Questions and Answers of International Trade

3 The beneficiary may be indebted to the silent confirmer, who sees an opportunity to get his hands on the credit proceeds to reduce the debt.
2 The income to the silent confirmer can be considerable.
1 The beneficiary may be a customer or a good potential customer.
the reimbursing agent appointed by the issuing bank may refuse a claim from a silent confirmer, as it may only be authorized to reimburse the advising/nominated bank.
if the issuing bank discovers that the credit has been confirmed without its agreement, it may regard it as an unauthorized amendment
which may be quite unacceptable to the silent confirmer who, having no contractual relationship with the issuing bank, cannot object to it
The silent confirmer thus faces the possibility that:the credit could be amended without its knowledge or approval the beneficiary could signify his agreement to an amendment
bank. Even if the silent confirmer has an agreement with the advising/nominated bank for all amendments to be routed through themselves instead of advising them direct to the beneficiary, an
As the issuing bank is unaware of the silent confirmer, it will continue to direct amendments and correspondence to the advising/nominated 57
If the silent confirmer is not the advising/nominated bank, it will have to rely on the beneficiary to provide an up-to-date record of the credit and any amendments which have already been made.
limited for sovereign reasons, using part of those lines for silent confirmation could seriously embarrass both the issuing and confirming bank.
Where confirmation lines accorded to some countries are strictly
In some countries, it is forbidden for their credits to be confirmed by third party banks – the risk is obvious!
Adding confirmation to a credit against the wishes of the issuing bank could seriously damage relations with that bank.
2 Although expressly forbidden to confirm a credit, the nominated bank may decide to ignore that instruction and accede to the beneficiary’s request for confirmation.
1 The beneficiary may request the nominated bank to add its confirmation but although the issuing bank has either authorized confirmation or has made no mention of it, the nominated bank declines to
4 Any payment/acceptance/undertaking by the confirming bank is made without recourse to the beneficiary.
3 If the credit is expressed in a foreign currency the ability to discount as shown in (2) reduces the period of exchange risk to the beneficiary and may also enable him to escape a rise in interest
2 If it is a usance credit the confirming bank can accept a draft upon presentation of documents and immediately discount it. The advantage of that process over the practice of sending drafts to the
1 If it is a sight credit he can be certain that he will be paid upon presentation of documents, in his own country and in his own currency.
6 Negotiate drafts drawn by the beneficiary.
5 Accept and pay at maturity drafts drawn on it by the beneficiary of a credit in replacement of drafts drawn on another bank but not accepted by it.
4 Pay at maturity drafts drawn on another drawee bank but not paid by that bank at maturity.
3 Accept drafts under a usance credit and pay them at maturity.
2 Pay at maturity for a deferred payment credit.
1 Pay at sight for a sight credit.
amended without the agreement of the bank to which it is addressed.
issue a reimbursement undertaking addressed to the nominated or confirming bank. This undertaking is irrevocable and cannot be
accept a term draft drawn on it by the claiming bank
4 The claiming bank is authorized to make a telegraphic claim for reimbursement on a specific bank appointed by the issuing bank and named in the credit.
3 The issuing bank will make reimbursement upon receipt of a telegraphic claim from the claiming bank.
2 The issuing bank will make reimbursement upon receipt from the claiming bank of the relative documents, in order.
1 By the debit of an account held by the issuing bank with the claiming bank.
14 The period of time after the date of shipment during which the documents must be presented.
13 Term of despatch (as per Incoterms).
12 A description of the goods.
11 Documents required.
10 Port of destination.
9 Place of taking in charge or port of shipment.
8 Whether part shipments and trans-shipment are permitted.
7 Latest date of shipment.
6 Term: at sight, usance or deferred payment.
5 A fixed expiry date.
4 An amount in currency.
3 Name and address of beneficiary.
2 The name of the bank with whom it is available.
1 Whether it is revocable or irrevocable; failure to state either will mean that it is irrevocable (Article 6c).
to be assured that the beneficiary can only be paid against correct documents and within the validity of the credit.
to have it advised through a competent bank
to have the credit opened exactly as instructed by him
to have a local bank handling amendments, indemnities and queries.
to be paid in the currency of his sales contract
to be paid in his own country (preferably in his own town)
to be paid or have a bill accepted or to be given an undertaking of future payment on presentation of documents
3 Deferred payment. This type of credit has become increasingly used when the exporter’s fiscal authorities insist that a stamp duty be paid on bills of exchange. This can be costly so the deferred
2 Usance. Available by the acceptance of a bill of exchange drawn by the beneficiary and payable at a fixed or determinable future date.Acceptance is made by the negotiating or issuing bank when
1 Sight. The sight credit enables the beneficiary to be paid immediately upon presentation of documents which comply with its terms. However, it may be available either with a bank in the
3 To notify his export credit insurers (if any).
2 To withhold further shipments to the buyer concerned until the reasons for default are made clear.
1 Decide what to do with his goods which may have arrived or are about to arrive at a foreign port. He may already have included guidance for this eventuality in his instruction to the remitting bank.
3 Release bank facilities for financing further transactions.
2 Despatch further goods in the knowledge that his buyer appears to be a reliable payer.
1 Sell the foreign currency.
Why does the United States export agricultural products and airplanes?LO.1
What country has the most capital (i.e., factories) as compared with its GDP?LO.1
How does trade affect the earnings of labor and capital?LO.1
Discovering Data In this problem you will learn how to download data for U.S.export and imports for highly disaggregated products. Suppose that you are hired by a company that wants to start
This problem uses the Heckscher–Ohlin model to predict the direction of trade.Consider the production of handmade rugs and assembly line robots in Canada and India.a. Which country would you expect
Leontief’s paradox is an example of testing a trade model using actual data observations. If Leontief had observed that the amount of labor needed per $1 million of U.S. exports was 100
Using the information in the chapter, suppose Home doubles in size, while Foreign remains the same size. Show that an equal proportional increase in capital and labor in Home will change the relative
Suppose when Japan opens to trade, it imports rice, a labor-intensive good.a. According to the Heckscher–Ohlin theorem, is Japan capital-abundant or labor-abundant? Briefly explain.b. What is the
Following are data for soybean yield, production, and trade for 2010–2011:Suppose that the countries listed in the table are engaged in free trade and that soybean production is
According to the standard Heckscher–Ohlin model with two factors (capital and labor) and two goods, the movement of Turkish migrants to Germany would decrease the amount of capital-intensive
Understand how a mobile factor will respond to price changes by moving across sectors. LO.1
Explain why trade will generate both winners and losers in the short run. LO.1
Understand the meaning of gains from trade when there are losers. LO.1
Discuss the reasons why trade is a politically contentious issue. LO.1
Explain the arguments in favor of free trade despite the existence of losers. LO.1
An economy can produce good 1 using labor and capital and good 2 using labor and land. The total supply of labor is 100 units. Given the supply of capital, the outputs of the two goods depend on
The marginal product of labor curves corresponding to the production functions in problem 2 are as follows:Workers Employed MPL in Sector 1 MPL in Sector 2 10 1.51 1.59 20 1.14 1.05 30 1.00 .82 40
In Home and Foreign, there are two factors each of production, land, and labor used to produce only one good. The land supply in each country and the technology of production are exactly the same.
Using the numerical example in problem 5, assume now that Foreign limits immigration so that only two workers can move there from Home. Calculate how the movement of these two workers affects the
Studies of the effects of immigration into the United States from Mexico tend to find that the big winners are the immigrants themselves. Explain this result in terms of the example in problem 6. How
Which regions of the world trade the most, and which trade the least?LO.1
How does international trade today differ from trade in the past?LO.1
How does the movement of companies and people around the world compare with the movement of goods and services?LO.1
Discovering Data In this question, you are asked to update the numbers for world trade that are shown in Table 1-1.a. Go to the World Trade Organization’s website at http://www.wto.org, and look
Explain what each of the following terms means, and describe one example from this chapter in which each term is used.a. Bilateral trade balanceb. Trade embargoc. Free trade aread. Import quotae.
Find online press reports dealing with immigration issues in Europe and in the United States. Summarize the issues being discussed in each case.LO.1
Why do countries export and import similar goods?LO.1
How much do consumers benefit from having products available from many countries?LO.1
Do all firms gain from having access to larger markets?LO.1
Discovering Dataa. Of two products, rice and paintings, which do you expect to have a higher index of intra-industry trade?Why?b. Access the U.S. TradeStats Express website at
Explain how increasing returns to scale in production can be a basis for trade.LO.1
Why is trade within a country greater than trade between countries?LO.1
Our derivation of the gravity equation from the monopolistic competition model used the following logic:i. Each country produces many products.ii. Each country demands all of the products that every
What evidence is there that Canada is better off under the free-trade agreement with the United States?LO.1
In the section “Gains and Adjustment Costs for the United States Under NAFTA,”we calculated the lost wages of workers displaced because of NAFTA. Prior experience in the manufacturing sector
Why do governments sometimes apply a tariff on imported goods?LO.1
Why does the World Trade Organization try to reduce the use of tariffs?LO.1

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