Exam 16: International Trade Finance

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.

To constitute a true letter of credit transaction,the bank's commitment must be open-ended and cannot have a stated maximum amount of money.

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.

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

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 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?

The exporter-importer relationship to a corporation of a foreign importer that has not previously conducted business with the firm would be an:

The risk of noncompletion is most important when:

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

Banker's acceptances are used to finance only international trade receivables but not domestic trade receivables.

Recourse means that the factor assumes the credit,political,and foreign exchange risk for the receivables it purchases.

The European Union recommends maximum credit terms for many items including,for example,heavy capital goods (five years),light capital goods (three years),and consumer durable goods (one year).

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

The person or company initiating the draft or bill of exchange is known as the:

An overdraft agreement allows a firm to overdraw its bank account up to the limit of its credit line.

Why might different documentation be used for an export to a nonaffiliated foreign buyer who is a new customer,as compared with an export to a nonaffiliated foreign buyer to whom the exporter has been selling for many years?

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

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.

The following parties are usually guarantors in forfaiting EXCEPT:

What is a banker's acceptance? How are they initiated? Why are they desirable for the exporter?