Multiple Choice (10 marks)

1. In which of the following circumstances might an exporter choose to use a collection?

The buyers country is politically unstable

The buyer is creditworthy, but has a record of slow payment.

There is some buyer risk, but there is a market for the goods in the buyers country.

Above B and C

2. One ratio that uses the Income statement for analysis is

Current Ratio

Accounts Receivable Turnover

Debt/Equity Ratio

Debt Service ratio

3. When deciding whether to issue a bond, what following factors the issuing bank will consider.

Exporters performance risk

The Exporters credit standing.

The beneficiarys credit standing.

Risk of unfair calling of the bond.

i, ii, and iii

ii, iii, iv

i, iii, and iv

i, ii and iv

4. Colombo Ports Authority is inviting various contractors for constructing their new terminal. The project will be awarded to only one of the contractors. What type of a bond is called from the contractors?

Performance Bond

Bid Bond

Advance Payment Bond

Retention Bond

5. Avalised Collections are:

Discrepant documents under DCs which are held pending realization

Collection bills which have been already accepted by the Buyer

Deferred Payable Bills under DCs

Collection bills where the importers bank has provided a guarantee

6. Irrevocable Confirm Credit Cannot Be Cancelled or Amended Without the Agreement of

Beneficiary, Confirming Bank, Issuing Bank

Applicant, Beneficiary, Issuing Bank

Beneficiary, Confirming Bank, Applicant

Advising Bank, Beneficiary, Issuing Bank

7. Transaction risk refers to

the impact of exchange rate changes on the value of committed cash flows. These are mostly receivables (payables) from export (import) contracts and repatriation of dividends.

the present value of future cash flow operations of a firm's parent company and foreign subsidiaries.

the impact of exchange rate changes on the valuation of foreign assets (mainly foreign subsidiaries) and liabilities on a multinational company's consolidated balance sheet. Usually, translation risk is measured in net terms, i.e. net foreign assets minus net foreign liabilities.

None of the above

Penetration pricing

has one main disadvantage is that this policy can easily be matched or undercut by competitors

is aimed to quick in sales, capture market share, utilise full capacity and economies of scale in productive process and keep the competitors away from the market.

is known as charging highest price for the new product.

is used when the marketplace is insensitive to price; therefore premium price is charged

9. Documentary collection

is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated have been met, as verified through the presentation of all required documents.

can avoid credit risk because payment is received before the ownership of the goods is transferred

a Bank facilitates the exchange and offers verification process and complete recourse in the event of non-payment.

exporter hands over the task of collecting payment for goods supplied to his or her bank, which sends the shipping documents to the importer's bank together with payment instructions.

What was the first form of a Letter of Credit called

Travellers Cheques

Documentary Credit

Travellers Letter of Credit

None of the above

In a collection, who is the principal?

The exporter

The importer

The exporters bank

The importers bank

If payment is to be made at time of that documents are to be presented, this is referred to as a __________.

Usance Letter of Credit

Confirmed Letter of Credit

Irrevocable Letter of Credit

Sight Letter of Credit