Question 1

________ are documents included in a contract to ensure that specific quality, purity, or weight specifications are met.

Accepted Answer

Certificates of analysis are documents included in a contract to ensure that specific quality, purity, or weight specifications are met. Consular invoices and insurance documents are not related to ensuring quality specifications of a product.

Question 2

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

Accepted Answer

C

Question 3

Which of the following documents is NOT part of a system designed to protect both the importer and exporter from non-completion of trade?

Accepted Answer

D

Question 4

A/An ________ letter of credit is an obligation only of the issuing bank whereas other banks honor a/an ________ letter of credit.

Accepted Answer

The answer of A/An ________ letter of credit is an...

Question 5

A signed ________ is issued by the exporter and contains a precise description of the merchandise.

Accepted Answer

A commercial invoice is issued by the exporter and contains a detailed description of the merchandise, including quantity, weight, and value. This document is necessary for customs clearance and serves as a basis for payment. A packing list provides a list of the items included in a shipment, and a bill of lading is a legal document issued by a carrier that details the shipment and serves as a receipt for the goods. A banker's acceptance is a financial instrument used in international trade to guarantee payment.

Question 6

A letter of credit is an agreement by the bank to pay against documents rather than the actual merchandise.

Accepted Answer

A letter of credit is a financial instrument that serves as a guarantee from a bank that it will pay a seller a specified amount of money for the goods or services delivered to a buyer, provided that the seller meets all the agreed-upon terms and conditions, including presenting the required documents. Therefore, the bank pays against documents, not the actual merchandise.

Question 7

A letter of credit that is confirmed in the ________ country has the additional advantage of eliminating the problem of ________.

Accepted Answer

A letter of credit that is confirmed in the exporter's country has the additional advantage of eliminating the problem of blocked foreign exchange. This means that the exporter does not have to worry about receiving payment in their local currency as the letter of credit has been confirmed by a bank in their country, which ensures payment.

Question 8

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

Accepted Answer

A bill of lading is a document issued by a common carrier that serves as a receipt for the goods being transported and as evidence of the contract of carriage. It also serves as a document of title, which can be used to transfer ownership of the goods. The other options listed are also important export documents, but do not fulfill the specific role of a bill of lading as a transportation document.

Question 9

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

Accepted Answer

A revocable letter of credit can be modified or canceled by the issuing bank without notice to the beneficiary. It is not a secure form of payment as it does not guarantee payment.

Question 10

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

Accepted Answer

Since the firm has not previously conducted business with the foreign importer, the relationship would be considered unaffiliated unknown.

Question 11

Today, international trade is dominated by transactions between unaffiliated parties (known or unknown).

Accepted Answer

International trade is significantly influenced by transactions between affiliated parties, such as multinational corporations and their subsidiaries, which account for a substantial portion of global trade.

Question 12

________ is the risk that interest rates will change between signing the contract and payment for goods and services.

Accepted Answer

Currency risk refers to the risk of fluctuations in exchange rates which can impact the value of payments made in different currencies. Interest rates can have an impact on exchange rates, hence the risk of interest rate changes is considered a part of currency risk.

Question 13

________ may be required so that the contents of containers can be identified, either for customs purposes or for importer identification of the contents of separate containers.

Accepted Answer

Packing lists are used to identify the contents of containers and are included in the shipment to help customs officials and importers identify the goods inside. Banker's acceptances are a form of payment, commercial invoices document the sale of goods, and consular invoices are not commonly used today.

Question 14

Which of the following relationships between importing and exporting parties would require the least detailed contract to conduct business?

Accepted Answer

The answer of Which of the following relationships between importing...

Question 15

The major advantage to the exporter of a letter of credit is that the exporter does not receive any funds until the documents have arrived at a local port or airfield.

Accepted Answer

The answer of The major advantage to the exporter of...

Question 16

The risk of default on the part of the importer is present as soon as

Accepted Answer

The risk of default on the part of the importer is present as soon as goods are shipped. Once the goods are in possession of the importer, they have the ability to default on payment for the goods.

Question 17

Polaris Corporation has made an agreement to ship goods to a foreign firm with whom they have not entered into a contract for three years. However, the firms have communicated regularly since the last sale three years ago. This is an example of an

Accepted Answer

The fact that Polaris Corporation has had regular communication with the foreign firm since the last sale three years ago suggests that they are a known party, but they have not entered into a contract for three years, which implies that they are unaffiliated. Therefore, this transaction is classified as an unaffiliated known party transaction.

Question 18

The draft is the instrument normally used in international commerce to

Accepted Answer

A draft is a legal document that is used in international trade to transfer ownership (also known as "title") from the exporter to the importer. It is a written order from one party (the exporter) to another (usually a bank) to pay a certain sum of money to a third party (the importer) at a specified date in the future. Once the draft is accepted and paid, the ownership of the goods is transferred from the exporter to the importer.

Question 19

The primary advantage of a letter of credit is that it reduces risk.

Accepted Answer

A letter of credit is a financial agreement between a buyer's bank and a seller's bank that guarantees payment to the seller in exchange for the delivery of goods or services. By using a letter of credit, the buyer reduces their risk of non-payment, while the seller reduces their risk of non-delivery or non-payment. Therefore, a letter of credit is a risk-reducing tool for both parties involved in a transaction.

Question 20

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.

Accepted Answer

Most international transactions are between affiliated parties, which means that the contracts are often simpler as there is an existing relationship between the parties. However, managing the total value of the MNE in this context can be more complex due to factors such as transfer pricing and tax implications.

Quiz 20: International Trade Finance