Ch10 Verified Test Bank The Foreign Exchange Market

Student name:__________

1) Why do so many firms take a reactive approach to exporting rather than a proactive approach?

2) What problems do novice exporters typically face when trying to export?

3) Compare and contrast the export assistance provided to German and Japanese companies with that given to American companies. Discuss the implications of the differences between the countries.

4) Describe the information sources that are available to American companies to learn about export opportunities.

5) Explain 3M’s main export principles that have made the company’s exporting business so successful.

6) Why is there a problem of trust that persists in international business?

7) Describe the process involved in financing imports and exports using a letter of credit. Why has this system developed? What is the advantage of using this system?

8) Compare and contrast time drafts and sight drafts.

9) Describe the 14 steps in a typical international trade transaction.

10) Discuss the importance of the Export-Import Bank, its goals, and its operations.

11) What is the Foreign Credit Insurance Association?

12) Explain why barter is viewed as the most restrictive countertrade arrangement.

13) Compare and contrast counterpurchase agreements and offset arrangements. Why might an exporter prefer an offset to a counterpurchase deal?

14) Discuss the idea of compensation or buybacks as they relate to countertrade. Provide an example of a buyback arrangement.

15) What type of firm is most likely to engage in countertrade? Why?

16) What is true of exporting?

A) A common pitfall of exporting is a poor understanding of competitive conditions in the foreign market.
B) Securing financing is rarely a problem for exporters.
C) A common pitfall of exporting is trying too hard to customize a product offering rather than “sticking with what you know.”
D) Most exporters have a very good understanding of the competitive conditions in the foreign market.

17) Which of the following statements is true of exporting?

A) It increases the trade deficit that nations have.
B) Exporting leads to diseconomies of scope.
C) It helps a firm achieve economies of scale.
D) Exporting is not beneficial to a country’s economy.

18) The great promise of exporting is that

A) large revenue opportunities are often found in foreign markets.
B) it provides more opportunities to smaller firms than larger firms.
C) international trade is protected against exchange risks.
D) it reduces the need for insuring businesses against political risks.

19) What is true of reactive firms?

A) Reactive firms consider a variety of markets for selling their products and services.
B) They consider exporting only after their domestic market is saturated.
C) They systematically scan foreign markets for profitable export opportunities.
D) They create excess productive capacity and actively hunt for opportunities in foreign markets.

20) What is a reason that firms take a reactive approach to exporting rather than a proactive approach?

A) Most firms are familiar with the foreign market opportunities and therefore do not need to utilize proactive approaches.
B) They are intimidated by the complexities and mechanics of exporting to countries where business practices, language, culture, legal systems, and currency are very different from the home market.
C) Most firms already know where the market potential and opportunities are and they do not need to be proactive.
D) They are not intimidated by the complexities and mechanics of exporting to foreign countries and can, therefore, use the same reactive approaches that work in their home market.

21) What is a common difficulty that traders face when exporting goods or services to other countries?

A) Small firms tend to be more aggressive than larger firms in global trade.
B) Governments do not provide much assistance to exporters.
C) Growth opportunities are often limited in global markets.
D) Exporters often face voluminous paperwork and complex formalities.

22) _____ can help new exporters identify opportunities and avoid common pitfalls.

A) An MITI
B) An export-import bank
C) An in-house trading department
D) An export management company

23) _____ are export specialists that offer a full menu of services to handle all aspects of exporting, similar to having an internal exporting department within your own firm.

A) Small business development centers (SBDCs)
B) Centers for international business education and research (CIBERs)
C) Export legal assistance networks (ELANs)
D) Export management companies (EMCs)

24) Which of the following statements is true of export management companies (EMCs)?

A) An EMC is a transportation company that engages in international business.
B) EMCs are export-import banks that manage foreign exchanges.
C) EMCs are export specialists that act on behalf of their client firms.
D) An EMC is an intermediary that facilitates talks between two nations.

25) Japan’s _____ have offices all over the world, and they proactively, continuously seek export opportunities for their affiliated companies large and small.

A) sogo shosha
B) kaizen
C) MITI
D) Samurai

26) In the _____ program organized by the U.S. Department of Commerce, department representatives accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and customers.

A) best prospects
B) SCORE
C) capital assistance
D) matchmaker

27) Which of the following statements is true about the Small Business Administration (SBA)?

A) It is the most comprehensive source of export opportunities information.
B) The SBA is a private organization managed by leaders of large corporations.
C) The SBA employs trade officers throughout the United States.
D) The SBA offers help exclusively to small businesses that sell products within the United States.

28) Which of the following is a nationwide group of international trade attorneys who provide free initial consultations to miniature businesses on export-related matters?

A) ELAN
B) EMC
C) MITI
D) SCORE

29) Through its _____ program, the SBA oversees about 11,500 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses.

A) matchmaker
B) SCORE
C) ELAN
D) trade fair

30) Japan’s great trading houses are called

A) Nikei.
B) sogo shosha.
C) Yen houses.
D) Samurai houses.

31) In theory, the advantage of export management companies is that they are

A) managed by governments that provide export subsidies.
B) not-for-profit organizations that provide free service.
C) subsidized by the Department of Commerce.
D) experienced specialists who can help the neophyte exporter.

32) Which of the following is a successful exporting strategy used by 3M?

A) Add additional products once exporting becomes successful.
B) Enter many markets at one time to gain maximum exposure.
C) Bring in expert marketing specialists to promote the firm’s products.
D) Enter on a large scale to flood the market.

33) In a letter of credit transaction, the importer secures the letter of credit

A) before product shipment.
B) after product shipment.
C) from the exporter’s bank.
D) after receiving the product.

34) The exporter endorses the ________ so title to the goods is transferred to the bank.

A) bill of lading
B) letter of credit
C) draft
D) promissory note

35) A _____ states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents.

A) bill of exchange
B) bill of lading
C) letter of credit
D) bank statement

36) Bank charges on letters of credit will depend on the

A) exporter’s creditworthiness.
B) size of the transaction.
C) exporter’s means of finance.
D) time taken to approve the sale.

37) A draft used in international transactions

A) is a document requesting payment.
B) explains the conditions of a contract.
C) is the same as a letter of credit.
D) gives a bank guarantee to an exporter.

38) In an international transaction involving a bank as a third party, the exporter ships the product after

A) the bank receives materials from the importer.
B) receiving a cleared payment through the bank.
C) the importer has paid the bank.
D) the bank promises to pay on the importer’s behalf.

39) Which of the following is a major advantage of using a letter of credit?

A) It gives the importer time to resell the merchandise before payment.
B) It guarantees the exporter preexport financing.
C) It helps international traders engage in trade with trust.
D) It guarantees the importer extra funds for other purposes.

40) Which of the following is a disadvantage of using a letter of credit (L/C)?

A) A letter of credit does not give protection to the importer.
B) A letter of credit does not give protection to the exporter.
C) The exporter cannot avail pre-export financing when using a L/C.
D) The importer must pay a bank fee for the letter of credit.

41) The person or business initiating a draft is known as the

A) beneficiary.
B) drawee.
C) maker.
D) trustee.

42) A _____ is simply 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.

A) letter of credit
B) bill of lading
C) draft
D) banker’s letter

43) A _____ is payable on presentation to the drawee.

A) bill of lading
B) time draft
C) sight draft
D) letter of credit

44) A _____ allows for a delay in payment.

A) bill of lading
B) time draft
C) sight draft
D) letter of credit

45) A banker’s acceptance

A) is payable to the drawee immediately on presentation in a bank.
B) is a time draft that has been drawn on and accepted by a bank.
C) is a sight draft that can be used as a negotiable instrument in banks.
D) allows a buyer possession of the merchandise without signing any formal documents.

46) A _____ is issued to the exporter by the common carrier transporting the merchandise.

A) bill of lading
B) sight draft
C) time draft
D) letter of credit

47) As a receipt, the bill of lading indicates that the carrier

A) provides a written promise of payment before releasing the merchandise.
B) has obtained the merchandise described on the face of the document.
C) receives payment from a third-party such as a bank or trading house.
D) is obligated to provide a transportation service in return for a certain charge.

48) In a typical international trade transaction, the

A) exporter should obtain a letter of credit to initiate transactions.
B) importer and exporter maintain an account with the same bank.
C) importer’s bank sends a letter of credit to the exporter’s bank.
D) importer’s bank sends the draft and bill of lading to the exporter’s bank.

49) Firms commonly employ _____ as a third party in international transactions.

A) a reputable bank
B) a stock exchange
C) an export management company
D) a customs broker

50) A ____ is the instrument normally used in international commerce to effect payment.

A) bill of lading
B) letter of credit
C) draft
D) countertrade

51) A _____ allows for a delay in payment—normally 30, 60, 90, or 120 days.

A) bill of lading
B) sight draft
C) bill of exchange
D) time draft

52) The _____ is issued to the exporter by the common carrier transporting the merchandise.

A) bill of lading
B) sight draft
C) letter of credit
D) time draft

53) A _____ serves as a receipt, a contract, and a document of title.

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

54) An importer obtains a _____ from a local bank in a typical international transaction.

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

55) As a document of title, a _____ can be used to obtain payment or a written promise of payment before the merchandise is released to the importer.

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

56) The Export-Import Bank

A) is an international financial institution that provides loans for capital programs.
B) provides finance to facilitate cross-border trade between the United States and other countries.
C) is an independent agency of the United Nations.
D) focuses on policies that have an impact on the exchange rate and the balance of payments.

57) Which of the following statements is true of export credit insurance?

A) Exporters will require more insurance if a letter of credit is used in transactions.
B) The Foreign Credit Insurance Association provides coverage against commercial risks and political risks.
C) Private associations cannot offer export insurance in the United States.
D) Organizations do not receive coverage against political risks of global trade.

58) _____ is an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent.

A) Barter
B) Offset
C) Countertrade
D) Buyback

59) Countertrade emerged in the 1960s as a way for the _____ to purchase imports.

A) United States
B) European Union
C) ASEAN countries
D) Soviet Union and the then-communist states of Eastern Europe

60) _____ is viewed as the most restrictive countertrade arrangement.

A) Barter
B) Offset
C) Buyback
D) Switch trading

61) _____ is primarily used for one time–only deals in transactions with trading partners who are not creditworthy or trustworthy.

A) Counterpurchase
B) Barter
C) Offset
D) Buyback

62) _____ occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.

A) Barter
B) Offset
C) Counterpurchase
D) Buyback

63) _____ occurs when a firm supplies technology, equipment, training, or other services in a country and agrees to take a certain percentage of the resultant output as partial payment for the contract.

A) A counterpurchase
B) An offset
C) A barter
D) A buyback

64) The main attraction of _____ is that it can give a firm a way to finance an export deal when there are no other means available.

A) a countertrade
B) a buyback
C) a counterpurchase
D) an offset

65) _____ is an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent.

A) Floating exchange system
B) Countertrade
C) Letter of credit trade
D) Fixed exchange system

66) _____ denotes a range of barter-like agreements and its principle is to trade goods and services for other goods and services when they cannot be traded for money.

A) Countertrade
B) Cross-selling
C) Matchmaking
D) Letter of credit

67) Which of the following statements is true of countertrade?

A) Countertrade reduces the profitability of competing firms and is considered an unethical practice.
B) Countertrade is a conventional means to pay exporters.
C) Smaller organizations commonly use countertrade in international transactions.
D) Countertrade occurs when goods and services are traded for other goods and services.

68) _____ is the direct exchange of goods and/or services between two parties without a cash transaction and is the simplest arrangement.

A) Counterpurchase
B) Barter
C) Offset
D) Switch trading

69) _____ is viewed as the most restrictive countertrade arrangement and is primarily used for onetime-only deals in transactions with trading partners who are not creditworthy or trustworthy.

A) Switch trading
B) Offset
C) Barter
D) Buyback

70) _____ is a reciprocal buying agreement and occurs when a firm agrees to buy a certain amount of materials back from a country to which a sale is made.

A) Counterpurchase
B) Barter
C) Offset
D) Switch trading

71) In ____, one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale, and this party can fulfill the obligation with any firm in the country to which the sale is being made.

A) a switch trade
B) an offset
C) a barter
D) a buyback

72) Which of the following terms refers to the use of a specialized third-party trading house in a countertrade arrangement?

A) counterpurchase
B) barter
C) offset
D) switch trading

73) _____ occurs when a firm builds a plant in a country and agrees to take a certain percentage of the plant’s output as partial payment for the contract.

A) A buyback
B) A barter
C) An offset
D) A switch trade

74) Which of the following is an advantage of countertrade?

A) Countertrade uses instruments such as time drafts and sight drafts.
B) It is an effective way of doing business with developing nations.
C) It provides exporters an opportunity to obtain direct revenue.
D) Countertrade prevents the exchange of unusable or poor-quality goods.

75) Which of the following is a major drawback of engaging in countertrade?

A) Countertrade is not useful when trading with developing nations.
B) Financing is difficult when engaging in a countertrade.
C) It is not attractive to small organizations.
D) Countertrade may involve the exchange of unusable goods.

76) Countertrade is

A) most attractive to small, primarily domestic enterprises.
B) least attractive to small, primarily domestic enterprises.
C) most attractive to large, diverse multinational enterprises.
D) least attractive to large, diverse multinational enterprises.

77) _____ can be used when a government restricts the convertibility of its currency to preserve its foreign exchange reserves so they can be used to service international debt commitments and purchase crucial imports.

A) A buyback
B) Countertrade
C) An offset
D) Switch trading

78) _____ occurs when a third-party trading house buys the firm’s counterpurchase credits and sells them to another firm that can better use them.

A) Countertrading
B) Offsetting
C) Switch trading
D) Bartering

79) The main attraction of _____ is that it can give a firm a way to finance an export deal when other means are not available.

A) switch trading
B) counterpurchase
C) offsets
D) countertrade

80) What is a disadvantage of countertrade?

A) Countertrade contracts may involve the exchange of unusable or poor-quality good.
B) Countertrade requires the firm to use an out-of-house trading company to which much of the profit will go.
C) Countertrade contracts often involve high-quality, expensive goods that the firm cannot move enough of to be profitable.
D) Countertrade requires employing lawyers who specialize in these unique types of contracts.

81) Proactive firms do not consider exporting until their domestic market is saturated.

⊚ true
⊚ false

82) Ignorance of the potential opportunities is a huge barrier to exporting.

⊚ true
⊚ false

83) Exporters often face voluminous paperwork and complex formalities.

⊚ true
⊚ false

84) Hiring an export management company (EMC) will help a novice exporter identify opportunities and navigate the paperwork involved in exporting.

⊚ true
⊚ false

85) Lack of knowledge is one of the biggest impediments to a company becoming a successful exporter.

⊚ true
⊚ false

86) The Japanese sogo shosha have offices all over Japan, and companies wishing to trade with Japan must go through them.

⊚ true
⊚ false

87) The most comprehensive source of information for U.S. firms on exporting opportunities is the U.S. Department of Commerce.

⊚ true
⊚ false

88) The Small Business Administration organizes trade events that help potential exporters make foreign contacts and explore export opportunities, held in major cities worldwide.

⊚ true
⊚ false

89) An export packer can advise companies who are unfamiliar with exporting on appropriate design and materials for the packaging of their items.

⊚ true
⊚ false

90) Nearly every state in the United States maintains active trade commissions to promote exports.

⊚ true
⊚ false

91) A letter of credit states that an exporter has availed credit from the bank to manufacture goods.

⊚ true
⊚ false

92) The bank promises to pay on behalf of the importer when a bank is used as a third party in international transactions.

⊚ true
⊚ false

93) A draft is simply an order written by an exporter instructing an importer to pay a specified amount of money at a specified time.

⊚ true
⊚ false

94) A sight draft allows for a delay in payment.

⊚ true
⊚ false

95) When a time draft is drawn on and accepted by a business firm, it is called a trade acceptance.

⊚ true
⊚ false

96) Time drafts cannot be sold to investors at a discount from face value.

⊚ true
⊚ false

97) The bill of lading does not serve as a document of title as such.

⊚ true
⊚ false

98) The bill of lading can function as collateral against which funds may be advanced to the exporter by its local bank.

⊚ true
⊚ false

99) U.S. organizations can get financing aid from the Export-Import Bank.

⊚ true
⊚ false

100) Ex-Im Bank has a direct lending operation under which it lends dollars to foreign borrowers.

⊚ true
⊚ false

101) The Foreign Credit Insurance Association is part of the U.S Department of Commerce and guides the activities of the Export-Import Bank.

⊚ true
⊚ false

102) Countertrade denotes a whole range of barter-like agreements that involve trading goods and services when they cannot be traded for money.

⊚ true
⊚ false

103) Barter is a reciprocal buying agreement that occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.

⊚ true
⊚ false

104) A counterpurchase gives exporters more flexibility than an offset.

⊚ true
⊚ false

105) The term switch trading refers to the use of a specialized third-party trading house in a countertrade arrangement.

⊚ true
⊚ false

106) Countertrade is least attractive to large, diverse multinational enterprises.

⊚ true
⊚ false