Copyright?2023PearsonEducation,Inc.

MultinationalBusinessFinance,16e(Eiteman/Stonehill/Moffett)

Chapter16InternationalTradeFinance

16.1TheTradeRelationship

1)Theexporter-importerrelationshiptoacorporationofaforeignimporterthathasnotpreviouslyconductedbusinesswiththefirmwouldbean:

A)unaffiliatedknown.

B)affiliatedparty.

C)unaffiliatedunknown.

D)anyoftheabove

Answer:C

Diff:2

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

2)Whichofthefollowingrelationshipsbetweenimportingandexportingpartieswouldrequirethemostdetailedcontracttoconductbusiness?

A)affiliatedparty

B)unaffiliatedunknownparty

C)knownunaffiliatedparty

D)domesticsupplier

Answer:B

Diff:2

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

3)PolarisCorporationhasmadeanagreementtoshipgoodstoaforeignfirmwithwhomtheyhavenotenteredintoacontractforthreeyears.However,thefirmshavecommunicatedregularlysincethelastsalethreeyearsago.Thisisanexampleofan:

A)unaffiliatedknownpartytransaction.

B)unaffiliatedunknownpartytransaction.

C)affiliatedpartytransaction.

D)noneoftheabove

Answer:A

Diff:2

L.O.:16.1TheTradeRelationship

Skill:Conceptual

AACSB:Applicationofknowledge

4)WhichofthefollowingisNOTafinancialinstrumentthatmaybeincludedinaninternationaltradetransaction?

A)LetterofCredit

B)SightDraft

C)Orderbilloflading

D)Federalfundstransaction

Answer:D

Diff:2

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

5)Thecombinationofaletterofcredit,asightdraft,andanorderbillofladingprotectbothpartiesininternationaltransactionsfromwhichofthefollowing?

A)theriskofnoncompletion

B)theriskofforeignexchangerisk(whencombinedwithavarioushedgingtechniques)

C)theriskthatfinancingwillnotbeavailableduetoforeignexchangerisk

D)Alloftheserisksarereducedwhenusingthesetradeimplements.

Answer:D

Diff:1

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

6)Theriskofnoncompletionismostimportant:

A)whentheinternationaltradeisrecurrentinnature.

B)whenthereisasustainedrelationshipbetweenthebuyerandseller.

C)withanoutstandingagreementforrecurringshipments.

D)whentherelationshipisbetweencountrieswhosecurrenciesareconsideredstrong.

Answer:D

Diff:2

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

7)Fromafinancialmanagementperspective,allofthefollowingareprimaryrisksassociatedwithaninternationaltradetransactionEXCEPT:

A)currencyrisk.

B)defaultrisk.

C)noncompletionrisk.

D)interestraterisk.

Answer:D

Diff:1

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

8)Theriskofdefaultonthepartoftheimporter—riskofnoncompletion—ispresentassoonas:

A)apricequoteisgiven.

B)goodsarereceived.

C)theexportcontractissigned.

D)thefinancingperiodbegins.

Answer:D

Diff:1

L.O.:16.1TheTradeRelationship

Skill:Conceptual

AACSB:Applicationofknowledge

9)Today,internationaltradeisdominatedbytransactionsbetweenunaffiliatedparties(knownorunknown).

Answer:FALSE

Diff:1

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

10)Becausemostinternationaltransactionsarebetweenaffiliatedparties,internationaltransactioncontractsarelesscomplex,butthemanagementofthetotalvalueoftheMNEismorecomplex.

Answer:TRUE

Diff:1

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

11)AnadvantageoftradingwithanaffiliatedpartyforanMNE,comparedtoanunaffiliatedparty,couldbereducedcontractingcostsandlesstoevennoneedtoprotectagainstnonpayment.

Answer:TRUE

Diff:1

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

12)Thefundamentaldilemmaofforeigntradeisbeingunwillingtotrustastrangerinaforeignland.

Answer:TRUE

Diff:2

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

13)Ifaforeignexchangetransactioncallsforpaymentintheimporter'scurrency,theexporterhastheforeignexchangerisk.

Answer:TRUE

Diff:2

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

14)Ifaforeignexchangetransactioncallsforpaymentintheexporter'scurrency,theimporterhastheforeignexchangerisk.

Answer:TRUE

Diff:1

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

15)Inthecaseofinternationaltrade,theriskofnonpaymentisessentiallyeliminatedwiththeuseofaletterofcreditissuedthroughatrustworthybank.

Answer:TRUE

Diff:1

L.O.:16.1TheTradeRelationship

Skill:Recognition

AACSB:Applicationofknowledge

16)Whymightdifferentdocumentationbeusedforanexporttoanonaffiliatedforeignbuyerwhoisanewcustomer,ascomparedwithanexporttoanonaffiliatedforeignbuyertowhomtheexporterhasbeensellingformanyyears?

Answer:Anewnonaffiliatedbuyerpresentsacreditriskfortheexporter,becausetheexportermaybeunabletoassessthecreditworthinessofthatimporterduetogeographicdistance,language,culture,orlackofarecordofpaymentstoothersuppliers.Aletterofcredit,accompaniedbyotherdocuments,allowstheexportertorelyonthecreditstandingofabank,whichispresumedtobeofgreatercreditworthinessthanjustanunknownmanufacturingfirm.

Aftersuccessfultradegoesonforsometimetheimporterbecomesaknownentity,inwhichcasetheexporterwillhavemorefaithintheimporter'swillingnessandabilitytopay.Becausetheletterofcreditandotherdocumentshavebothafinancialcostandacostforthetimeandenergyinvolvedinhandlingthedocuments,directbillingforexportsiseasier,faster,andlowersthefinalend-costtotheultimatecustomer.

Diff:2

L.O.:16.1TheTradeRelationship

Skill:Conceptual

AACSB:Applicationofknowledge

17)Forwhatreasonmightanexporterusestandardinternationaltradedocumentation(letterofcredit,draft,orderbilloflading)onanintrafirmexporttoitsparentorsistersubsidiary?

Answer:Anexporttoaparentorsistersubsidiaryhasnocreditriskbecausebothexporterandimporterarepartofthesamecorporateunit.Non-paymenttoanexporterinthissituationisjustamatterofkeepingthefirm'scashinanothercorporateaccount.Infact,verylatepaymentforanexporttoanaffiliatedimportermightbedesirable,becausethefirmwantstokeepcashinonelocationandnotinanother.Nevertheless,anexporttoanaffiliatedbuyermightpassthroughthestandarddocumentationasawaytoobtainfinancingthatiseasytoobtain,ispossiblycheaperthanalternativesourcesofshort-termfinancing,orprovidessomeprotectionagainstpoliticalorcountry-basedinterruptiontopaymentforthetransaction.

Diff:2

L.O.:16.1TheTradeRelationship

Skill:Conceptual

AACSB:Applicationofknowledge

18)Whatisthemajordifferencebetween"currencyrisk"and"riskofnoncompletion"?Howaretheseriskshandledinatypicalinternationaltradetransaction?

Answer:Currencyriskistheriskthatthecurrencydesignatedforpaymentoftheimportchangesinvaluerelativetotheothercurrency.AU.S.firmexportingtoFrancewantsdollars,whiletheFrenchimporterwantstopayeuros.Ifthesalecontractspecifiespaymentindollars,theFrenchimporterhasacurrencyrisk—moreeurosthanexpectedmightbeneededwhenpaymentisdue.Ifthesalescontractspecifiespaymentineuros,theU.S.exporterhasacurrencyrisk—fewerdollarsthanexpectedmightbereceivedwhentheeurosareexchangedfordollars.

Riskofnoncompletionistheriskthatoneofthepartiesfailstofulfillitsobligations.Theimportermayrefusetopayforthegoods,ortheexportermayfailtoshipthegoods.Eventsnotunderthecontrolofthepartiestothetrade,suchasmajorstorms,diseaseepidemics,terroristacts,orwar,maymakecompletionofthetradeimpossible.Theseveraldocumentsinvolvedininternationaltradeareintendedtoreducefinanciallossfromnoncompletion.

Diff:2

L.O.:16.1TheTradeRelationship

Skill:Conceptual

AACSB:Applicationofknowledge

16.2KeyDocuments

1)WhichofthefollowingisNOTtrueregardingaletterofcredit?

A)Theimporterandexporteragreeonatransaction.

B)Theimporterappliestoitslocalbankfortheissuanceofaletterofcredit.

C)Theexporterappliestoitslocalbankfortheissuanceofaletterofcredit.

D)Theimporter'sbankcutsasalescontractbasedonitsassessmentofthecreditworthinessoftheimporter.

Answer:C

Diff:2

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

2)A/An________letterofcreditisintendedtoserveasameansofarrangingpayment,butnotasaguaranteeofpayment.

A)irrevocable

B)revocable

C)confirmed

D)unconfirmed

Answer:B

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

3)A/An________letterofcreditisanobligationonlyoftheissuingbankwhereasotherbankshonora/an________letterofcredit.

A)irrevocable;unconfirmed

B)revocable;confirmed

C)confirmed;irrevocable

D)unconfirmed;confirmed

Answer:D

Diff:2

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

4)Aletterofcreditthatisconfirmedinthe________countryhastheadditionaladvantageofeliminatingtheproblemof________.

A)exporter's;portfoliorisk

B)importer's;blockedforeignexchange

C)exporter's;blockedforeignexchange

D)noneoftheabove

Answer:C

Diff:2

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

5)TheBillofLadingistheinstrumentnormallyusedininternationalcommerceto:

A)transferproduct.

B)proveownership.

C)transfertitle.

D)initiatethesale.

Answer:C

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

6)The________istheinstrumentnormallyusedtoactuallyeffectpaymentininternationalcommerce.

A)banker'sacceptance

B)billofexchange

C)billoflading

D)letterofcredit

Answer:B

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

7)Thepersonorcompanyinitiatingthedraftorbillofexchangeisknownasthe:

A)maker.

B)drawer.

C)originator.

D)anyoftheabove

Answer:D

Diff:2

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

8)Thepersonorcompanytowhomthedraftorbillofexchangeisaddressedisthe:

A)drawee.

B)drawer.

C)maker.

D)originator.

Answer:A

Diff:2

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

9)Draftsthathavebeenacceptedbybanksbecome:

A)cleandrafts.

B)nonmarketable.

C)banker'sacceptances.

D)noneoftheabove

Answer:C

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

10)WhichofthefollowingpurposesisNOTservedbythebilloflading?

A)Itactsasareceipt.

B)Itactsasacontract.

C)Itactsasadocumentoftitle.

D)Itactsasalloftheabove.

Answer:D

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

11)The________isissuedtotheexporterbyacommoncarriertransportingthemerchandise.

A)billoflading

B)draft

C)banker'sacceptance

D)lineofcredit

Answer:A

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

12)Astraightbillofladingismostlikelytobeusedunderwhichofthefollowingcircumstances?

A)whenthemerchandisehasnotbeenpaidforinadvance

B)whenthetransactionisbeingfinancedbyabank

C)whentheshipmentistoanaffiliate

D)noneoftheabove

Answer:C

Diff:2

L.O.:16.2KeyDocuments

Skill:Conceptual

AACSB:Applicationofknowledge

13)Tobecomeanegotiableinstrument,adraftmustconformtothefollowingrequirementsEXCEPT:

A)itmustbeinwritingandsignedbythemakerordrawer.

B)itmustbepayabletoorderortobearer.

C)itmustbewritteninEnglish.

D)itmustbepayableondemandoratafixedordeterminablefuturedate.

Answer:C

Diff:2

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

14)Inatypicalinternationaltradetransaction,theorderofactivitywouldbewhichofthefollowing?

A)Theforeignbuyerplacesanorder;Thedomesticmanufacturershipstothebuyer;Themanufacturer'sbankpresentsadraftanddocumentstothebuyer'sbankforacceptance;Thebuyer'sbanksubmitspaymenttothemanufacturer'sbank.

B)Thedomesticmanufacturershipstothebuyer;Thebuyer'sbanksubmitspaymenttothemanufacturer'sbank;Theforeignbuyerplacesanorder;Thedomesticmanufacturershipstothebuyer;Themanufacturer'sbankpresentsadraftanddocumentstothebuyer'sbankforacceptance.

C)Theforeignbuyerplacesanorder;Themanufacturer'sbankpresentsadraftanddocumentstothebuyer'sbankforacceptance;Thedomesticmanufacturershipstothebuyer;Thebuyer'sbanksubmitspaymenttothemanufacturer'sbank.

D)Thedomesticmanufacturershipstothebuyer;Themanufacturer'sbankpresentsadraftanddocumentstothebuyer'sbankforacceptance;Theforeignbuyerplacesanorder;Thebuyer'sbanksubmitspaymenttothemanufacturer'sbank.

Answer:A

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

15)Aletterofcreditisanagreementbythebanktopayagainstdocumentsratherthantheactualmerchandise.

Answer:TRUE

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

16)Theprimaryadvantageofaletterofcreditisthatitreducesrisk.

Answer:TRUE

Diff:1

L.O.:16.2KeyDocuments

Skill:Conceptual

AACSB:Applicationofknowledge

17)Themajoradvantageofaletterofcredittotheexporteristhattheexporterdoesnotreceiveanyfundsuntilthedocumentshavearrivedatalocalportorairfield.

Answer:FALSE

Diff:2

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

18)Toconstituteatrueletterofcredittransaction,theissuingbankmustreceiveafeeorothervalidbusinessconsiderationforissuingtheL/C.

Answer:TRUE

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

19)Toconstituteatrueletterofcredittransaction,thebank'sL/Cmustcontainaspecifiedexpirationdateoradefinitematurity.

Answer:TRUE

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

20)Toconstituteatrueletterofcredittransaction,thebank'scommitmentmustbeopen-endedandcannothaveastatedmaximumamountofmoney.

Answer:FALSE

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

21)ArevocableL/Cisintendedtoserveasameansofarrangingpaymentbutnotasaguaranteeofpayment.

Answer:TRUE

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

22)Asightdraftispayableonpresentationtothedrawee;atimedraftallowsadelayinpayment.

Answer:TRUE

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

23)Adraftissometimescalledarevocableletterofcredit.

Answer:FALSE

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

24)Atimedraftispayableonpresentationtothedrawee;thedraweemustpayatonceordishonorthedraft.Asightdraft,allowsadelayinpayment.

Answer:FALSE

Diff:1

L.O.:16.2KeyDocuments

Skill:Conceptual

AACSB:Applicationofknowledge

25)Thebillofladingisissuedtotheexporterbyacommoncarriertransportingthemerchandise.Itservesthreepurposes:areceipt,acontract,andadocumentoftitle.

Answer:TRUE

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

26)Becauseoftherisksinvolvedininternationaltrade,mosttransactionsfollowconventionalmethodsandrarelyrequireflexibilityorcreativityonthepartofmanagement.

Answer:FALSE

Diff:1

L.O.:16.2KeyDocuments

Skill:Recognition

AACSB:Applicationofknowledge

27)Explainwhataletterofcredit(L/C)is,whotheprinciplepartiesare,whattheprincipleadvantageis,andhowtheL/Cfacilitatesinternationaltrade.

Answer:Aletterofcredit(L/C)isabank'sconditionalpromisetopayissuedbyabankattherequestofanimporter.TheprimaryadvantageofanL/Cisthereductioninrisk.Thisreductioninriskmakesiteasierfortheexportertosellgoodstotheimporterbecauseitnolongerneedrelyontheabilityoftheimportingfirmtopayforthegoods,butratheritcanrelyonthebank.

Therearethreeprimarypartiesinvolvedwithaletterofcredit.Partynumberoneistheexporter,whomakesasaletotheimporterinexchangeforthebank'sL/C.Partynumbertwoistheimporterwhoreceivesthegoodsandpromisestopaythebank.Andthird,thebankthatcontractswiththeimporterandagreestopaytheexporteruponpresentationofdocumentsasspecifiedintheL/C.

Theadvantagetoanexporteristheincreasedlikelihoodofreceivingpaymentbecausefundsareduefromaknowninternationalcommercialbankasopposedtoarelativelyunknownimporter.Furthermore,anexporterwithagoodreputationfordeliverymaybeabletoselltheL/Catadiscountinthesecondarymarketpriortoshippingandspeedupcashflow.

Theimporterbenefitsbecauseitdoesn'tneedtopayforgoodspurchaseduntiltheyactuallyreachport.Thebankbenefitsfromthefeestheycharge.

Diff:3

L.O.:16.2KeyDocuments

Skill:Conceptual

AACSB:Applicationofknowledge

16.3GovernmentProgramstoHelpFinanceExports

1)TheExport-ImportBankisanindependentagencyoftheU.S.governmentestablishedin1934to:

A)shipmoneyabroad.

B)importagriculturalproductsduringtherecession.

C)facilitateandstimulateforeigntradeoftheUnitedStates.

D)noneoftheabove

Answer:C

Diff:2

L.O.:16.3GovernmentProgramstoHelpFinanceExports

Skill:Recognition

AACSB:Applicationofknowledge

2)IntheUnitedStates,theForeignCreditInsuranceAssociation:

A)isasubsidiaryoftheExport-ImportBank.

B)provideslettersofcreditforU.S.importers.

C)provideslettersofcreditforU.S.exporters.

D)providespoliciesthatprotectU.S.exportersagainstdefaultbyforeignimporters.

Answer:D

Diff:2

L.O.:16.3GovernmentProgramstoHelpFinanceExports

Skill:Recognition

AACSB:Applicationofknowledge

3)TheEximbankdoesallofthefollowingEXCEPT:

A)guaranteesleasetransactions.

B)suppliescounselingforexportersinfindingfinancingforU.S.goods.

C)financesthecostinvolvedinthepreparationoffeasibilitystudiesfornon-U.S.clients

D)provideslettersofcreditforU.S.exporters.

Answer:D

Diff:2

L.O.:16.3GovernmentProgramstoHelpFinanceExports

Skill:Recognition

AACSB:Applicationofknowledge

4)TheForeignCreditInsuranceAssociationisabranchoftheU.S.federalgovernment.

Answer:FALSE

Diff:1

L.O.:16.3GovernmentProgramstoHelpFinanceExports

Skill:Recognition

AACSB:Applicationofknowledge

5)TheExport-ImportBank(alsocalledEximbank)isanindependentagencyoftheU.S.government,establishedin1934tostimulateandfacilitatetheforeigntradeoftheUnitedStates.

Answer:TRUE

Diff:1

L.O.:16.3GovernmentProgramstoHelpFinanceExports

Skill:Recognition

AACSB:Applicationofknowledge

6)Essentially,theEximbanklendsdollarstoborrowersinsidetheUnitedStatesforthepurchaseofU.S.goodsandservices.

Answer:FALSE

Diff:1

L.O.:16.3GovernmentProgramstoHelpFinanceExports

Skill:Recognition

AACSB:Applicationofknowledge

7)IntheUnitedStates,domestictaxpayersbearthecostofexportcreditinsuranceandexportfinancingprovidedbyinstitutionsliketheFCIAandEximbanktoforeignbuyersinordertocreateemploymentandmaintainatechnologicaledge.

Answer:TRUE

Diff:1

L.O.:16.3GovernmentProgramstoHelpFinanceExports

Skill:Recognition

AACSB:Applicationofknowledge

8)Exportcreditinsuranceprovidesassurancetotheexporterortheexporter'sbankthat,shouldtheforeigncustomerdefaultonpayment,theinsurancecompanywillpayforamajorportionoftheloss.

Answer:TRUE

Diff:1

L.O.:16.3GovernmentProgramstoHelpFinanceExports

Skill:Recognition

AACSB:Applicationofknowledge

9)Onewayanationcanimproveitsexportsisbyshorteningtheperiodforwhichcredittransactionscanbeinsured.

Answer:FALSE

Diff:1

L.O.:16.3GovernmentProgramstoHelpFinanceExports

Skill:Recognition

AACSB:Applicationofknowledge

10)TheEuropeanUnionrecommendsmaximumcredittermsformanyitemsincluding,forexample,heavycapitalgoods(fiveyears),lightcapitalgoods(threeyears),andconsumerdurablegoods(oneyear).

Answer:FALSE

Diff:1

L.O.:16.3GovernmentProgramstoHelpFinanceExports

Skill:Recognition

AACSB:Applicationofknowledge

16.4TradeFinancingAlternatives

Instruction16.1:

Usetheinformationtoanswerthefollowingquestion(s).

CypressSystemsInc.,ofFlorida,agreestosellspecializedhydroponicgrowingequipmenttoLandcaster'sofAustralia.Becausethetwocompanieshaveneverdonebusinesswitheachother,Cypressrequiresabanker'sacceptanceaspaymentforthe$1,000,000order.Thebanker'sacceptancecarriesa1.4%commissionperannumandpaymentistobereceivedin6months.IfCypressInc.choosestodiscountorsellthebanker'sacceptancetoitsbank,thediscountrateis1.00%perannum.

1)RefertoInstruction16.1.Whatisthesizeofthediscount(notincludingthecommissionfee)Cypressmusttakeforreceivingtheproceedsofthesaletodayratherthanwaitingforsixmonths?

A)$7,000

B)$5,000

C)$12,000

D)$14.000

Answer:B

Diff:3

L.O.:16.4TradeFinancingAlternatives

Skill:Analytical

AACSB:Analyticalthinking

2)RefertoInstruction16.1.WhatisthesizeofthecommissionCypresswillpaythebankforthebanker'sacceptance?

A)$7,000

B)$5,000

C)$12,000

D)$14,000

Answer:A

Diff:3

L.O.:16.4TradeFinancingAlternatives

Skill:Analytical

AACSB:Analyticalthinking

3)RefertoInstruction16.1.WhatisthetotalCypresscanexpecttoreceiveifthefirmtakespaymenttoday?

A)$993,000

B)$995,000

C)$988,000

D)$996,000

Answer:C

Diff:3

L.O.:16.4TradeFinancingAlternatives

Skill:Analytical

AACSB:Analyticalthinking

4)RefertoInstruction16.1.________isanunsecuredpromissorynote.

A)Abanker'sacceptance

B)Anoverdraft

C)Asecuritizedloan

D)Commercialpaper

Answer:D

Diff:3

L.O.:16.4TradeFinancingAlternatives

Skill:Recognition

AACSB:Applicationofknowledge

5)RogueSpicesInc.hasaCanadianreceivablescontractfor$200,000duein270days.Thefirmhasbeenapproachedbyafactoringfirmthatofferstopurchasethereceivablesata12%perannumdiscountplusa1%chargeforanonrecourseclause.Whatistheannualizedpercentageall-in-costofthisfactoringalternative?

A)14.82%

B)13.00%

C)12.00%

D)9.09%

Answer:A

Diff:3

L.O.:16.4TradeFinancingAlternatives

Skill:Analytical

AACSB:Analyticalthinking

6)Exportreceivablesarenormallysoldatadiscount.ThesizeofthediscountdependsonthefollowingfactorsEXCEPT:

A)overdraftfees.

B)collectionrisk.

C)costofcreditinsurance.

D)sizeoffinancingandservicesfees.

Answer:A

Diff:3

L.O.:16.4TradeFinancingAlternatives

Skill:Analytical

AACSB:Applicationofknowledge

7)Banker'sacceptancesareusedtofinanceonlyinternationaltradereceivablesbutnotdomestictradereceivables.

Answer:FALSE

Diff:1

L.O.:16.4TradeFinancingAlternatives

Skill:Recognition

AACSB:Applicationofknowledge

8)Thefirstownerofthebankers'acceptancecreatedfromaninternationaltradetransactionwillbetheimporter,whoreceivestheendorseddraftbackafterthebankhasstampedit"accepted."

Answer:FALSE

Diff:2

L.O.:16.4TradeFinancingAlternatives

Skill:Recognition

AACSB:Applicationofknowledge

9)Anoverdraftagreementallowsafirmtooverdrawitsbankaccountuptothelimitofitscreditline.

Answer:TRUE

Diff:2

L.O.:16.4TradeFinancingAlternatives

Skill:Recognition

AACSB:Applicationofknowledge

10)Issuingcommercialpaperstofinanceaccountsreceivableorshort-termfinancingneedsliesatthelowendofthepeckingorderoftradefinancingalternatives.

Answer:FALSE

Diff:2

L.O.:16.4TradeFinancingAlternatives

Skill:Recognition

AACSB:Applicationofknowledge

11)Recoursemeansthatthefactorassumesthecredit,political,andforeignexchangeriskforthereceivablesitpurchases.

Answer:FALSE

Diff:2

L.O.:16.4TradeFinancingAlternatives

Skill:Recognition

AACSB:Applicationofknowledge

12)Thefirmsellingtherecoursereceivablesavoidsthecostofdeterminingthecreditworthinessofitscustomers.

Answer:FALSE

Diff:2

L.O.:16.4TradeFinancingAlternatives

Skill:Recognition

AACSB:Applicationof