Question 1

Forfaiting (forfeiting)meets Islamic finance practices.

Accepted Answer

Forfaiting (or forfeiting) is a financing technique commonly used in international trade, where the exporter sells its trade receivables at a discount to a forfaiter who takes on the credit risk and payment obligation of the importer. This technique is compatible with Islamic finance practices, as it involves the buying and selling of tangible assets, without generating interest or involving speculative transactions. Therefore, forfaiting can be considered a Sharia-compliant financing method.

Question 2

Banker's acceptances usually have maturities ranging from

Accepted Answer

Banker's acceptances are short-term debt instruments typically issued by banks on behalf of their customers to facilitate international trade. They usually have maturities ranging from 30 to 180 days, although some can be as long as 270 days. Therefore, option A is the best choice as it accurately describes the typical maturity range for banker's acceptances. Options B, C, and D are incorrect as they either extend the maturity range too far beyond what is typical for banker's acceptances or do not encompass the entirety of the usual range.

Question 3

The Export-Import Bank provides competitive assistance to U.S.exporters through

Accepted Answer

The Export-Import Bank provides all three types of assistance mentioned in the options - direct loans to foreign importers, loan guarantees, and credit insurance to U.S. exporters. Therefore, the best choice is D) all of the options.

Question 4

Suppose the face amount of a promissory note is $1,000,000 and the importer's bank charges an acceptance commission of 1.5 percent.The note is for 60 days.Calculate the amount of the acceptance commission that the bank will charge.

Accepted Answer

The answer of Suppose the face amount of a promissory...

Question 5

The primary methods of payment for foreign trades,ranked in the order of most secure to least secure for the exporter is

Accepted Answer

Cash in advance is the most secure method for the exporter as payment is received before the ownership of the goods is transferred. Letters of credit and time drafts offer a level of security through bank intermediaries. Consignment is less secure as payment is made only after the goods are sold. Open account is the least secure for the exporter as goods are shipped before payment is made.

Question 6

When a bank purchases at a discount from an importer a series of promissory notes in favor of an exporter,this is called

Accepted Answer

Forfeiting refers to the purchase of a series of promissory notes at a discount by a bank from an importer, which are in favor of an exporter. This is a method of finance that ensures the exporter receives immediate cash, while the importer gets the benefit of deferred payment.

Question 7

Countertrade transactions are

Accepted Answer

Countertrade transactions are gaining renewed prominence as a means of conducting international trade transactions, especially in developing countries where there may be a shortage of foreign currency. Countertrade refers to a broad range of transactions, such as barter, offset, and buyback. While not as common as traditional transactions, it can be a useful tool for companies looking to expand their global reach.

Question 8

A typical foreign trade transaction requires three basic documents:

Accepted Answer

The three basic documents required for a typical foreign trade transaction are a letter of credit, time draft, and bill of lading. A letter of credit acts as a guarantee from the importer's bank that payment will be made to the exporter once the goods are shipped. A time draft is a type of promissory note that obligates the importer to pay a certain amount at a future date, typically once the shipment is received. A bill of lading is a receipt for the shipment of goods, serving as proof of ownership and allowing for the transfer of the goods between parties.

Question 9

A banker's acceptance is created when

Accepted Answer

A banker's acceptance is created when an importer's bank accepts a time draft that is backed by goods that have been shipped and for which the importer has taken title via a bill of lading. The bank's acceptance signifies that it will pay the holder of the time draft the face value upon maturity.

Question 10

In a consignment sale

Accepted Answer

A consignment sale is a business arrangement where the exporter (consignor) sends goods to the importer (consignee), who takes possession of the merchandise but does not provide payment until the goods are sold. The exporter retains title to the goods until they are sold, and if the merchandise does not sell, the importer can return it to the exporter without any payment being made. Therefore, all options (A, B, and C) are true statements about consignment sales.

Question 11

Forfaiting,in which a bank purchases at a discount from an importer,is a series of promissory notes in favor of an exporter,

Accepted Answer

Forfaiting is a medium-term form of trade financing as it typically involves the purchase of promissory notes with payment due within a range of 180 days to five years. It differs from other forms of trade financing such as factoring (short-term) and export credit (long-term).

Question 12

The three basic documents needed in a foreign trade transaction are

Accepted Answer

The three basic documents needed in a foreign trade transaction are a letter of credit, time draft, and a bill of lading. A letter of credit guarantees payment to the seller, a time draft sets the terms of payment, and a bill of lading serves as proof of shipment and delivery.

Question 13

There are several types of countertrade transactions

Accepted Answer

Countertrade transactions involve reciprocal promises between buyer and seller, but the specifics of the trade differ depending on the type of countertrade. In each type of countertrade, the seller provides goods or services to the buyer in return for a promise from the buyer to purchase goods or services from the seller. This reciprocal promise can be fulfilled in a variety of ways, including through barter, offset, buyback, or counterpurchase. However, all types of countertrade involve the exchange of goods or services, and money may or may not be involved in the transaction. Therefore, option B is the best choice as it accurately describes the overall nature of countertrade transactions.

Question 14

International trade is more difficult and risky from the exporter's perspective than is domestic trade because

Accepted Answer

All of the options are valid reasons why international trade is more difficult and risky from the exporter's perspective than domestic trade. The exporter may not be familiar with the buyer's creditworthiness, legal recourse may be challenging, and political instability can disrupt trade in certain regions. All of these factors increase the risk for the exporter, making international trade more challenging than domestic trade.

Question 15

A time draft can become a negotiable money market instrument called

Accepted Answer

A time draft that has been accepted by a bank becomes a banker's acceptance, which is a widely used negotiable money market instrument. A banker's acceptance is guaranteed by the bank that accepts the draft and can be traded on secondary markets. Eurodollars are deposits in a non-U.S. bank that are denominated in U.S. dollars, but they are not directly related to time drafts. Letters of credit and bills of lading are commercial documents used in international trade, but they are not directly related to negotiable money market instruments.

Question 16

The ________ sends a purchase order to the ________.The ________ applies to his bank for a letter of credit.

Accepted Answer

In an international trade transaction, the importer sends a purchase order to the exporter. Once the terms of the purchase are agreed upon, the importer applies to his bank for a letter of credit, which is a guarantee that the bank will pay the exporter for the goods, provided that the exporter presents certain documents, such as bills of lading and commercial invoices, that comply with the terms of the letter of credit. Therefore, the importer is the one who applies for the letter of credit, and the exporter is the beneficiary of the letter of credit. Choice C correctly identifies the importer, exporter, and importer in the transaction.

Question 17

Conducting international trade transactions is difficult in comparison to domestic trades.Which of the following are false statements regarding this reality?

Accepted Answer

It is generally not the case that the costs of international trade outweigh the benefits. While international trade can incur additional costs such as tariffs, transportation fees, and currency exchange rates, it also brings many benefits such as access to a wider range of products, lower prices, and the opportunity to specialize in areas of comparative advantage.

Question 18

The ________'s bank sends the letter of credit to the ________'s bank.After sending the merchandise,the ________ gives the shipping documents and time draft to his bank.

Accepted Answer

In international trade, the importer's bank issues the letter of credit and sends it to the exporter's bank. After shipping the goods, the exporter presents the shipping documents and time draft to their bank to receive payment.

Question 19

A bill of lading

Accepted Answer

A bill of lading is a legal document issued by a carrier (such as a ship, truck, or train) that acknowledges receipt of goods for shipment. It serves as proof of contract between the shipper and the carrier, and can also serve as a document of title to the goods. It includes details such as the name and address of the shipper and consignee, description of the goods, and the terms of the shipment.

Question 20

A time draft

Accepted Answer

A time draft is a written order instructing the importer or his agent to make payment of the specified amount on a certain date. It is also known as a usance draft or a sight draft with a term of payment at a future date. This type of payment instrument is commonly used in international trade transactions. The exporter may offer the buyer an option to pay by a time draft, which is essentially a promise to pay at a later date. The time draft may be discounted with a bank and turned into a banker's acceptance, which can then be sold on the secondary market.

Quiz 20: International Trade Finance