Chapt 20

Question 1

A written order instructing the importer or his agent, the importer’s bank to pay the amount specified on its face on a certain date

Answer 1

Time Draft

Question 2

A guarantee from the importer’s bank that it will act on behalf of the importer and pay the exporter for the merchandise

Answer 2

Letter of Credit

Question 3

A bill of landing is a document issued but the common carrier specifying that it has received the goods for shipment. “title for the goods”

Answer 3

Bill of Lading

Question 4

At this point the banker’s accepted is created. It is negotiable money market instrument. Held to maturity by the exporters.

Answer 4

Banker’s Acceptances

Question 5

Type of medium-term financing used to finance the sale of capital goods. Involves a promissory notes. Exporter gets paid and does not have to carry the financing

Answer 5

Forfeiting

Question 6

Term used to describe many different types of transactions in which sellers provides a buyer with good and promises in return to purchase good or services from the buyer.

Answer 6

Countertrade

Question 7

Barter, clearing arrangement and switch trading. Buy-Back counter purchase and offset

Answer 7

Countertrade

Question 8

Involves a technology transfer via the sale of a manufacturing plant.

Answer 8

Buy-back transaction

Question 9

Can be viewed as counterpurchase trade agreement involving the aerospace/defense industry.

Answer 9

Offset Transaction

Question 10

Benefits of countertrade

Answer 10

Conservation of cash or hard currency Improvement of trade imbalances Maintenance of export prices

Question 11

Disadvantages of countertrade

Answer 11

Inefficient Tamper with fundamental operation of free market. Transactions do not make use of money

Question 12

Similar to buyback transaction, but output that seller of the plant agrees to buy is unrelated to the plant.

Answer 12

Counterpurchase trade agreement

Question 13

Eximbank’s purpose is to provide financing in situations where private financial institutions are unable or unwilling to because

Answer 13

• The loan maturity is too long.
• The amount of the loan is too large.
• The loan risk is too great.
• The importing firm has difficulty in obtaining hard currency.

Question 14

A form of barter in which the traders agree to buy a certain amount of goods from each other.

Answer 14

Clearinghouse Arrangement

Question 15

The purchase by a third party of one country’s clearing agreement balance for hard currency

Answer 15

Switch Trade