Please answer the following questions - T/F and MCQs.
Answer the following MCQ and True/False Questions. There are some unique costs that the exporters need to consider with international transactions like international travel, long-distance communications, participation in trade fairs and missions abroad, hiring of foreign agents, and the cost of translation if dealing with a foreign language." 2 points True False One of the key differences between Documents Against Payments (D/P) and Documents Against Acceptance (D/A) is that if you are using the D/P, the exporter instructs the presenting bank to hand over shipping and title documents (representing title to the goods shipped) to the importer only if the importer accepts the accompanying bill of exchange or draft by signing it; whereas, for D/A, the exporter instructs the presenting bank to hand over shipping and title documents (representing title to the goods shipped) to the importer only if the importer makes the full payment." 2 points True False Verbal agreements and oral contracts are generally valid and legally binding as long as they are responsible, revocable, conscious, and made in good fate. 2 points True False In which of the following trade finance situations would a performance guarantee be procured? 2 points When an exporter wishes to respond to an international public tender that requires all bidders provide cash deposits or an irrevocable guarantee to secure their bids. When two parties engage in a bilateral negotiation outside of the tendering process to reassure the foreign importer and strengthen the position of the seller. When negotiating parties are engaged in a long-term international contract and an instrument is needed to undertake payment of the seller to uphold the terms of the commercial contract to the satisfaction of the importer. When one of the negotiating parties wants guarantee of financial compensation if a bidder that has submitted a proposal refuses to accept a contract that is being awarded (e-g due to competing obligations). When entering a new market, a company must assess a foreign importer's creditworthiness or a foreign supplier's business capability including credit and commercial character and financial strength to reduce payment risks." 2 points True False Golfing Inc. assembles golf carts that are used on golf course as well as other touristic locations such as resorts and beaches. In recent years, Golfing Inc. has received multiple inquiries from companies based in Cuba for the purchase of their product. In consideration of the contract, Golfing Inc. has requested payments to be made via letter of credit. Furthermore, given the size of the contract, Golfing Inc.'s supplier is seeking a guarantee of future payment. Which of the following will be an ideal type of letter of credit Golfing Inc. should ask for? 2 points Confirmed letter of credit Red clause letter of credit Revolving letter of credit Transferable letter of credit Trade transactions handled on a draft are processed through banking channels. Although in documentary collection, exporters bank collects the payment for the exporter, draft hold less protection of exporter as banks are not obligated to honor payments on buyer's behalf." 2 points True False Rwanda Import Inc. signed a contract with Zimbabwe Export Inc. for the purchase of drilling equipment used in infrastructure development. The Rwandan company is interested in obtaining the product prior to payment but the Zimbabwean company wants to receive the payment up-front to minimize their risk of non-collecting. What is the recommended trade instrument for both companies to use? 2 points Corporate letter of credit Letter of credit and letter of guarantee Open payment terms Transferable letter of credit While in contract negotiation, the payment method and payment terms must be specified and agreed upon based on the influencing factors like the methods of payment and payment terms, location of the importer, and the supplier Previous business relationships of the two parties." 2 points True False In an international business transaction, the exporter must identify and document all the relevant parties involved in the transaction as well as specify the law that governs the transaction as soon as the contract is signed. 2 points True False For exporters, any sale is a gift until payment is received. Therefore, exporters want to receive payment as soon as possible, preferably as soon as an order is placed or before the goods are sent to the importer. 2 points True False For the document against payment method of documentary collection instrument, the exporter has a higher risk than the document against acceptance option. However, the exporter can receive the funds immediately under document against payment option by selling the accepted payment undertaking at a discount- usually to a bank. 2 points True False Which of the following best describes the function of a red clause letter of credit? 2 points To highlight specific terms struck between the importer and the exporter that are outside of the standard negotiations used with letters of credit. To indicate the exact number of times a revolving documentary letter of credit may be renewed. To authorize the advising bank to make advances to the exporter against the guarantee of the importer's bank To indicate to the exporter that a problem has occurred with the importer's finance instruments, and signal the need to renegotiate. Grand L'eau Lte (GLL), a French water treatment facility manufacturer, has received a contract to design, manufacture and install a water treatment facility in the Somalian city of Mogadishu. The contract is valued at EUR 1 million and will be paid by the buyer in EUR. GLL has never signed a contract outside of Europe and does not have any strategic partners it can leverage to ensure a successful completion of this contract. After multiple negotiations, the Executive Vice- President of Business Development decided to sign the contract as a first step towards diversifying GLL'S market reach. GLL expects to complete the contract without any local partners. Which of the following will have an impact on GLL's cash flow? 2 points Political tensions in Somalia can delay delivery and installation of the water treatment facility. Fluctuations in the foreign exchange Payment via letter of credit which has been secured in an escrow account of a Belgian bank in Antwerp Exchange controls The Bill of Exchange is a written and unconditional order signed by the exporter and drawn on the importer, demanding payment of the face value of the draft. It is a negotiable instrument or document guaranteeing the payment of a specific amount of money, either on-demand (sight), or at a set time, whose payer is usually named on the document 2 points True False A business that has decided to export its product or service to a new market or to buy from a new supplier in a different country should assume that the potential transactions will be viable, profitable or provide goods and/ or services at a price and quality that are competitive. 2 points True False Which of the following is a correct statement about the standby letter of credit? 2 points A standby letter of credit is a type of instrument that will undertake payment once the seller performs in accordance with the terms of the commercial contract. A standby letter of credit is opened and issued in favor of a foreign government agency when a company has fulfilled all of their obligations under a foreign goverment contract. A standby letter of credit is the same as a normal letter of credit but it is used in a situation where the bank has agreed agree to release an agreed upon sum of money (based on a documentary submission by one party) if the party who opened the instrument has not fulfilled certain obligations A standby letter of credit is sometimes used as an unconditional instrument, meaning that the guarantor can delay payment to the beneficiary on simple demand For an exporter, the decision to enter a new market could stem from a sales and marketing intuition based on its domestic market conditions and it could be a reactive response to an unsolicited request by a foreign customer. Regardless of the driver, the marketing and supply chain factors must remain a top priority in planning new ventures into international markets. 2 points True False Which of the following best describes a bond? 2 points An instrument issued by an insurance company that pays the importer when the exporter delivers on their contractual obligation An instrument issued by a bank in which the bank agrees to pay of sum of money when the exporter fulfills its obligation to the importer. An instrument by which a guarantor secures a long-term loan An instrument issued by which a guarantor will guarantee the execution of the exporter's obligation in favour of the importer A transaction may prove unrealistic if the cost of entering a market is too low, the competition is intense or the price in the new market is highly competitive. It is also not viable if the resulting sales generate less profit or can barely support the cost of doing business. 2 points True False International Financial Institutions & Aid Agencies offer financing and risk mitigation programs that facilitate the conduct of international trade by engaging local banks in international trade finance and enhancing trade flows by providing guarantees and offering financing or other risk mitigation solutions to foster increased trade flows and encourage development. 2 points True False International trade finance instruments, risk insurance, international financial institutions and aid agencies, and risk transfer are all different risk mitigation options that could be explored by exporters and importers alike to manage risks. 2 points True False Which of the following is a key factor that can possibly negatively impact the cash flow of a company doing business on the international market? 2 points Exchange controls Pre-investment planning Advance payment in contracts Close monitoring A wealth of expert opinion from major banks, embassies or consulates are available for free or at a negligible fee are available to exporters and importers to manage and mitigate risks while doing business globally." 2 points True False Letter of Credit is an instrument issued by a bank on behalf of exporter promising to pay the importer upon presentation of shipping documents. The exporter's bank gives a guarantee to the importer's bank to transfer goods to the exporter on its behalf. True False Prevailing commercial and economic philosophies of the buyer's country, their belief systems and nationalistic tendencies, along with the attitudes towards various regions of the world are some common economic risks faced by an exporter during the international business. 2 points True False The trade terms in an international business contract should clarify the responsibilities of the exporter and the importer for shipping the goods. responsibility for insurance in transit, title to goods in the transport process, and payment of the loss if the goods cannot be delivered. 2 points True False A bill of shipping is a legal document issued by a carrier to a shipper that details the type, quantity, and destination of the goods being carried. It is a document of title, a receipt for shipped goods, and a contract between a carrier and shipper. 2 points True False A Corporate LIC is a letter of credit given by a corporation at the request of the beneficiary without the knowledge or consent of the issuing bank. This confirmation guarantees that the beneficiary or the exporter will be paid regardless of whether the issuing bank fulfills its commitment under the letter of credit." 2 points True False Idream2export Inc. is a known manufacturer of LED light used for signal lights in its country. In recent years, the demand for such product has grown significantly in the foreign market. Idream2export Inc. has lost to its foreign competition due to limited appetite for taking on foreign market risk and limited working capital. Recently, Idream2export Inc. has been introduced to their ECA via their bank and are looking at various solutions to help mitigate foreign market risk. In particular, the company is considering accounts receivable insurance to help secure the collection of receivables. Which of the following risks is covered under this insurance policy?" 2 points Commercial disputes Insolve Damage to merchandise in transport Currency fluctuation This is a form of ADR in which the disputing parties use an individual who meets with each party separately to determine their issues and help resolve their differences. Which of the following best matches this definition? 2 points Fact-finding Mediation Conciliation Arbitration A type of Documentary Collection is document against acceptance, where the exporter is paid once shipment has been made and draft is presented to buyer for payment. The buyers bank will not release the shipping document to buyer until buyer has paid the draft." 2 points True False Factoring is a commonly used financing solution by exporting companies to convert its foreign receivables into immediate cash by selling them to a factoring house. A "factoring house is a: 2 points Company that provides margin based financing to the exporter for the time the exporter places the receivable into collections with a collections agency. Company that helps exporters establish credit in a foreign market. Company that helps exporters plan cash flow in a way to extend payables as much as possible while accelerating collection of receivables. Company that purchases domestic and foreign receivables and provide immediate payment of the invoice to the exporter, in part or in full Put the following steps for the issuance of a letter of credit in the correct order: 2 points 1. The issuing bank forwards the letter of credit to the advising bank II. The advising bank advises the exporter of the received letter of credit III. The importer instructs its bank to issue a letter of credit in favour of the exporter with pre-negotiated terms IV The exporter and importer sign a contract with the requirement to issue a letter of credit IV.M, 1, LI, I, III, IV 1, 11, III, IV II, III, I, IV International Contract Risk Analysis is the process whereby an analyst identifies risks in a particular trade transaction and proposes solutions to reduce these risks. 2 points True False Which of the following is a method by which an exporter can try to collect its receivables? 2 points Confirmation Remitting Write of the uncollectible amount Taking legal action against the buyer with the assistance of lawyers For all financial transactions carried out under the documentary collections method, banks act as intermediaries, and this instrument is typically used in established trading relationships, with stable and lower-risk markets. 2 points True False The open account transaction is one where the exporter ships the goods and expects the buyer to remit payment according to the agreed upon terms. Under this mode of payment, the exporter is fully relying on the creditworthiness of the buyer. 2 points True False In TrouBle Inc. recently approached its bank to seek assistance in financing its cash shortfall. After an hour-long meeting and review of In Trouble Inc.'s financial situation, the banker mentioned the company has significant amount of accounts receivable outstanding from foreign buyers that is blocking the company's working capital. The bank recommended In Trouble Inc. use a trade finance tool that enables exporters to bring in cash by selling medium-term foreign accounts receivable at a discount, on a without recourse" basis. This instrument is commonly known as: 2 points Forfaiting Factoring Margining Collection When using a letter of credit (LC) as the trade finance instrument, the importer's bank will collect the funds and issue the LC in favor of the exporter. Once the exporter meets the conditions of delivery and those outlined in the LC, the exporter will be eligible to receive the payment. 2 points True False Commercial risk is one of the greatest financial risks facing exporters and importers alike. Commercial risk assessment are risks such as non-tariff trade barriers, situation, the banker mentioned the company has significant amount of accounts receivable outstanding from foreign buyers that is blocking the company's working capital. The bank recommended In Trouble Inc. use a trade finance tool that enables exporters to bring in cash by selling medium-term foreign accounts receivable at a discount on a without recourse" basis. This instrument is commonly known as: 2 points Forfaiting Factoring Margining Collection When using a letter of credit (LC) as the trade finance instrument, the importer's bank will collect the funds and issue the LIC in favor of the exporter. Once the exporter meets the conditions of delivery and those outlined in the L/C, the exporter will be ellgible to receive the payment. 2 points True False Commercial risk is one of the greatest financial risks facing exporters and importers alike Commercial risk assessment are risks such as non-tariff trade barriers, central bank exchange regulations, or ban on the sale of certain products in specific countries. 2 points True False Customized Schedule includes a series of dates that define exactly when payments will be made based on the milestones completed 2 points True False The variable cost approach is a method where product costing is based on a calculation of the Cost of Goods Sold (COGS) and a calculation of Selling. General and Administrative (SG&A) expenses. These two broad categories of costs. COGS and SG&A, are used to determine the underlying product and service cost. 2 points True False Back Suomet
