CHAPTER 20 International Trade Finance

1、Eun & Resnick 4eCHAPTER 20 International Trade FinanceA Typical Foreign Trade TransactionForfaitingInternational Finance in Practice: First Islamic Forfaiting Fund Set UpGovernment Assistance in ExportingThe Export-Import Bank and Affiliated OrganizationsCountertradeForms of CountertradeInternat

2、ional Finance in Practice: Armed Forces Tops in Countertrade ListSome Generalizations about CountertradeSummaryMINI CASE: American Machine Tools, Inc.1 International trade is more difficult and risky from the exporters perspective than is domestic trade because:a) the exporter may not be familiar wi

3、th the buyer, and thus not know if the importer is a good credit riskb) if the merchandise is exported abroad and the buyer does not pay, it may prove difficult, if not impossible, for the exporter to have any legal recoursec) political instability makes it risky to ship merchandise abroad certain t

4、o parts of the worldd) all of the aboveAnswer: d)A Typical Foreign Trade Transaction2 The three basic documents needed in a foreign trade transaction are:a) letter of credit, time draft, and proof of inspectionb) letter of credit, time draft, and a bill of ladingc) letter of credit, bill of lading,

5、and insuranced) time draft, bill of lading, and a pro forma statementAnswer: b)3 The primary methods of payment for foreign trades, ranked in the order of most secure to least secure for the exporter is:a) open account, consignment, letter of credit/time draft, and cash in advanceb) consignment, let

6、ter of credit/time draft, cash in advance, and open accountc) cash in advance, letter of credit/ time draft, consignment, and open accountd) cash in advance, letter of credit/ time draft, open account, and consignmentAnswer: c)4 A bill of ladinga) Is a document issued by the common carrier specifyin

7、g that it has received the foods for shipment; it can serve as title to the goods.b) Later becomes a bankers acceptance.c) Is a time draft that calls for payment upon physical delivery of goods.d) None of the aboveAnswer: a)5 A time drafta) Is a document issued by the common carrier specifying that

8、it has received the foods for shipment; it can serve as title to the goods.b) Later becomes a bankers acceptance.c) Written order instructing the importer or his agent that calls for payment the amount specified on its face on a certain dated) None of the aboveAnswer: c)6 A bankers acceptance is cre

9、ated whena) Is a document issued by the common carrier specifying that it has received the foods for shipment; it can serve as title to the goods.b) After taking title to the goods via a bill of lading, the importers bank accepts the time draft.c) A time draft that calls for payment upon physical de

10、livery of goods matures.d) None of the aboveAnswer: b)7 In a consignment salea) The importer only pays the exporter once he sells the merchandise. b) The exporter retains title to the merchandise that is shipped.c) If the goods do not sell, the importer can return them to the exporter.d) All of the

11、aboveAnswer: d)8 Suppose the face amount of a promissory note is $1,000,000 and the importers bank charges an acceptance commission of 1.5 percent. The note is for 60 days. Calculate the amount of the acceptance commission that the bank will charge.a) $997,500b) $15,000 = $1,000,000×(0.015)c) $

12、2,500d) None of the aboveAnswer: c)Rationale: USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT TWO QUESTIONSQuestion 4 and 5 are an outline of a few of the steps that are typically followed by exporters, importers, and their respective banks in foreign trade transactions.9 The _ sends a purchase ord

13、er to the _. The_ applies to his bank for a letter of credit.a) importer, exporter, exporterb) exporter, importer, importerc) importer, exporter, importerd) exporter, importer, exporterAnswer: c)10 The _s bank sends the letter of credit to the _s bank. After sending the merchandise, the _ gives the

14、shipping documents and time draft to his bank. a) importer, exporter, exporterb) exporter, importer, importerc) importer, exporter, importerd) exporter, importer, exporterAnswer: a)End fact patternThe next five questions are identical to each other except for the numbers used.11 Assume the time from

15、 acceptance to maturity on a $2,000,000 bankers acceptance is 90 days. Further assume that the importing banks acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 6.0 percent. Calculate the amount the exporter will receive if he discounts the B/A with the importers bank

16、.a) $1,993,750b) $1,999,375c) $1,963,750d) $1,009,375Answer: c) Rationale:If the exporter discounts the B/A with the importer bank he will receive:12 Bankers Acceptances usually have maturities ranging froma) 30 to 180 daysb) 90 to 360 daysc) 1 year to 5 yearsd) over 5 yearsAnswer: a)13 Assume the t

17、ime from acceptance to maturity on a $1,000,000 bankers acceptance is 180 days. Further assume that the importing banks acceptance commission is 1.25 percent and that the market rate for 180-day B/As is 5.0 percent. Calculate the amount the exporter will receive if he discounts the B/A with the impo

18、rters bank.a) $906,250b) $909,375c) $968,750d) $993,750Answer: c) Rationale:If the exporter discounts the B/A with the importer bank he will receive:14 Assume the time from acceptance to maturity on a $5,000,000 bankers acceptance is 90 days. Further assume that the importing banks acceptance commis

19、sion is 1.5 percent and that the market rate for 90-day B/As is 6.0 percent. Calculate the amount the exporter will receive if he discounts the B/A with the importers bank.a) $4,981,750b) $4,906,250c) $4,009,375d) none of the aboveAnswer: b) Rationale:If the exporter discounts the B/A with the impor

20、ter bank he will receive:15 Assume the time from acceptance to maturity on a $4,000,000 bankers acceptance is 180 days. Further assume that the importing banks acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 3.0 percent. Calculate the amount the exporter will receiv

21、e if he discounts the B/A with the importers bank.a) $3,993,750b) $3,915,000c) $3,975,000d) $3,009,375Answer: b) Rationale:If the exporter discounts the B/A with the importer bank he will receive:16 Assume the time from acceptance to maturity on a $10,000,000 bankers acceptance is 90 days. Further a

22、ssume that the importing banks acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent. Calculate the amount the exporter will receive if he discounts the B/A with the importers bank.a) $9,993,750b) $9,900,000c) $9,975,000d) $9,009,375Answer: b) Rationale:If the ex

23、porter discounts the B/A with the importer bank he will receive:17 Assume the time from acceptance to maturity on a $10,000,000 bankers acceptance is 90 days. Further assume that the importing banks acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent. Calculate

24、 the amount the banker will receive if the exporter discounts the B/A with the importers bank.a) $200,000b) $100,000c) $25,000d) $75,000Answer: c) Rationale:If the exporter discounts the B/A with the importer bank he will receive:The next five questions are identical except for the numbers used.18 A

25、ssume the time from acceptance to maturity on a $2,000,000 bankers acceptance is 90 days. Further assume that the importing banks acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 6.0 percent. Calculate the amount the exporter will receive if he holds it to maturity.a

26、) $1,993,750b) $1,999,375c) $1,963,750d) $1,009,375Answer: a) Rationale:19 Assume the time from acceptance to maturity on a $1,000,000 bankers acceptance is 180 days. Further assume that the importing banks acceptance commission is 1.25 percent and that the market rate for 180-day B/As is 5.0 percen

27、t. Calculate the amount the exporter will receive if he holds it to maturity.a) $906,250b) $909,375c) $968,750d) $993,750Answer: d) Rationale:20 Assume the time from acceptance to maturity on a $5,000,000 bankers acceptance is 90 days. Further assume that the importing banks acceptance commission is

28、 1.5 percent and that the market rate for 90-day B/As is 6.0 percent. Calculate the amount the exporter will receive if he holds it to maturity.a) $4,981,750b) $4,906,250c) $4,009,375d) none of the aboveAnswer: a) Rationale:21 Assume the time from acceptance to maturity on a $4,000,000 bankers accep

29、tance is 180 days. Further assume that the importing banks acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 6.0 percent. Calculate the amount the exporter will receive if he holds it to maturity.a) $3,993,750b) $3,999,375c) $3,975,000d) $3,009,375Answer: c) Rationale

30、:22 Assume the time from acceptance to maturity on a $10,000,000 bankers acceptance is 90 days. Further assume that the importing banks acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent. Calculate the amount the exporter will receive if he holds it to maturit

31、y.a) $9,993,750b) $9,999,375c) $9,975,000d) $9,009,375Answer: c) Rationale:23 Assume the time from acceptance to maturity on a $10,000,000 bankers acceptance is 90 days. Further assume that the importing banks acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent

32、. The bond equivalent yield that the exporter pays in discounting the B/A is:a) 3.05%b) 3.01%c) 3.07%d) None of the aboveAnswer: a) Rationale: If the exporter holds the B/A to maturity he will receive: If the exporter discounts the B/A with the importer bank he will receive:The bond equivalent yield

33、 that the exporter pays in discounting the B/A isUSE THE FOLLOWING INFORMATION TO ANSWER THE NEXT THREE QUESTIONSThe time from acceptance to maturity on a $3,000,000 bankers acceptance is 90 days. 24 If the importing banks acceptance commission is 1.25 percent, determine the amount the exporter will

34、 receive if he holds the B/A until maturity.a) $2,945,625b) $2,990,625c) $2,906,250d) $3,009,375Answer: b) Rationale:If the exporter holds the B/A to maturity he will receive: 25 If the market rate for 90-day B/As is 6.0 percent, calculate the amount the exporter will receive if he discounts the B/A

35、 with the importers bank.a) $2,945,625b) $2,990,625c) $3,000,000d) $3,009,375Answer: a) Rationale:If the exporter discounts the B/A with the importer bank he will receive:26 The bond equivalent yield that the exporter pays in discounting the B/A is:a) 6.10%b) 9.29%c) 6.02%d) none of the aboveAnswer:

36、 a) Rationale: If the exporter holds the B/A to maturity he will receive: If the exporter discounts the B/A with the importer bank he will receive:The bond equivalent yield that the exporter pays in discounting the B/A isEnd fact pattern27 Assume the time from acceptance to maturity on a $10,000,000

37、 bankers acceptance is 90 days. Further assume that the importing banks acceptance commission is 1 percent and that the market rate for 90-day B/As is 3.0 percent. The bond equivalent yield that the bank earns in holding the B/A to maturity is:a) 22.87%b) 1.02%c) 4.06%d) None of the aboveAnswer: c)

38、Rationale: When the bank buys the B/A to maturity he pays: At maturity, the bank receives $10,000,000, so the bond equivalent yield is28 Assume the time from acceptance to maturity on a $2,000,000 bankers acceptance is 180 days. Further assume that the importing banks acceptance commission is 1.25 p

39、ercent and that the market rate for 180-day B/As is 5.0 percent. The bond equivalent yield that the bank earns in holding the B/A to maturity is:a) 13.08%b) 6.54%c) 4.06%d) None of the aboveAnswer: b) Rationale: When the bank buys the B/A to maturity he pays: At maturity, the bank receives $2,000,00

40、0, so the bond equivalent yield isForfaiting29 The term “forfaiting” a) means relinquishing, waiving, yielding, and penaltyb) is a type of medium-term trade financing used to finance the sale of capital goods c) involves the sale of promissory notes signed by the importer in favor of the exporter, w

41、ho might sell the notes at a discount from face valued) b) and c)Answer: d)30 In a forfaiting transaction, the forfait is usually a) The importerb) The exporterc) The bankd) The title to the goods, or the bill of lading.Answer: c)31 In a forfaiting transaction, the forfait a) Buys the notes at a dis

42、count from face value from the importer.b) Buys the notes at a discount from face value from the exporter.c) Redeems the notes at a face value to the exporter.d) None of the aboveAnswer: b)32 In the event of a defaulta) The forfait does not have recourse against the exporter in the event of a defaul

43、t by the importer.b) The forfait does have recourse against the exporter in the event of a default by the importer.c) The exporter will have to return the goods to the importer.d) None of the above.Answer: a)International Finance in Practice: First Islamic Forfaiting Fund Set Up33 Under the terms of

44、 Islamic finance (Shariah law)a) Selling debt at a reduced value is strictly forbidden.b) Charging interest is OK, but short selling stock is forbiddenc) Buying low and selling high is forbiddend) None of the aboveAnswer: a)Government Assistance in Exporting34 Among the reasons put forth for governm

45、ent assistance in exportinga) Success in international trade is fundamentally important for a country b) Success in exporting implies that there is demand for a countrys products, that its labor force is employed, and that some resources are used for technological advancement.c) To be successful in

46、international trade means that the government is popular.d) Both a) and b)Answer: d)The Export-Import Bank and Affiliated Organizations35 Export-Import Bank (Eximbank) is an independent agency of the United States government that facilitates and finances U.S. export trade. Eximbanks purpose is to pr

47、ovide financing in situations where private financial institutions are unable or unwilling to because of which of the following reasons:(i)-the loan maturity is too long(ii)-the amount of the loan is too large(iii)-the loan risk is too great(iv)-the importing firm has difficulty obtaining hard curre

48、ncy for payment(v)-there are no futures or forward contracts available for foreign exchange transactions a) (i) and (ii)b) (i), (ii), and (iii)c) (i), (ii), (iii), and (iv) d) (i), (ii), (iii), (iv), and (v) Answer: c)36 Through its Export Credit Insurance Program, Eximbank helps U.S. exporters deve

49、lop and expand their overseas sales by a) Protecting them against loss should a foreign buyer default.b) Guaranteeing the loans made by private financial institutions to foreign importers.c) Providing liquidity via the purchase of notes issued by Eximbank to finance the loans.d) None of the aboveAns

50、wer: a)37 Through its Medium and Long-Term Guarantee Program, Eximbank helps U.S. exporters develop and expand their overseas sales by a) Protecting them against loss should a foreign buyer default.b) Guaranteeing the loans made by private financial institutions to foreign importers.c) Providing liq

51、uidity via the purchase of notes issued by Eximbank to finance the loans.d) None of the aboveAnswer: b)38 The British version of the Eximbank a) helps U.S. exporters develop and expand their overseas sales b) is called Inland Revenuec) is called the Exports Credits Guarantee Department d) is called

52、EximbankU.K.Answer: c)39 The Eximbank helps U.S. exporters develop and expand their overseas sales by a) Working capital guaranteesb) Direct loans to foreign borrowersc) Loan guaranteesd) Credit insurancee) All of the aboveAnswer: d)CountertradeForms of Countertrade40 The term “countertrade” refers

53、to:a) many different types of transactions in which the seller provides a buyer with goods or services and promises in return to purchase goods or services from the buyerb) barter, clearing arrangement, and switch tradingc) buy-back, counter purchase, and offsetd) all of the aboveAnswer: d)41 A clea

54、ring arrangementa) Is also called a bilateral clearing agreementb) Is a form of barterc) Involves two parties agreeing to buy a specified amount of goods or services from one another.d) All of the aboveAnswer: d)42 A switch tradea) Is the purchase by a third party of one countrys a clearing agreemen

55、t balance for hard currency.b) Is a form of barterc) Involves two parties agreeing to buy a specified amount of goods or services from one another.d) All of the aboveAnswer: a)43 A buy-back transactiona) Is also called a bilateral clearing agreementb) Involves a technology transfer via the sale of a

56、 manufacturing plant: as part of the terms, the seller of the plant agrees to purchase a certain portion of the plant output.c) Involves two parties agreeing to buy a specified amount of goods or services from one another.d) All of the aboveAnswer: b)44 A counterpurchasea) Involves a technology transfer via the sale of a manufacturing plant: as part of the terms, the seller of the plant agrees to purchase a certain portion of the plant output.b) Is similar to a buy-back transaction but the seller of the plant agrees to buy unrelate