Exam 20: International Trade Finance

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 time draft is payable on presentation to the drawee; the drawee must pay at once or dishonor the draft. A sight draft, allows a delay in payment.

Drafts that have been accepted by banks become:

A revocable L/C is intended to serve as a means of arranging payment but not as a guarantee of payment.

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

Today, international trade is dominated by transactions between unaffiliated parties (known or unknown).

A straight bill of lading is most likely to be used under which of the following circumstances?

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

To constitute a true letter of credit transaction, the issuing bank must receive a fee or other valid business consideration for issuing the L/C.

________ is a specialized technique to eliminate the risk of nonpayment by importers in instances where the importing firm and/or its government is perceived by the exporter to be too risky for open account credit.

Instruction 20.1: 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 bankers acceptance to its bank, the discount rate is 1.00% per annum. -Refer to Instruction 20.1. ________ is an unsecured promissory note.

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

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

The Export-Import Bank is an independent agency of the U.S. government established in 1934 to:

If a foreign exchange transaction calls for payment in the importer's currency, the exporter has the foreign exchange risk.

To become a negotiable instrument, a draft must conform to the following requirements EXCEPT:

A draft is sometimes called a revocable letter of credit.

If a foreign exchange transaction calls for payment in the exporter's currency, the importer has the foreign exchange risk.

Which of the following is NOT a financial instrument that may be included in an international trade transaction?

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