49) Savannah Pecans is a fourth-generation family business. The company has concentrated on the
U.S. market by selling its products primarily in the United States but now wants to sell abroad. The
board of directors is hesitant about new markets because of their lack of knowledge regarding
foreign legal systems and languages. What is the likely reason behind this hesitation?
A) poor education
B) a lack of trust
C) tariff barriers
D) rapid
E) licensing arrangements
50) As an exporter, Horizon Trading wants to be paid before a consignment is shipped.
Correspondingly, its importer in Italy, Friggo Imports, wants to pay only upon receipt of the
consignment. These conflicting preferences of Horizon Trading and Friggo Imports are most
likely a manifestation of
A) corporate greed.
B) acculturation.
C) lack of trust.
D) cultural insensitivity.
E) countertrading opportunities.
51) A lack of trust between two parties engaged in international trade can be exacerbated by the
A) saturation of the domestic market.
B) similar preferences of the parties regarding how a transaction should be configured.
C) narrowing distance between the two parties due to technological advances.
D) problems of using an underdeveloped international legal system to enforce contractual
obligations.
E) possibility of doing business with someone with whom they have been associated for a long
time.
52) In terms of using a third party in international trade, title to the products is given to a bank by
the exporter in the form of a document known as a
A) merchandise bill.
B) bill of lading.
C) bill of exchange.
D) draft.
E) letter of credit.
53) Neptune Corp. is exporting for the first time to Australia and has contracted with Pinkerton
Imports in Melbourne for an initial order valued at $110,000. Neptune Corp. wants Pinkerton
Imports to secure a document from a Melbourne bank that indicates the bank will pay Neptune
Corp. $110,000 upon presentation of specified documents by the exporter. What document is
Neptune Corp. asking for?
A) bill of lading
B) time draft
C) letter of credit
D) sight draft
E) bill of exchange
54) What is the purpose of a letter of credit?
A) It states that the bank will pay a specified sum of money to a beneficiary on presentation of
particular, specified documents.
B) It is a document written by an exporter instructing an importer to pay a specified amount of
money at a specified time.
C) It serves as a receipt, a contract, and a document of title.
D) It indicates that the carrier has received the merchandise described on the face of the document.
E) It allows buyers to obtain possession of merchandise without signing a formal document
acknowledging his or her obligation to pay.
55) What is an advantage of having a letter of credit?
A) It allows payment for merchandise after its delivery.
B) It facilitates an exporter to obtain pre-export financing.
C) It allows an exporter to get a higher price for his or her goods.
D) It helps exporters incur lower shipping costs.
E) It does not require the importer to pay any fee.
56) Peterson Manufacturing wants to import a machine from Germany. However, the company’s
head of manufacturing is reluctant to spend the time required to obtain a letter of credit that the
German exporter insists on. You are the company’s CFO. What advantage of a letter of credit will
help convince the head of manufacturing that this is worthwhile?
A) The importer does not have to pay for the merchandise until the documents have arrived.
B) Obtaining pre-export financing becomes easier.
C) It helps the importer to get goods for a lower price.
D) It results in lower shipping costs.
E) The importer does not have to pay the third party a fee for facilitating the transaction.
57) For an importer, what is a disadvantage of using a letter of credit for international transactions?
A) It results in the importer losing control over the process of trading.
B) It reduces the exporter’s level of trust in the importer.
C) It reduces the importer’s ability to borrow funds for other purposes.
D) It requires the importer to repay the loan even before the merchandise is sold.
E) It is not issued at the importer’s request.
58) Tuf-Enuf Steel, a rapidly growing company, is looking to buy a large industrial furnace from
Thailand that is expected to cost $3 million. The exporter wants Tuf-Enuf Steel to produce a letter
of credit, but its CFO is reluctant to do so. What disadvantage of letter of credits is the likely reason
for the CFO’s reluctance?
A) It results in the importer losing control over the process of trading.
B) It reduces the exporter’s level of trust in the importer.
C) It reduces the importer’s ability to borrow funds for other purposes.
D) It requires the importer to repay the loan even before the merchandise is sold.
E) It is not issued at the importer’s request
59) Mulch-Rite Inc., based in Germany, has contracted with a company in Italy to export twenty
tons of mulch. Mulch-Rite has written an order requesting that the Italian company pay €15,000 by
June 15 prior to the shipping date. This order is an example of a
A) bill of lading.
B) draft.
C) letter of credit.
D) counterpurchase.
E) buyback.
60) How do international and domestic practices of settling trade transactions differ?
A) In an international transaction, a formal promise to pay is required before the buyer can obtain
the merchandise.
B) In an international transaction, the seller usually ships merchandise on an open account.
C) In a domestic transaction, a draft is used to settle trade transactions.
D) In an international transaction, the exporter sends a commercial invoice that specifies the
amount due and terms of payment to the importer.
E) In an international transaction, there is more trust between the exporter and the importer than in
a domestic transaction.
61) Jamal Steel, a rapidly growing small steel company with annual revenues of $8 million, is
looking to buy a large industrial furnace from Shinto Manufacturing, a Japan-based company.
Rather than have a letter of credit binding the two parties, both agree on a draft. In international
commerce, Shinto Manufacturing, the party initiating the draft, is known as the
A) maker.
B) drawee.
C) buyer
D) agent.
E) drafter.
62) Manatee Products, a U.S. company, is exporting to a Japanese company. The two parties agree
on a draft, but Manatee Products wants it to be a draft that is payable on presentation to the
Japanese company. Manatee Products is asking for a(n)
A) bill of lading.
B) sight draft.
C) letter of credit.
D) time draft.
E) offset.
63) When Carlton Company Inc. exported elevator component parts to a company in Taiwan, it
allowed the company 90 days to pay for the parts. This is an example of a(n)
A) sight draft.
B) time draft.
C) bill of lading.
D) counterpurchase.
E) offset.
64) When a time draft is presented to a drawee, the company signifies acceptance of it by
A) delivering the goods immediately.
B) paying the draft amount immediately.
C) providing a collateral for the amount specified in the bill.
D) writing or stamping a notice of acceptance on its face.
E) selling the draft to an investor at a discount from its face value.
65) Once accepted by the drawee, a time draft becomes a(n)
A) asset for the drawee.
B) in-transit bill.
C) promise to pay by the accepting party.
D) bill of lading.
E) letter of credit held by the bank.
66) When a time draft is drawn on and accepted by a bank, it is known as a
A) trade acceptance.
B) banker’s check.
C) banker’s acceptance.
D) bill of lading.
E) letter of credit.
67) When a time draft is drawn on and accepted by a business firm, it is known as a(n)
A) trade acceptance.
B) in-transit bill.
C) banker’s acceptance.
D) bill of lading.
E) letter of credit.
68) A time draft is a negotiable instrument, which means that it
A) has no value given the deferred nature of the document.
B) is generally not preferred in international transactions.
C) can be sold to an investor.
D) is also known as a bill of lading.
E) cannot be transferred.
69) A ________ is issued to an exporter by a common carrier transporting the merchandise and
serves as a receipt, a contract, and a document of title.
A) bill of lading
B) collateral title
C) draft
D) letter of credit
E) bill of exchange
70) When a bill of lading specifies that the carrier is obligated to provide a transportation service in
return for a certain charge, it is acting as a
A) contract.
B) receipt.
C) document of title.
D) letter of credit.
E) bill of exchange.
71) Pro-Racquets has a bill of lading for an order of 10,000 tennis rackets it will be exporting to a
foreign distributor. The company takes this bill of lading to the local bank and uses it to obtain
funds to hold the company over until final payment is received from the foreign distributor. In this
situation, the bill of lading is being used as
A) collateral.
B) licensing.
C) a draft.
D) a contract.
E) a receipt.
72) When a bill of lading is used to obtain payment or a written promise of payment before the
merchandise is released to the importer, it serves as a
A) document of title.
B) contract.
C) receipt.
D) time draft.
E) collateral.
73) What is the first step in a typical international trade transaction?
A) The exporter agrees to ship under a letter of credit and specifies relevant information such as
prices and delivery terms.
B) The importer applies to a trusted third party (usually a bank) for a letter of credit to be issued in
favor of the exporter for the merchandise the importer wishes to buy.
C) The importer places an order with the exporter and asks the exporter if he would be willing to
ship under a letter of credit.
D) The exporter ships the goods to the importer on a common carrier. An official of the carrier
gives the exporter a bill of lading.
E) The trusted third party (usually a bank) issues a letter of credit in the importer’s favor and sends
it to the exporter’s bank.
74) Financing aid that will facilitate exports, imports, and the exchange of commodities between
the United States and other countries is provided by the
A) International Monetary Fund.
B) World Bank.
C) Overseas Commercial Service.
D) Ex-Im Bank.
E) Export Credit Insurance Association.
75) Repayment of medium- and long-term loans that U.S. commercial banks make to foreign
borrowers for purchasing U.S. exports is guaranteed by the
A) Federal Deposit Insurance Corporation.
B) Central Bank.
C) World Bank.
D) Ex-Im Bank.
E) Export Credit Insurance Association.
76) An exporter might have to forgo a letter of credit when
A) competing exporters also require letters of credit.
B) the importer is facing stiff competition from other importers.
C) the exporter is a dominant player in a noncompetitive market.
D) the importer is in a strong bargaining position.
E) he or she knows that the importer will default on payment.
77) A U.S. company would invest in export credit insurance when it
A) is exposed to the risk that an importer may default on payment.
B) is dealing in a country that has a nonconvertible currency.
C) is unable to obtain any pre-export financing.
D) has received a letter of credit from the importer’s bank.
E) has to enter a barter-like agreement.
78) In the United States, export credit insurance is provided by the
A) Export-Import Bank.
B) Bank of New York.
C) Foreign Credit Insurance Association.
D) Federal Deposit Insurance Corporation.
E) Federal Reserve Bank.
79) The Foreign Credit Insurance Association (FCIA) is an association of private commercial
institutions operating under the guidance of the
A) Federal Mediation and Conciliation Service.
B) U.S. Department of Commerce.
C) Export-Import Bank.
D) International Trade Administration.
E) Ministry of International Trade and Industry.
80) Countertrade is a form of
A) licensing.
B) dumping.
C) bartering.
D) brokering.
E) franchising
81) A range of barterlike agreements by which goods and services are traded for other goods and
services when they cannot be traded for money is known as
A) countertrade.
B) carry trade.
C) free trade.
D) counter sale.
E) countervailing duty.
82) Saudi Arabia agreed to purchase 5,000 air conditioning systems from Air-Cool Corp. with
payment in the form of crude oil that is discounted 22 percent below posted world oil prices. This
transaction is a form of
A) countertrade.
B) acquisition.
C) licensing.
D) greenfield venture.
E) piggyback marketing.
83) Countertrade arose in the 1960s as a way to purchase imports for ________, whose currency
was nonconvertible.
A) the United States
B) the Soviet Union
C) Germany
D) Japan
E) African countries
84) What is a characteristic of countertrade?
A) The governments of developing nations sometimes insist on a certain amount of countertrade.
B) Countertrade is a means of structuring an international sale when conventional means of
payment are cost-effective.
C) Nonconvertibility is an advantage for exporters.
D) Nonconvertibility implies that the exporter will be paid only in his or her home currency.
E) Most exporters desire payment in a currency that is not convertible.