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Exam 20: International Trade Finance

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Question 1

Multiple Choice

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The person or company to whom the draft or bill of exchange is addressed is the

A) drawee.
B) drawer.
C) maker.
D) originator.

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

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Question 2

Multiple Choice

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An exporter has just received a banker's acceptance created by an international transaction. If the banker's acceptance has a face value of $250,000, current rates on banker's acceptances are 6%, and the bank charges a commission of 1% per annum, how much will the exporter receive if he sells the acceptance in the secondary market six months prior to maturity?

A) $250,000
B) $244,000
C) $242,500
D) $241,250

E) None of the above
F) All of the above

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Question 3

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The major advantage to the exporter of a letter of credit is that the exporter does not receive any funds until the documents have arrived at a local port or airfield.

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

A/An ________ letter of credit is intended to serve as a means of arranging payment, but not as a guarantee of payment.

________ drafts are unaccompanied by any other documents, and are usually used between MNEs and ________.

A bill of exchange or draft drawn on a bank and commonly used to guarantee exporters that they will receive payment on goods delivered to importers is a/an

Instruction 20.1: Use the information to answer following question(s) . Jackson Automotive Inc. of California agrees to sell specialized automotive parts to Hidatsi of Korea. Because the two companies have never done business with each other, Jackson 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 Jackson Inc. chooses to discount or sell the bankers acceptance to its bank, the discount rate is 1.00% per annum. -Refer to Instruction 20.1. What is the size of the discount (not including the commission fee) Jackson must take for receiving the proceeds of the sale today rather than waiting for six months?

In the United States, the Foreign Credit Insurance Corporation

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

When a confirmed letter of credit is used, the exporting firm gains because

A signed ________ is issued by the exporter and contains a precise description of the merchandise.

The Foreign Credit Insurance Association is a branch of the U.S. federal government.

Most drafts in international trade are "clean."

________ is the risk that interest rates will change between signing the contract and payment for goods and services.

Which of the following documents is NOT part of a system designed to protect both the importer and exporter from non-completion of trade?

Which of the following is NOT a requirement for a draft to become a negotiable instrument?

The letter of credit is designed to

Instruction 20.1: Use the information to answer following question(s) . Jackson Automotive Inc. of California agrees to sell specialized automotive parts to Hidatsi of Korea. Because the two companies have never done business with each other, Jackson 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 Jackson Inc. chooses to discount or sell the bankers acceptance to its bank, the discount rate is 1.00% per annum. -Refer to Instruction 20.1. What is the size of the commission Jackson Automotive will pay the bank for the banker's acceptance?

Because most international transactions are between affiliated parties, international transaction contracts are less complex, but the management of the total value of the MNE is more complex.