Question 1

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

a.

The exporter applies to its local bank for the issuance of a letter of credit.

b.

The importer's bank cuts a sales contract based on its assessment of the creditworthiness of the importer.

c.

The importer and exporter agree on a transaction.

d.

The importer applies to its local bank for the issuance of a letter of credit.

2.

An exporting company calculates pricing in its base (domestic) currency and then converts the pricing using the prevailing exchange rate to offer the customer pricing in a foreign currency. The main source of currency risk for this scenario is when which of the following happens?

a.

The foreign currency that is being used suffers a serious decline in value between the time the transaction is negotiated and the time that payment is made

b.

The foreign currency that is being used remains stable between the time the transaction is negotiated and the time that payment is made

c.

The domestic currency of the exporter remains stable between the time the transaction is negotiated and the time that payment is made

d.

The domestic currency of the exporter suffers a serious decline in value between the time the transaction is negotiated and the time that payment is made

3.

An irrevocable letter of credit transfers the payment obligation for an export deal from the buyer to the buyer's:

a.

in-house export organization.

b.

bank.

c.

checking account.

d.

freight forwarder

4.

When an exporter and importer are negotiating a contract that is spread over a period of time, parties tend to outline a schedule of payments that defines the dates at which payments are made from the importer to the exporter. What is this called?

a.

Term based contracting

b.

Aligned payment scheduling

c.

Segmented payment contracting

d.

Milestone-based contract