Deck 14: Exporting, Importing, and Countertrade

Question 1

Commercial banks and major accounting firms are rarely willing to assist small firms in starting export operations due to high default risks.

Answer 1

False
Explanation: Commercial banks and major accounting firms are more willing to assist small firms in starting export operations than they were a decade ago. In addition, large multinationals that have been successful in the global arena are typically willing to discuss opportunities overseas with the owners or managers of small firms.

Question 2

In domestic trade transactions, a buyer can often obtain possession of merchandise without signing a formal document acknowledging his or her obligation to pay.

Answer 2

True
Explanation: International practice is to use drafts to settle trade transactions. This differs from domestic practice in which the buyer can often obtain possession of the merchandise without signing a formal document acknowledging his or her obligation to pay.

Question 3

While small firms tend to be proactive about seeking opportunities for profitable exporting, large firms are very reactive.

Answer 3

False
Explanation: Studies have shown that while many large firms tend to be proactive about seeking opportunities for profitable exporting, systematically scanning foreign markets to find ways to leverage their technology, products, and marketing skills in foreign countries, many medium-sized and small firms are very reactive.

Question 4

Lack of trust in international trade is exacerbated by the distance between the two parties in space, language, and culture.

Question 5

It often makes sense for a firm to enter a foreign market on a large scale to reduce the costs of any subsequent failure.

Question 6

A letter of credit may reduce an importer's ability to borrow funds for other purposes.

Question 7

Firms that actively export often lose out on significant opportunities for growth and cost reduction.

Question 8

In international commerce, time drafts are negotiable instruments.

Question 9

In international commerce, a person or business initiating a draft is known as the drafter and the party to whom the draft is presented is known as the draftee.

Question 10

Only large companies have benefited significantly from the moneymaking opportunities of exporting.

Question 11

German and Japanese firms are relatively more information-disadvantaged than U.S. firms.

Question 12

Export management companies (EMCs) start exporting operations for a firm with the understanding that the firm will take over operations after they are well established.

Question 13

Reactive firms do not consider exporting until their domestic market is saturated.

Question 14

Issued by a bank at the request of an importer, a bill of lading states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents.

Question 15

Exporting is often not an end in itself, but merely a step on the road toward establishment of foreign production.

Question 16

In international commerce, a sight draft allows for a delay in payment.

Question 17

A draft, an instrument normally used in international commerce to effect payment, is also known as a letter of credit.

Question 18

For U.S. firms, the most comprehensive source of information on export opportunities is the U.S. Department of Commerce.

Question 19

The advantage of export management companies (EMCs) is that they are experienced specialists that can help the neophyte exporter identify opportunities and avoid common pitfalls.

Question 20

A bill of lading can function as collateral against which funds are advanced to the exporter by its local bank before final payment by the importer.

Question 21

Countertrade's main attraction is that it can give a firm a way to finance an export deal when other means are not available.

Question 22

Exporting is nearly always a way to increase the revenue and profit base of a company because:

A)there is little competition in the international market.
B)foreign governments encourage imports from other countries.
C)international markets are less complex than their domestic counterparts.
D)the international market is much larger than the domestic market.
E)it does not involve wasting resources on paperwork.

Question 23

Offset refers to the use of a specialized third-party trading house in a countertrade arrangement.

Question 24

The mission of the Foreign Credit Insurance Association is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries.

Question 25

Which of the following is a common pitfall that novice exporters come across?

A)Poor understanding of the opportunities in the domestic market
B)Low unit costs
C)Increased economies of scale
D)Problems securing financing
E)Familiar distribution systems

Question 26

Which of the following is an advantage of exporting?

A)It helps in easy currency conversion.
B)It provides large revenue and profit opportunities.
C)It reduces the administrative costs incurred by a company.
D)It helps companies increase their unit costs.
E)It reduces paperwork and complex formalities.

Question 27

The principle of countertrade is to trade goods and services for money.

Question 28

The sogo shosha of Japan:

A)proactively and continuously seek export opportunities for their affiliated companies.
B)exclusively serve the largest and most prestigious companies in Japan.
C)have offices concentrated in the business district of Tokyo.
D)have monopolized the export market in the country.
E)consider export only when there is excess production at home.

Question 29

Due to the complexity and diversity of foreign markets, firms sometimes hesitate to seek export opportunities. These firms can best overcome ignorance by:

A)shortening production runs.
B)creating revenue.
C)outsourcing decisions.
D)collecting information.
E)lowering unit costs.

Question 30

Export credit insurance protects an exporter against the possibility of a foreign importer's default on payment when there is a lack of a letter of credit.

Question 31

Which of the following is true of exporting?

A)Many foreign customers require face-to-face negotiations on their home turf.
B)Large firms tend to wait for the world to come to them, rather than going out into the world to seek opportunities.
C)Exporters have the advantage of reduced paperwork and fewer formalities.
D)Medium-sized and small firms are proactive about seeking opportunities for profitable exporting.
E)Firms that focus only on exporting often lose out on significant opportunities for growth and cost reduction.

Question 32

Barter is primarily used with trading partners who are not creditworthy or trustworthy.

Question 33

Japan's great trading houses are referred to as:

A)kaizen.
B)sogo shosha.
C)zaibatsu.
D)guanxi.
E)kanban.

Question 34

Many medium-sized and small firms are not proactive in seeking export opportunities because:

A)they are familiar with the foreign market and do not find it challenging enough.
B)the export market is similar to the home market in terms of legal and business practices.
C)they are intimidated by the complexities and mechanics of exporting to foreign countries.
D)domestic regulations limit their ability to export profitably.
E)they can't recruit managers with the expertise needed to cultivate business in foreign countries.

Question 35

The Export-Import Bank provides financing aid to prospective U.S. exporters.

Question 36

While seeking opportunities for profitable exporting, large firms generally tend to be:

A)passive.
B)risk averse.
C)wary.
D)proactive.
E)neutral.

Question 37

Which of the following is true of the export performance of the United States, Germany, and Japan?

A)Historically, the United States has made its living as a trading nation.
B)Germany has been a relatively self-contained continental economy in which international trade played a minor role.
C)Unlike Japan, U.S. firms have a strong information advantage when they seek export opportunities.
D)The United States has not yet evolved an institutional structure for promoting exports similar to that of Germany.
E)The Ministry of International Trade and Industry (MITI) in the United States is always on the lookout for export opportunities.

Question 38

Which of the following is true of exporting?

A)It takes a very short time before all foreigners are comfortable enough to purchase in significant quantities.
B)Novice exporters tend to overestimate the time required to cultivate business in foreign countries.
C)Exporters often face voluminous paperwork, complex formalities, and many potential delays and errors.
D)Large firms are usually unfamiliar with foreign market opportunities.
E)Large firms do not consider exporting until their domestic market is saturated.

Question 39

Which of the following is true of medium-sized and small firms?

A)They are proactive about seeking opportunities for profitable exporting.
B)They consider exporting only after their domestic market is saturated.
C)They are not intimidated by the complexities of foreign legal systems.
D)They have a high degree of familiarity with foreign market opportunities.
E)They explore foreign markets to see where the opportunities lie for leveraging their technology.

Question 40

Firms that do not export often:

A)face problems of currency conversion.
B)lose out on significant opportunities for cost reduction.
C)are able to reduce their unit costs.
D)are not intimidated by the business practices of foreign countries.
E)explore foreign markets to see where they can leverage their technology.

Question 41

Which of the following is a strategic step taken to increase a firm's probability of exporting successfully?

A)Avoiding the use of export management companies to contain costs
B)Entering several markets simultaneously to hedge risk
C)Entering a foreign market on a small scale
D)Waiting for export opportunities
E)Avoiding recruitment of local personnel

Question 42

Firms engaged in international trade deal with people they may have never seen, who live in different countries, who speak different languages, and who abide by different legal systems. These factors result in:

A)easy tracking of the parties involved.
B)a lack of trust between the parties.
C)strict enforcement of contractual obligations.
D)rapid acculturation.
E)better understanding of how transactions should be configured.

Question 43

The list provided by the International Trade Administration to a potential exporter with the names and addresses of potential distributors in foreign markets, along with businesses they are in, is called the:

A)ELAN list.
B)"best prospects" list.
C)"comparison shopping service."
D)SCORE list.
E)export management list.

Question 44

The most comprehensive source of information on export opportunities for U.S. firms is the:

A)Small Business Administration.
B)Department of Commerce.
C)Federal Trade Commission.
D)Bureau of Competition.
E)Bank of New York.

Question 45

Which of the following organizations runs the Service Corps of Retired Executives (SCORE) program?

A)Foreign Credit Insurance Association
B)International Trade Administration
C)Small Business Administration
D)U.S. Department of Commerce
E)U.S. Commercial Service

Question 46

Which of the following is a function of an export management company?

A)It starts exporting operations for a firm with the understanding that the firm will take over operations after they are well established.
B)It coordinates the Export Legal Assistance Network, a nationwide group of international trade attorneys.
C)It oversees volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses.
D)It collects duties on exported products and sets interest rates for charging foreign investors.
E)It gives novice exporters the names and addresses of potential distributors in foreign markets along with businesses they are in.

Question 47

In terms of using a third party in international trade, title to the products is given to a bank by the exporter in the form of a document known as a:

A)merchandise bill.
B)bill of lading.
C)bill of exchange.
D)draft.
E)letter of credit.

Question 48

Which of the following is a way in which the U.S. Department of Commerce helps potential exporters?

A)It oversees volunteers with international trade experience and directs them to provide one-on-one counseling to active and new-to-export businesses.
B)It assembles a "comparison shopping service" for 14 countries that are major markets for U.S. exports.
C)It coordinates a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters.
D)It provides export specialists who act as the export marketing departments or international departments for their client firms.
E)It starts exporting operations for firms until they are well established.

Question 49

Which of the following is true of a letter of credit in international trade?

A)No cash deposit or collateral is required from the importer.
B)The exporter pays the trusted third party (usually a bank) a fee for the service.
C)It becomes a financial contract between the trusted third party (usually a bank) and the exporter.
D)It is issued by the exporter at the request of the importer.
E)The creditworthiness of the importer is irrelevant when issuing a letter of credit.

Question 50

A lack of trust between two parties engaged in international trade is exacerbated by the:

A)saturation of the domestic market.
B)similar preferences of the parties regarding how a transaction should be configured.
C)narrowing distance between the two parties due to technological advances.
D)problems of using an underdeveloped international legal system to enforce contractual obligations.
E)possibility of doing business with someone with whom they have been associated for a long time.

Question 51

Which of the following institutions within the U.S. Department of Commerce is dedicated to providing businesses with intelligence and assistance for attacking foreign markets?

A)The International Trade Administration
B)The Small Business Administration
C)The Federal Trade Commission
D)The Bureau of Competition
E)The Bank of New York

Question 52

Which of the following is a drawback of relying on an export management company (EMC)?

A)It does not provide references and has no antecedents.
B)The exporting company can fail to develop its own exporting capabilities.
C)It does not have expert specialists to help a neophyte exporter identify opportunities.
D)It typically lacks information about local business regulations.
E)The exporting company cannot avoid the common pitfalls of exporting.

Question 53

In international trade, an exporter wants to be paid before a consignment is shipped. Correspondingly, the importer wants to pay only upon receipt of the consignment. These conflicting preferences of the parties are a manifestation of:

A)corporate greed.
B)acculturation.
C)lack of trust.
D)cultural insensitivity.
E)countertrading opportunities.

Question 54

Which of the following is true of a letter of credit?

A)It states that the bank will pay a specified sum of money to a beneficiary on presentation of particular, specified documents.
B)It is a document written by an exporter instructing an importer to pay a specified amount of money at a specified time.
C)It serves as a receipt, a contract, and a document of title.
D)It indicates that the carrier has received the merchandise described on the face of the document.
E)It allows buyers to obtain possession of merchandise without signing a formal document acknowledging his or her obligation to pay.

Question 55

Which of the following refers to an export specialist that acts as an export marketing department for client firms?

A)Export management company
B)Export-import firm
C)Foreign direct investment management firm
D)Strategy management company
E)Association of export companies

Question 56

Representatives of the U.S. Department of Commerce accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and customers, as part of the:

A)matchmaker program.
B)"best prospects" listing.
C)SCORE program.
D)"comparison shopping service."
E)export-import program.

Question 57

A nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters is the:

A)TradeNet Export Advisor.
B)Export Trade Assistance Partnership.
C)United States Trade Service.
D)Export Legal Assistance Network.
E)Ex-Im Network.

Question 58

Which of the following stands at the center of international commercial transactions and is issued by a bank at the request of an importer?

A)Bill of lading
B)Time draft
C)Letter of credit
D)Sight draft
E)Bill of exchange

Question 59

The Small Business Administration oversees almost 11,500 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses through its program known as the:

A)Export Legal Assistance Network.
B)Service Corps of Retired Executives.
C)International Trade Veteran's Group.
D)Network of Foreign Trade Executives.
E)Export Management Company.

Question 60

A firm that enters many markets at once:

A)runs the risk of spreading its limited management resources too thin.
B)becomes established in all the markets.
C)gets the time to learn about each market.
D)has fewer export opportunities.
E)reduces the costs of any subsequent failure.

Question 61

When serving as collateral, the bill of lading:

A)can be used to advance funds to the exporter by its local bank before or during shipment.
B)specifies that the carrier is obligated to provide a transportation service in return for a certain charge.
C)can be used to obtain payment or a written promise of payment before the merchandise is released to the importer.
D)states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents.
E)is an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time.

Question 62

Repayment of medium- and long-term loans U.S. commercial banks make to foreign borrowers for purchasing U.S. exports is guaranteed by the:

A)United Nations.
B)Central Bank.
C)World Bank.
D)Ex-Im Bank.
E)Export Credit Insurance Association.

Question 63

Which of the following is an advantage of a letter of credit for an importer?

A)The importer does not have to pay for the merchandise until the documents have arrived.
B)Obtaining pre-export financing becomes easier.
C)It helps the importer to get goods for a lower price.
D)It results in lower shipping costs.
E)The importer does not have to pay the third party a fee for facilitating the transaction.

Question 64

Which of the following is an advantage of having a letter of credit?

A)It allows payment for merchandise after its delivery.
B)It facilitates an exporter to obtain pre-export financing.
C)It allows an exporter to get a higher price for his or her goods.
D)It helps exporters incur lower shipping costs.
E)It does not require the importer to pay any fee.

Question 65

In international commerce, the party initiating a draft is known as the:

A)maker.
B)drawee.
C)buyer.
D)agent.
E)drafter.

Question 66

When a time draft is drawn on and accepted by a bank, it is known as a:

A)trade acceptance.
B)banker's check.
C)banker's acceptance.
D)bill of lading.
E)letter of credit.

Question 67

In international commerce, an order written by an exporter instructing an importer to pay a specified amount of money at a specified time is known as a:

A)bill of lading.
B)draft.
C)letter of credit.
D)counterpurchase.
E)buyback.

Question 68

Which of the following drafts allows for a delay in payment?

A)Sight draft
B)Time draft
C)Bill of lading
D)Counterpurchase
E)Offset

Question 69

Financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries is provided by the:

A)sogo shosha.
B)World Bank.
C)Overseas Commercial Service.
D)Ex-Im Bank.
E)Export Credit Insurance Association.

Question 70

For an importer, which of the following is a disadvantage of using a letter of credit for international transactions?

A)It results in the importer losing control over the process of trading.
B)It reduces the exporter's level of trust in the importer.
C)It reduces the importer's ability to borrow funds for other purposes.
D)It requires the importer to repay the loan even before the merchandise is sold.
E)It is not issued at the importer's request.

Question 71

Which of the following is the first step in a typical international trade transaction?

A)The exporter agrees to ship under a letter of credit and specifies relevant information such as prices and delivery terms.
B)The importer applies to a trusted third party (usually a bank) for a letter of credit to be issued in favor of the exporter for the merchandise the importer wishes to buy.
C)The importer places an order with the exporter and asks the exporter if he would be willing to ship under a letter of credit.
D)The exporter ships the goods to the importer on a common carrier. An official of the carrier gives the exporter a bill of lading.
E)The trusted third party (usually a bank) issues a letter of credit in the importer's favor and sends it to the exporter's bank.

Question 72

Once accepted by the drawee, a time draft becomes a(n):

A)asset for the drawee.
B)in-transit bill.
C)promise to pay by the accepting party.
D)bill of lading.
E)letter of credit.

Question 73

When a time draft is drawn on and accepted by a business firm, it is known as a(n):

A)trade acceptance.
B)in-transit bill.
C)banker's acceptance.
D)bill of lading.
E)letter of credit.

Question 74

Which of the following is a characteristic of a time draft?

A)It has no value given the deferred nature of the document.
B)It is generally not preferred in international transactions.
C)It is a negotiable instrument.
D)It is also known as a bill of lading.
E)It cannot be sold by an exporter.

Question 75

Which of the following is true with respect to the international and domestic practices of settling trade transactions?

A)In an international transaction, a formal promise to pay is required before the buyer can obtain the merchandise.
B)In an international transaction, the seller usually ships merchandise on an open account.
C)In a domestic transaction, a draft is used to settle trade transactions.
D)In an international transaction, the exporter sends a commercial invoice that specifies the amount due and the terms of payment to the importer.
E)In an international transaction, there is more trust between the exporter and the importer than in a domestic transaction.

Question 76

Which of the following is issued to an exporter by a common carrier transporting the merchandise and serves as a receipt, a contract, and a document of title?

A)Bill of lading
B)Collateral
C)Draft
D)Letter of credit
E)Bill of exchange

Question 77

When a bill of lading specifies that the carrier is obligated to provide a transportation service in return for a certain charge, it serves as a:

A)contract.
B)receipt.
C)document of title.
D)letter of credit.
E)bill of exchange.

Question 78

When a bill of lading is used to obtain payment or a written promise of payment before the merchandise is released to the importer, it serves as a:

A)document of title.
B)contract.
C)receipt.
D)time draft.
E)collateral.

Question 79

Which of the following drafts is payable on presentation to the drawee?

A)Bill of lading
B)Sight draft
C)Letter of credit
D)Time draft
E)Offset

Question 80

When a time draft is presented to a drawee, he or she signifies acceptance of it by:

A)delivering the goods immediately.
B)paying the draft amount immediately.
C)providing a collateral for the amount specified in the bill.
D)writing or stamping a notice of acceptance on its face.
E)selling the draft to an investor at a discount from its face value.