
B)  It acts as a contract. 
C)  It acts as a document of title. 
D)  It acts as all of the above.

Question 19

The three parties to a letter of credit are

Accepted Answer

A)  issuing bank, seller, and applicant. 
B)  importer, exporter, and shipping company. 
C)  notary public, importer, and importer's bank. 
D)  Ex-Im bank, commercial bank, and importer. 
A)  issuing bank, seller, and applicant. 
B)  importer, exporter, and shipping company. 
C)  notary public, importer, and importer's bank. 
D)  Ex-Im bank, commercial bank, and importer.

Question 20

Which of the following relationships between importing and exporting parties would require the least detailed contract to conduct business?

Accepted Answer

A)  affiliated party 
B)  unaffiliated unknown party 
C)  known unaffiliated party 
D)  domestic supplier 
A)  affiliated party 
B)  unaffiliated unknown party 
C)  known unaffiliated party 
D)  domestic supplier

Explain what a letter of credit (L/C) is, who the principle parties are, what the principle advantage is, and how the L/C facilitates international trade.

A Firm sells its 90 days receivables through recourse base factoring thus

A banker's acceptance is a ________ that has been accepted by a bank.

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

The ________ is the instrument normally used to actually effect payment in international commerce.

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

The main disadvantage of the Letter of Credit (L/C) is

The essence of forfaiting is the non-recourse sale by an exporter of bank-guaranteed promissory notes, bills of exchange, or similar documents received from an importer in another country.

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

Most drafts in international trade are "clean."

The nature of the relationship between the exporter and the importer is critical to understanding the methods for import-export financing utilized in industry. Provide an overview of the three categories of relationships: unaffiliated unknown, unaffiliated known, and affiliated.

The draft is the instrument normally used in international commerce to

An instrument issued by a bank, at the request of an importer, in which the bank promises to pay a beneficiary upon presentation of specified documents is a

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

Which of the following purposes is NOT served by the bill of lading?

The three parties to a letter of credit are

Which of the following relationships between importing and exporting parties would require the least detailed contract to conduct business?

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 15: International Trade Finance

Explain what a letter of credit (L/C) is, who the principle parties are, what the principle advantage is, and how the L/C facilitates international trade.

A Firm sells its 90 days receivables through recourse base factoring thus

A banker's acceptance is a ________ that has been accepted by a bank.

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

The ________ is the instrument normally used to actually effect payment in international commerce.

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

The main disadvantage of the Letter of Credit (L/C) is

The essence of forfaiting is the non-recourse sale by an exporter of bank-guaranteed promissory notes, bills of exchange, or similar documents received from an importer in another country.

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

Most drafts in international trade are "clean."

The nature of the relationship between the exporter and the importer is critical to understanding the methods for import-export financing utilized in industry. Provide an overview of the three categories of relationships: unaffiliated unknown, unaffiliated known, and affiliated.

The draft is the instrument normally used in international commerce to

An instrument issued by a bank, at the request of an importer, in which the bank promises to pay a beneficiary upon presentation of specified documents is a

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

Which of the following purposes is NOT served by the bill of lading?

The three parties to a letter of credit are

Which of the following relationships between importing and exporting parties would require the least detailed contract to conduct business?

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

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.