Exam 16: International Trade Finance

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

Essentially,the Eximbank lends dollars to borrowers inside the United States for the purchase of U.S.goods and services.

In the case of international trade,the risk of nonpayment is essentially eliminated with the use of a letter of credit issued through a trustworthy bank.

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 16.1.________ is an unsecured promissory note.

The ________ is issued to the exporter by a common carrier transporting the merchandise.

Success of the forfaiting technique springs from the belief that the aval can be depend on.

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

Export credit insurance provides assurance to the exporter or the exporter's bank that,should the foreign customer default on payment,the insurance company will pay for a major portion of the loss.

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

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 16.1.What is the total Cypress can expect to receive if the firm takes payment today?

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

The Eximbank does all of the following EXCEPT:

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

From a financial management perspective,all of the following are primary risks associated with an international trade transaction EXCEPT:

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.

________ 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.

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

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?

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