Question 1

The ______________ is a payment mechanism that allows exporters to retain ownership of the goods until they receive payment or are reasonably certain that they will receive

Accepted Answer

Documentary collection is a payment mechanism in international trade where the exporter retains control over the goods until payment is received or the importer commits to pay, typically by the importer's bank acting as an intermediary. This method balances the need for security in payment with the flexibility of transaction for both parties.

Question 2

When payment is made only under compliance with the ____________ conditions, the importer is able to ascertain that the merchandise is actually shipped on or before a certain date by requiring an on-board bill of lading

Accepted Answer

Under the letter of credit payment method, the importer and exporter agree to certain conditions, which could include the requirement for an on-board bill of lading to prove that the merchandise has been shipped on or before a certain date. The letter of credit is a secure payment method for the exporter, as they receive the payment only after meeting the agreed-upon conditions.

Question 3

Which of the following is NOT an advantage to L/C?

Accepted Answer

L/C does not involve advance payment. It is a form of payment made at a later agreed upon date after the receipt of goods or services.

Question 4

Which of the following is often used in a country where there is political instability or where the buyer's credit is shaky?

Accepted Answer

Cash in advance is the best choice in a country where there is political instability or where the buyer's credit is shaky because it ensures that the seller will receive payment before shipping the goods. This reduces the risk of non-payment or default. Letter of credit and documentary collection can also be used, but they involve more complex procedures and may not be as secure in unstable situations. Open account terms should be avoided in such situations as they involve a higher level of risk for the seller.

Question 5

Which of the following affords the exporter the greatest protection because payment is received either before shipment or upon arrival of the goods?

Accepted Answer

Cash in advance provides the greatest protection to the exporter as payment is received before shipment or upon arrival of the goods. This eliminates any risk of non-payment or payment delays.

Question 6

Financial management for global operations deals with the following major issues

Accepted Answer

Financial management for global operations covers all of the above issues, including international trade finance, working capital management, financing global operations, and managing foreign exchange risk and exposure. These are all critical components of effectively managing financial resources in a global business context.

Question 7

A ____________ L/C exists where the exporter, as beneficiary of the first L/C, offers its credit as security to finance the opening of a second credit in favor of the exporter's own supplier of the goods needed for shipment under the first or original credit from the advising bank.

Accepted Answer

The description matches with the definition of a back-to-back L/C. It involves two separate L/Cs, where the second L/C is opened based on the first L/C, and the first L/C serves as collateral for the second L/C.

Question 8

A ______________ L/C is one under which the beneficiary has the right to instruct the paying bank to make the credit available to one or more secondary beneficiaries.

Accepted Answer

A transferable L/C allows the beneficiary to transfer their rights to receive payment under the L/C to one or more secondary beneficiaries. This type of L/C is often used in complex trade transactions where the original beneficiary may not be the ultimate supplier or where the beneficiary needs to finance their own purchase of goods from a third party.

Question 9

A ___________ L/C is issued by one bank and confirmed by another, obligating both banks to honor any drafts drawn in compliance.

Accepted Answer

A confirmed L/C is one where the bank issuing the L/C has obtained a confirmation of the credit from another bank (usually in the seller's country) which is called the confirming bank. The confirming bank adds its own undertaking to that of the issuing bank, which gives an additional layer of protection to the seller. This means that if the issuing bank defaults, the seller can still look to the confirming bank for payment.

Question 10

A/An _____________ L/C, in contrast, cannot be revoked without the specific permission of all parties concerned, including the exporter.

Accepted Answer

An irrevocable L/C is a type of letter of credit that cannot be revoked without the specific permission of all parties involved, including the exporter. This provides a level of assurance to the exporter that their payment will not be cancelled or delayed without their agreement. Confirmed, transferable, and unconfirmed L/Cs do not have this same level of assurance.

Question 11

A/An ______________ L/C is the obligation of only the issuing bank.

Accepted Answer

An unconfirmed Letter of Credit is the obligation of only the issuing bank, whereas a confirmed Letter of Credit involves a second bank, known as the confirming bank, which adds its confirmation to pay the beneficiary. Transferable and irrevocable are types of L/Cs that can either be confirmed or unconfirmed.

Question 12

Private sources of export financing include private insurance companies and

Accepted Answer

Private insurance companies and international leasing companies are both examples of private sources of export financing. Eximbank and the Foreign Credit Insurance Corporation are actually government-backed sources of export financing, and Central Trust of China is not a commonly known source of export financing.

Question 13

Chase Manhattan's Collection Experience Bulletin provides

Accepted Answer

The Collection Experience Bulletin provides four methods of remitting payment.

Question 14

A Chinese exporter could collect its accounts receivable from the Bank of China if the Bank of China had confirmed the letter of credit issued by Citibank, and Citibank, for whatever reason, failed to honor its ________________ letter of credit.

Accepted Answer

The answer of A Chinese exporter could collect its accounts...

Question 15

An MNEs equity financing can take the form of

Accepted Answer

Crosslisting shares abroad and selling new shares to foreign investors are both forms of equity financing for MNEs. Buying new shares from foreign investors is not a form of equity financing, but rather a form of portfolio investment. Therefore, both A and B are correct.

Question 16

If a U.S. exporter expects to receive a payment of £200,000 from a London importer in two months after the products are shipped. With the current rate it would be worth $300,000. Two months later the rate changes and reduces the actual dollar avenue to $260,000. Therefore, the U.S. exporter will suffer a $40,000___________________.

Accepted Answer

The U.S. exporter will suffer a foreign exchange loss of $40,000 because the change in the exchange rate reduced the actual dollar value of the payment received from the London importer.

Question 17

To purchase a stated number of units of the underlying foreign currency at a specific price per unit during a specific period of time is called a/an

Accepted Answer

A call option gives the buyer the option (but not the obligation) to purchase the underlying foreign currency at a specific price during a specific period of time. This is a way to protect against potential currency fluctuations and to lock in a favorable exchange rate.

Question 18

____________________ refers to the sensitivity of changes in the real domestic-currency value of assets, liabilities, or operating incomes to unanticipated changes in exchange rates.

Accepted Answer

Foreign exchange exposure refers to the sensitivity of changes in the real domestic-currency value of assets, liabilities, or operating incomes to unanticipated changes in exchange rates. Foreign exchange risk and parallel loans are related to foreign exchange exposure, but do not specifically refer to the sensitivity of changes in the real domestic-currency value of assets, liabilities, or operating incomes. GDP is unrelated to foreign exchange exposure.

Question 19

The line of credit against which drafts (checks) can be drawn (written) up to a specified maximum amount is called a/an

Accepted Answer

The description matches the definition of an overdraft, which is a type of credit facility provided by banks that allows customers to withdraw more money than what they have in their account up to a specified maximum limit. The drafts (checks) can be drawn (written) against this line of credit, thereby allowing customers to avoid bounced check fees or penalties for insufficient funds. Foreign bond, Discounting, and maximum withdrawal are not relevant to this definition.

Question 20

A wide variety of firm decisions are tied to exchange rates and other developments in the global financial environment.

Accepted Answer

Exchange rates and global financial developments can have significant impacts on a company's operations, profits, and strategies, making it crucial for firms to stay informed about these factors and make well-informed decisions accordingly.

Quiz 14: Financial Management for Global Operations