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Name: Mona AlGannas Class: International Finance Date: 29 July 2012 ID: 200700691
Take Home Quiz #19
Multiple Choice
Identify the choice that best completes the statement or answers the question.
__D__ 1. With a (n) _______, the exporter ships the goods to the importer while still retaining actual
title to the merchandise.
a. letter of credit arrangement
b. open account arrangement
c. draft arrangement
d. consignment arrangement
__C__ 2. Countertrade represents foreign trade:
a. restrictions imposed by the government on imports from another country.
b. restrictions imposed by the government on exports sent from the country.
c. transactions that force the sales of goods of one country to be linked to the purchase or exchange of
goods from the country.
d. financing provided to an exporter in exchange for goods provided to the creditor by the exporter.
__C__ 3. Which of the following is not true regarding letters of credit?
a. They are issued by banks on behalf of the importer promising to pay the exporter.
b. A revocable letter of credit can be cancelled or revoked at any time without prior notification to the
beneficiary.
c. They guarantee that the goods shipped are the goods purchased.
d. All of these are true.
__A__ 4. A banker's acceptance is a draft drawn on and accepted by a(n):
a. bank.
b. importer.
c. exporter.
d. none of these.
__A__ 5. _______ promises to pay the beneficiary if the buyer fails to pay as agreed.
a. A standby L/C
b. A transferable L/C
c. Assignment of proceeds
d. None of these
True/False
Indicate whether the statement is true or false.
__ True __ 6. The all-in-rate a bank charges its customer(s) for accepting drafts includes both the
discount rate and the acceptance commission.
__ True __ 7. All types of foreign trade transactions in which the sale of goods to one country is linked to
the purchase or exchange of goods from that same country are called countertrade.
__ False __ 8. The exchange of goods between two parties without the use of any currency as a medium
of exchange is called factoring.
__ True __ 9. A draft drawn on and accepted by a bank is called a banker's acceptance.
__ False __ 10. Under a letter of credit, the exporter will not ship the goods until the buyer has remitted
payment to the exporter.
__ True __ 11. An irrevocable L/C obligates the issuing bank to honor all drawings presented in
conformity with the terms of the L/C.
__ False __ 12. The interest rate the bank charges the customer in a banker's acceptance is referred to
as the all-in rate; it entirely consists of the acceptance commission.
__ True __ 13. The term "counterpurchase" denotes the exchange of goods between two parties under
two distinct contracts expressed in monetary terms.
__ False __ 14. In an open account transaction, the exporter ships the goods to the importer but retains
title to the goods until they have been sold.
__ False __ 15. When using factoring to finance international trade, a bank will provide a loan to the
exporter secured by an assignment of the account receivable.
__ True __ 16. From a bank's viewpoint, issuing a letter of credit is analogous to making a loan as far as
risk is concerned.
__ True __ 17. There is an active secondary market for banker's acceptances.
__ True __ 18. The commission earned by the bank for accepting a draft is reflected in the all-in-rate.
__ False __ 19. The Working Capital Guarantee Program of the Private Export Funding Corporation
(PEFCO) encourages commercial banks to extend short-term export financing to eligible exporters by
providing a comprehensive guarantee that covers 100 percent of the loan's principal and interest.
__ True __ 20. The objectives of the Export-Import Bank of the United States include the assumption of
underlying credit risk and country risk to encourage private lenders to finance export trade and the
provision of direct loans to foreign buyers when private lenders are unwilling to do so.
__ False __ 21. The Overseas Private Investment Corporation (OPIC) is owned by a consortium of
commercial banks and industrial companies; it cooperates closely with the Export-Import Bank.
__ True __ 22. Under prepayment, the exporter will not ship the goods until the buyer has remitted
payment to the exporter.
__ True __ 23. A letter of credit does not guarantee that the goods purchased will be those invoiced and
shipped.
__ False __ 24. If shipment is made under a forfaiting draft, the exporter is paid once shipment has been
made and the draft is presented to the buyer for payments.
__ False __ 25. In a countertrade transaction, banks on both ends act as intermediaries in the processing
of shipping documents and the collection of payment.
__ False __ 26. Under a countertrade arrangement, the exporter ships the goods to the importer while
retaining title to the merchandise until it is sold.
__ True __ 27. The sale of accounts receivable to a third party for a discount is called factoring.