Ch 10: International Lending

What is the primary purpose of a letter of credit in international lending?

• To provide unsecured financing

• To ensure payment after goods are shipped

• To act as insurance for the exporter

• To enable prepayment of goods

Which of the following is a short-term financing method in international trade?

• Factoring

• Supplier credit

• Buyer credit

• Assignment of proceeds

What does a "red clause credit" facilitate in international trade?

• Post-shipment financing for the importer

• Pre-shipment financing for the exporter

• Loan restructuring for both importer and exporter

• Currency exchange at favorable rates

What is a key feature of a transferable letter of credit?

• It can only be used by the original beneficiary.

• It can be partially or fully transferred to secondary beneficiaries.

• It provides financing after goods are delivered.

• It includes a fixed interest rate for all transactions.

What is the main purpose of forward exchange contracts in international trade?

• To provide short-term loans to importers

• To hedge against foreign exchange rate risk

• To guarantee shipment of goods

• To enable exporters to extend credit terms

Which risk is specific to international trade transactions?

• Transit risk

• Operational risk

• Regulatory risk

• Domestic inflation risk

What does the Uniform Customs and Practice for Documentary Credits (UCP600) standardize?

• Banking regulations across countries

• Interpretation and application of documentary credits

• Exchange rates for international transactions

• Inspection procedures for imported goods

Which financing method involves the exporter selling trade receivables to a bank for immediate payment?

• Open account

• Factoring

• Consignment

• Banker's acceptance

What is the main purpose of a banker's acceptance in international trade?

• To provide collateral for loans

• To guarantee payment on maturity of a bill of exchange

• To enable early shipment of goods

• To fund long-term investments in trade

What does the checklist approach for assessing country risk involve?

• Conducting site visits to the importer's country

• Running statistical regression analysis on economic factors

• Listing political and financial factors for evaluation

• Consulting experts in group discussions