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Exam 16: International Trade Finance

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Question 41

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Use the information to answer the following question(s) . Cypress Systems Inc., of Florida, agrees to sell specialized hydroponic growing equipment to Landcaster's of Australia. Because the two companies have never done business with each other, Cypress requires a banker's acceptance as payment for the $1,000,000 order. The banker's acceptance carries a 1.4% commission per annum and payment is to be received in 6 months. If Cypress Inc. chooses to discount or sell the bankers acceptance to its bank, the discount rate is 1.00% per annum. -Refer to Instruction 16.1.What is the size of the commission Cypress will pay the bank for the banker's acceptance?

A) $7,000
B) $5,000
C) $12,000
D) $14,000

E) C) and D)
F) B) and C)

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Question 42

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A letter of credit that is confirmed in the ________ country has the additional advantage of eliminating the problem of ________.

A) exporter's; portfolio risk
B) importer's; blocked foreign exchange
C) exporter's; blocked foreign exchange
D) none of the above

E) A) and C)
F) All of the above

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Question 43

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The combination of a letter of credit,a sight draft,and an order bill of lading protect both parties in international transactions from which of the following?

In the United States,the Foreign Credit Insurance Corporation:

Polaris Corporation has made an agreement to ship goods to a foreign firm with whom they have not entered into a contract for three years.However,the firms have communicated regularly since the last sale three years ago.This is an example of an:

Because of the risks involved in international trade,most transactions follow conventional methods and rarely require flexibility or creativity on the part of management.

A/An ________ letter of credit is an obligation only of the issuing bank whereas other banks honor a/an ________ letter of credit.

An advantage of trading with an affiliated party for an MNE,compared to an unaffiliated party,could be reduced contracting costs and less to even no need to protect against nonpayment.

The bill of lading is issued to the exporter by a common carrier transporting the merchandise.It serves three purposes: a receipt,a contract,and a document of title.

A draft is sometimes called a revocable letter of credit.

A sight draft is payable on presentation to the drawee; a time draft allows a delay in payment.

A typical forfaiting transaction involves the following parties EXCEPT:

Today,international trade is dominated by transactions between unaffiliated parties (known or unknown).

To constitute a true letter of credit transaction,the bank's L/C must contain a specified expiration date or a definite maturity.

In the United States,domestic taxpayers bear the cost of export credit insurance and export financing provided by institutions like the FCIA and Eximbank to foreign buyers in order to create employment and maintain a technological edge.