Practice Exam 16

The great promise of exporting is that 

• Large revenue opportunities are often found in foreign markets.

• It provides more opportunities for smaller firms than larger firms. 

• International trade is protected against exchange risks. 

• it reduces the need for insuring businesses against political risks. 

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

• Most firms are familiar with the foreign market opportunities and therefore do not need to utilize proactive approaches. 

• 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. 

• Most firms already know where the market potential and opportunities are, and they do not need to be proactive. 

• 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. 

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

• managed by governments that provide export subsidies. 

• not-for-profit organizations that provide free service. 

• subsidized by the Department of Commerce. 

• experienced specialists who can help neophyte exporters. 

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

• before product shipment. 

• after product shipment. 

• from the exporter's bank. 

• after receiving the product. 

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

• bill of lading 

• letter of credit 

• draft 

• promissory note 

A draft used in international transactions 

• is a document requesting payment. 

• explains the conditions of a contract.

• is the same as a letter of credit. 

• gives a bank guarantee to an exporter. 

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

• The bank receives materials from the importer. 

• receiving a clear payment through the bank. 

• The importer has paid the bank. 

• The bank promises to pay on the importer's behalf. 

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

• A letter of credit does not give protection to the importer. 

• A letter of credit does not give protection to the exporter. 

• The exporter cannot avail pre-export financing when using an L/C. 

• The importer must pay a bank fee for the letter of credit. 

A _____ allows for a delay in payment. 

• bill of lading 

• time draft 

• sight draft 

• letter of credit 

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

• bill of lading 

• sight draft 

• time draft 

• letter of credit