Chapter 19: Financing International Trade
1. Which of the following is a reason why commercial banks may facilitate international trade?
a.
The exporter may not wish to accept the credit risk of the importer.
b.
The government may impose foreign exchange controls that prevent payment by the importer to the exporter.
c.
The exporter may need financing until payment for the products is received.
d.
All of the above
2. Consider an exporter that sells its accounts receivables to another firm that becomes responsible for obtaining payment
from the various importers. This reflects:
a.
b.
c.
d.
3. Consider a bank that acknowledges that it will make payment on behalf of a computer importer after the bank receives
documents showing that the computers have been shipped to the importer. This reflects:
a.
b.
c.
d.
4. Consider an importer that issues a promissory note to an exporter to pay for imported capital goods over a period of five
years. The exporter sells the note at a discount to a bank. This reflects:
a.
b.
Chapter 19: Financing International Trade
c.
d.
5. Consider an exporter that ships products to an importer on credit. The exporter needs funds immediately, so it obtains a
loan from a bank using the account receivable as collateral. This reflects:
a.
b.
c.
d.
6. The all-in rate a bank charges for a banker’s acceptance includes both the interest rate and the acceptance commission.
a.
True
b.
False
7. MNCs can use ____ to sell their existing accounts receivable as a means of obtaining cash.
a.
factoring
b.
a bill of lading
c.
a banker’s acceptance
d.
a letter of credit
8. The ____ was established in 1934 with the intention to facilitate Soviet-American trade.
a.
Domestic International Sales Corporation (DISC)
b.
Private Export Funding Corporation (PEFCO)
c.
Export-Import Bank
d.
Foreign Credit Insurance Association (FCIA)
9. A ____ provides a summary of freight charges and conveys title to the merchandise in an international shipment.
a.
letter of credit
b.
banker’s acceptance
c.
bill of lading
d.
bill of exchange
10. According to the text, international trade activity has generally ____ over time. This should cause the popularity of
trade finance techniques to ____ over time.
a.
increased; increase
b.
increased; decrease
c.
decreased; increase
d.
decreased; decrease
11. Which of the following payment terms provides the exporter with the greatest degree of protection?
Chapter 19: Financing International Trade
a.
letters of credit.
b.
consignment.
c.
prepayment.
d.
drafts (sight/time).
12. With ____, the exporter ships the products to the importer while still retaining actual title to the merchandise; the
importer does not have to pay for the products until they have been sold to a third party.
a.
a letter of credit arrangement
b.
an open account arrangement
c.
a draft arrangement
d.
a consignment arrangement
13. When an exporter sells an account receivable to a factor, the factor will attempt to collect payment from the importer,
but if the importer is unable to pay, the factor can collect the payment from the exporter.
a.
True
b.
False
14. With ____, the importer’s bank promises to pay the exporter if the importer fails to pay as agreed.
a.
a standby letter of credit
b.
a bill of exchange
c.
forfaiting
d.
accounts receivable financing
15. When products are shipped under a _______, the exporter is paid once the shipment is made and the draft is presented
to the importer for payment.
a.
consignment arrangement
b.
time draft
c.
prepayment arrangement
d.
sight draft
16. When products are shipped under a ______, the importer that accepts the draft is promising to pay the exporter at a
specified future date.
a.
prepayment arrangement
b.
time draft
c.
counterpurchase arrangement
d.
sight draft
17. An exchange of products between two parties under two distinct contracts expressed in monetary terms is:
a.
b.
c.
d.
18. Which of the following is not a program of the Export-Import Bank of the United States?
a.
Working Capital Guarantee Program
b.
Project Finance Loan Program
c.
Direct Loan Program
d.
Foreign Sales Corporation Program
19. Who is obligated to make payment once proof of shipment of goods is documented in a letter of credit?
a.
the exporter
b.
the importer
c.
the importer’s bank
d.
The importer’s government.
20. All types of foreign trade transactions in which the sale of products to one country is linked to the purchase or
exchange of products from that same country are called countertrade.
a.
True
b.
False
21. The exchange of products between two parties without the use of any currency as a medium of exchange is called
factoring.
a.
True
Chapter 19: Financing International Trade
b.
False
22. A time draft that is issued by a firm and guaranteed by a bank is called a banker’s acceptance.
a.
True
b.
False
23. The Direct Loan Program is administered by the:
a.
Private Export Funding Corporation (PEFCO).
b.
Overseas Private Investment Corporation (OPIC).
c.
Ex–Im Bank.
d.
Foreign Credit Insurance Association (FCIA).
24. The Working Capital Guarantee Program is administered by the:
a.
Private Export Funding Corporation (PEFCO).
b.
Overseas Private Investment Corporation (OPIC).
c.
Ex–Im Bank.
d.
Foreign Credit Insurance Association (FCIA).
25. Which of the following is not a payment method used for international trade?
a.
consignment
b.
open account.
c.
factoring
d.
draft
e.
letter of credit
26. Under a letter of credit (L/C) arrangement, the ______issues the L/C and sends it to the ____ .
a.
importer’s government; exporter’s government
b.
importer’s bank; exporter’s bank
c.
exporter’s government; importer’s government
d.
exporter’s bank; exporter’s government
27. Which of the following is not a document that might be included in the documents for an international shipment under
a letter of credit?
a.
an ocean bill of lading
b.
an airway bill
c.
a commercial invoice
d.
a bill of lading
e.
a barter notification
28. Which of the following is not true regarding letters of credit?
Chapter 19: Financing International Trade
a.
A letter of credit is a written commitment by the importer’s bank on the importer’s behalf promising to pay the
exporter when it presents documents showing that the products have been shipped.
b.
The letters of credit used in international trade are irrevocable.
c.
Letters of credit guarantee that the products shipped are the products purchased.
d.
All of the above are true.
29. A banker’s acceptance is a time draft that is issued by a firm and guaranteed by a(n) ____.
a.
bank
b.
importer
c.
exporter
d.
none of the above
30. Which of the following is not true regarding a banker’s acceptance?
a.
The exporter benefits because it does not have to worry about the credit risk of the importer.
b.
The importer benefits because it obtains greater access to foreign markets when purchasing supplies.
c.
The bank guaranteeing the draft earns a commission for creating an acceptance.
d.
It is a sight draft.
e.
All of the above are true.
31. ____ is(are) not a type of program offered by the Ex–Im Bank.
a.
Guarantees
b.
Loans
c.
Currency swap insurance
Chapter 19: Financing International Trade
d.
Bank insurance
32. As part of the Ex–Im Bank’s export credit insurance programs, a(an) ____ Policy is generally issued to an
administrator, such as a bank, trading company, insurance broker, or government agency, which then administers the
policy for multiple exporters.
a.
Multibuyer
b.
Single-Buyer
c.
Small Business
d.
Umbrella
33. The ____ is a private corporation owned by a consortium of commercial banks and industrial companies, but the ____
is a self-sustaining government agency.
a.
Overseas Private Investment Corporation (OPIC); Private Export Funding Corporation (PEFCO)
b.
Private Export Funding Corporation (PEFCO); Overseas Private Investment Corporation (OPIC)
c.
Private Export Funding Corporation (PEFCO); Ex–Im Bank
d.
Overseas Private Investment Corporation (OPIC); Ex–Im Bank
34. The risk to the exporter is highest with the ____ payment method.
a.
prepayment
b.
letter of credit
c.
sight draft
d.
open account
35. A ____ is a written order from the exporter instructing the importer to pay the face amount either upon presentation or
at a specified future date.
a.
draft
b.
bill of lading
c.
compensation guarantee
d.
letter of credit
36. Syndicates of banks may be involved in forfaiting transactions because these transactions are usually in excess of
$500,000.
a.
True
b.
False
37. In a ________ or clearing-account arrangement, the delivery of products to the importer is compensated for by the
exporter’s buying back a certain amount of the product from the importer.
a.
accounts receivable financing
b.
compensation
c.
counterpurchase
d.
barter
38. An irrevocable letter of credit cannot be amended or canceled without the exporter’s consent.
a.
True
b.
False
39. The time period of most time drafts ranges from
a.
30 days to 180 days.
b.
2 weeks to 52 weeks.
c.
1 year to 5 years.
d.
10 days to 60 days.
40. The commission that a bank charges for a banker’s acceptance is referred to as the all-in rate; it is the only cost
involved in an acceptance.
a.
True
b.
False
41. ____ refers to the purchase of financial obligations, such as bills of exchange or promissory notes, from the original
holder, usually the exporter; the obligations are sold “without recourse,” meaning that if the importer does not pay, the
exporter has no responsibility for their payment.
a.
Factoring
b.
Accounts receivable financing
c.
Forfaiting
d.
None of the above
42. The term counterpurchase denotes the exchange of products between two parties under two distinct contracts
expressed in monetary terms.
a.
True
b.
False
43. Under a letter of credit, the exporter will not ship the products until the importer has sent payment to the exporter.
a.
True
b.
False
44. In an open account transaction, the exporter ships the products to the importer but retains title to the products until
they have been sold.
a.
True
b.
False
45. In factoring, a bank provides an exporter with a loan that is secured by the exporter’s accounts receivable.
a.
True
b.
False
Chapter 19: Financing International Trade
46. A bank will be willing to create a letter of credit on behalf of an importer only if it trusts the importer’s
creditworthiness.
a.
True
b.
False
47. There is an active secondary market for banker’s acceptances.
a.
True
b.
False
48. The commission earned by the bank for creating a banker’s acceptance is reflected in the all-in rate.
a.
True
b.
False
49. The Working Capital Guarantee Program of the Private Export Funding Corporation (PEFCO) encourages commercial
banks to extend short-term export financing to eligible exporters by providing a comprehensive guarantee that covers 100
percent of the loan’s principal and interest.
Chapter 19: Financing International Trade
a.
True
b.
False
50. Most of the programs of the Export-Import Bank of the United States are designed to encourage private lenders to
finance export trade by assuming some of the credit risk and providing financing to foreign importers when private
lenders are unwilling to do so.
a.
True
b.
False
51. The Overseas Private Investment Corporation (OPIC) is owned by a consortium of commercial banks and industrial
companies; it cooperates closely with the Export-Import Bank.
a.
True
b.
False
52. Under prepayment, the exporter will not ship the products until the exporter has received payment from the importer.
a.
True
b.
False
53. A letter of credit does not guarantee that the products shipped will be those described in the documents.
a.
True
b.
False
54. If shipment is made under a forfaiting draft, the exporter is paid once shipment has been made and the draft is
presented to the importer for payment.
a.
True
b.
False
55. In a countertrade transaction, banks on both ends act as intermediaries in the processing of shipping documents and
the collection of payment.
a.
True
b.
False
56. Under a countertrade arrangement, the exporter ships the products to the importer while retaining title to the
merchandise until it is sold.
a.
True
b.
False
57. Factoring involves the sale of accounts receivable to a third party, called a factor, for a discount.
a.
True
b.
False
58. Cross-border factoring involves a network of factors in various countries that assess importers’ credit risk.
a.
True
b.
False
59. The payment method that affords the exporter the greatest degree of protection is the prepayment method.
a.
True
b.
False
60. A bank issuing a letter of credit on behalf of an importer is obligated to make the payment due under the letter of
credit regardless of the importer’s willingness or ability to pay.
a.
True
b.
False
61. If shipment is made under a time draft, the exporter is paid as soon as the products have been shipped and the draft is
presented to the importer for payment.
a.
True
b.
False
62. Which of the following would not be included in a bill of lading?
a.
the names of the exporter and importer
b.
the terms of payment
c.
the date of shipment
d.
All of the above would be included in a bill of lading.
63. Which of the following would be included in a commercial invoice?
a.
the names of the exporter and importer
b.
the price of the merchandise
c.
the terms of payment
d.
All of the above would be included in a commercial invoice.
64. An importer always has the option to cancel an irrevocable letter of credit.
a.
True
b.
False
65. A bill of exchange serves as a receipt for shipment and a summary of freight charges; most importantly, it conveys
title to the merchandise.
a.
True
b.
False
66. The all-in rate charged on banker’s acceptances is higher than the rate that a bank would charge a creditworthy
borrower for a regular loan.
a.
True
b.
False