1. The greater the exposure, the more secure terms of payment should be. 
*a. True 
b. False

2. In a letter of credit, the creditworthiness of the exporter is substituted for the creditworthiness of the importer. 
a. True
*b. False 

3. A letter of credit is more secure than cash in advance. 
a. True
*b. False

4. Because some of their cash must be frozen at the issuing bank to guarantee payment, importers often prefer terms other than those of a letter of credit. 
*a. True
b. False

5. An irrevocable letter of credit cannot be canceled by the issuing bank unless the applicant agrees to it. 
a. True
*b. False

6. In most cases, it is wise to have a letter of credit confirmed by the advising bank. 
a. True
*b. False

7. In those few cases in which the letter of credit does not reflect exactly the pro-forma invoice (misspellings for example), it is wiser to attempt to obtain an amendment rather than to issue an invoice that matches the letter of credit. 
a. True
*b. False

8. It is possible to add a draft to a letter of credit. 
*a. True
b. False

9. It is often a disadvantage to request a letter of credit because of the costs (and the cumbersome process) associated with it. 
*a. True
b. False

10. A date draft transaction solves one of the problems of documentary collection in general: the date at which the importer will have to make payment. 
*a. True
b. False

11. In a documentary collection transaction, the responsibilities of the presenting bank in the importing country generally stop at notifying the importer that the documents have arrived and at requesting that the importer endorse the draft or pay before releasing the documents. 
*a. True
b. False

12. Documentary collections are more cumbersome and expensive than letters of credit. 
a. True
*b. False

13. Usually a bank guarantee is offered by a single bank, rather than multiple banks. 
a. True
*b. False

14. A bank guarantee payable at first request is one in which the beneficiary does not have to provide any evidence that the terms of the underlying contract between the contractor and the beneficiary have not been met. 
*a. True
b. False

15. United States law prohibits bank guarantees. 
*a. True
b. False

16. A payment guarantee is the most commonly used type of guarantee and is used to ensure that the contractor finishes the project. 
a. True
*b. False

17. Since a draft (or a bill of exchange) is a legal document in the importing country, the courts in the importing country would consider non-payment by an importer as a domestic issue. 
*a. True
b. False

18. A date draft goes into effect at the time the draft is endorsed (signed). 
a. True
*b. False

19. A procurement card is conceptually similar to a consumer credit card. 
*a. True
b. False

20. A problem with TradeCard is that it is an extremely expensive alternative. 
a. True
*b. False

21. The exporter that offers open account terms is less likely to clinch a sale than one that offers more secure terms, such as letter of credit terms. 
a. True
*b. False

22. The majority of transactions issued in the European Union are conducted on a documentary collection basis. 
a. True
*b. False

23. There are insurance policies that pay the exporter if the importer does not pay. 
*a. True
b. False

24. When a factor offers its services without recourse, it means that the importer has to pay regardless of the exporters performance. 
a. True
*b. False

25. SWIFT is the international central bank, with which all national central bank have to deal when making an international fund transfer. 
a. True
*b. False


1. Among other reasons, international transactions are perceived to have more risk of non-payment because of
~ Each of these reasons makes international transactions more complex than domestic transactions. 
@ Each of these reasons makes international transactions more complex than domestic transactions. 
a. a lack of credit information. 
b. a lack of personal contact. 
c. no easy legal recourse. 
d. higher cost of collection. 
*e. all answers in this list are reasons for the perception of risk of non-payment

2. In attempting a credit check of a foreign firm, a basic problem is
~ There is generally much less information available on the creditworthiness of a creditor in a foreign market, coupled with a lack of familiarity with the diverse business organizations and with an inability to decipher businesses names. 
@ There is generally much less information available on the creditworthiness of a creditor in a foreign market, coupled with a lack of familiarity with the diverse business organizations and with an inability to decipher businesses names. 
*a. deciphering the businesss organization and name. 
b. most international banks are corrupt. 
c. most countries avoid international trade. 
d. trusting the source providing the credit history
e. reading a credit report in a foreign langugage 

3. The risk(s) that an exporter takes in requesting cash in advance as a means of payment is/are
~ Cash in advance puts the exporter at a competitive disadvantage because competitors who offer some form of credit are more likely to get the business. 
@ Cash in advance puts the exporter at a competitive disadvantage because competitors who offer some form of credit are more likely to get the business. 
a. fluctuations in the exchange rate. 
*b. it puts the exporter at a competitive disadvantage. 
c. it can increase inventory stockouts. 
d. there is no risk associated with cash-in-advance payments. 
e. it increases shipping costs. 

4. Among country risks in international trade are labor issues. For instance, _____ has/have a strike almost every year at its/their ports. 
~ Chad, Mongolia, Bolivia, and Paraguay are landlocked and have no ports. 
@ Chad, Mongolia, Bolivia, and Paraguay are landlocked and have no ports. 
a. Chad 
b. Paraguay 
*c. Japan
d. Mongolia
e. Bolivia
 
5. International commercial risk can be evaluated by
~ All of these organizations can be sources of international commercial risk evaluation. 
@ All of these organizations can be sources of international commercial risk evaluation. 
a. credit report companies. 
b. factoring houses. 
c. accounting firms. 
d. banks. 
*e. all parties listed in these responses analyze commercial risks. 

6. SWIFT stands for
~ SWIFT stands for Society for Worldwide Interbank Financial Telecommunication
@ SWIFT stands for Society for Worldwide Interbank Financial Telecommunication
a. Southwestern International Fund Transfers. 
b. Sales World Institutional Financial Telecommunications. 
c. Serving-the-World Institutional Financial Transactions. 
d. Society for Worldwide Institutional Transfers. 
*e. Society for Worldwide Interbank Financial Telecommunication

7. An exporter can conduct its international business in a manner similar to the way it and most companies conduct domestic business by using
~ While there may be instances of demanding cash in advance or even a letter of credit in domestic transactions, in most cases, businesses offer open account terms in their domestic transactions. Documentary collections are not necessary for domestic transactions. 
@ While there may be instances of demanding cash in advance or even a letter of credit in domestic transactions, in most cases, businesses offer open account terms in their domestic transactions. Documentary collections are not necessary for domestic transactions. 
*a. an open account. . 
b. a letter of credit. 
c. a documentary collection. 
d. cash in advance. 
e. Incoterms 

8. In the European Union, it has become difficult to conduct business on any payment terms other than
~ While any of the payment terms may be used in specific cases in the European Union, competition there is so intense and the practice is so widespread that an exporter is essentially expected to offer open accounts. 
@ While any of the payment terms may be used in specific cases in the European Union, competition there is so intense and the practice is so widespread that an exporter is essentially expected to offer open accounts. 
a. cash in advance. 
*b. open accounts. 
c. letters of credit. 
d. factoring. 
e. documentary collection. 

9. International factoring
~ All of these issues apply in international factoring. 
@ All of these issues apply in international factoring. 
a. is more complicated than domestic factoring. 
b. can be used to extend credit beyond what the exporter can normally afford. 
c. frequently involves factoring firms in both the exporting and importing countries. 
d. tends to be expensive. 
*e. all points listed in these responses are associated with international factoring. 

10. In a letter of credit, the most important aspect is
~ A letter of credit is being used because the creditworthiness of the importer is already in doubt.  The creditworthiness of the exporter is not relevant, nor is any promise or hope of eventually switching to an open account. Rather, the most important aspect of a letter of credit is that all documents be precisely in order so banks in both the exporting and importing countries can properly process them and transfer the appropriate funds. 
@ A letter of credit is being used because the creditworthiness of the importer is already in doubt.  The creditworthiness of the exporter is not relevant, nor is any promise or hope of eventually switching to an open account. Rather, the most important aspect of a letter of credit is that all documents be precisely in order so banks in both the exporting and importing countries can properly process them and transfer the appropriate funds. 
a. the creditworthiness of the importer. 
*b. the documentation of the transaction. 
c. the creditworthiness of the exporter. 
d. the promise of eventually changing to an open account. 
e.  the currency of the transaction. 

11. The importers bank is called the
~ The applicant is the importer. The beneficiary is the exporter. The advising bank is the exporters bank. 
@ The applicant is the importer. The beneficiary is the exporter. The advising bank is the exporters bank. 
a. applicant. 
b. beneficiary. 
*c. issuing bank. 
d. advising bank. 
e. correspondent bank. 

12. Following negotiations on a transaction which result in the choice of a letter of credit for payment, the next step is for the exporter to
~ Following negotiations, the exporter needs to send a pro-forma invoice to the importer which estimates the terms of the transaction as closely as possible. The exporter does not want to ship the goods until the payment terms have been arranged. The importer (not the exporter) initiates the letter of credit by asking the issuing bank (not the advising bank) to open it. And there is no reason for the exporter to make a security deposit. 
@ Following negotiations, the exporter needs to send a pro-forma invoice to the importer which estimates the terms of the transaction as closely as possible. The exporter does not want to ship the goods until the payment terms have been arranged. The importer (not the exporter) initiates the letter of credit by asking the issuing bank (not the advising bank) to open it. And there is no reason for the exporter to make a security deposit. 
a. ship the goods to the importer. 
b. ask the advising bank to open a letter of credit. 
c. make a security deposit in the issuing bank. 
*d. send a pro-forma invoice to the importer. 
e. send a pro-forma invoice to the importer's bank. 

13. Sometimes a third bank, in addition to the issuing bank and the advising bank, becomes involved with a letter of credit. This bank is called a
~ The correct answer is correspondent bank (or there could be a confirming bank). 
@ The correct answer is correspondent bank (or there could be a confirming bank). 
a. primary bank. 
b. secondary bank. 
c. intermediary bank. 
d. amending bank. 
*e. correspondent bank. 

14. The UPC 600 is
~ The UPC 600 deals with letters of credit, and open accounts do not use letters of credit. The UPC 600 is normally used when a letter of credit is issued through the SWIFT network. UPC 600 stands for the Universal Customs and Practice for Documentary Credit, 2007 revision, Publication 600 of the International Chamber of Commerce. 
@ The UPC 600 deals with letters of credit, and open accounts do not use letters of credit. The UPC 600 is normally used when a letter of credit is issued through the SWIFT network. UPC 600 stands for the Universal Customs and Practice for Documentary Credit, 2007 revision, Publication 600 of the International Chamber of Commerce. 
a. used only in open accounts. 
b. normally not used when a letter of credit is issued through the SWIFT network. 
*c. the Universal Customs and Practice for Documentary Credit, 2007 revision, Publication 600 of the International Chamber of Commerce. 
d. a set of rules for documentary collections. 
e. a set of rules for cash-in-advance transactions. 

15. A standby letter of credit is similar to a simple letter of credit except for
~ All answers are applicable to the ways a standby letter of credit is different from a simple letter of credit. 
@ All answers are applicable to the ways a standby letter of credit is different from a simple letter of credit. 
a. it has a much longer validity period. 
b. it usually applies to more than one shipment from the exporter to the importer. 
c. it allows the exporter to extend an open account to the importer, using the letter of credit only if the importer doesnt meet its obligations. 
d. it secures the interests of the exporter in a long-term business relationship. 
*e. all answers in this set of responses apply to standby letters of credit. 

16. The bill of lading serves as
~ A bill of lading is not a substitute for a letter of credit, nor a certificate of an open account, but it is a certificate of title to the goods. 
@ A bill of lading is not a substitute for a letter of credit, nor a certificate of an open account, but it is a certificate of title to the goods. 
*a. a certificate of title to transported goods. 
b. a substitute for a letter of credit. 
c. a certificate of an open account. 
d. an export certificate. 
e. a document used to clear customs in the importing country. 

17. The instruction letter is part of the documentary collection 
~ The instruction letter is a document in which the exporter, through the remitting bank, tells the presenting bank what is expected to accomplish and it is recognized in the United States and in the European Union. 
@ The instruction letter is a document in which the exporter, through the remitting bank, tells the presenting bank what is expected to accomplish and it is recognized in the United States and in the European Union. 
a. that is not recognized in the United States. 
*b. in which the exporter, through the remitting bank, tells the presenting bank what it is expected to accomplish. 
c. that is not recognized in the European Union. 
d. that dictates what the remitting bank's obligations are. 
e. that dictates what the confirming bank's obligations are. 

18. An aval
~ An avail is a promise by the presenting bank that the importer will honor the draft and if the importer defaults, the bank will make the payment, acting as a co-signer. 
@ An avail is a promise by the presenting bank that the importer will honor the draft and if the importer defaults, the bank will make the payment, acting as a co-signer. 
a. is used only in open accounts. 
b. means funds are available. 
*c. makes the presenting bank a co-signer of a draft. 
d. is a guarantee by the remitting bank that the importer will pay. 
e. is a guarantee by the correspondent bank that the exporter will pay. 

19. Credit terms can be considerably lengthened through
~ A letter of credit does not necessarily lengthen credit. Trade acceptance and bankers acceptance are not related to credit issues. International forfaiting is used as a means to extend credit terms. 
@ A letter of credit does not necessarily lengthen credit. Trade acceptance and bankers acceptance are not related to credit issues. International forfaiting is used as a means to extend credit terms. 
a. a letter of credit. 
b. trade acceptance. 
c. bankers acceptance. 
*d. international forfaiting. 
e. a credit draft. 

20. A bank guarantee that is requested by a beneficiary to ensure that the contractor is bidding in good faith and will enter the contract if awarded is called a(n)
~ A tender guarantee or bid guarantee ensures the contractor is bidding in good faith. The performance guarantee is used to insure that the contractor finishes the project. The maintenance guarantee is used to ensure that the contractor performs the services necessitated by the contract after the completion of the project. The advance payment guarantee or repayment guarantee?is used to ensure that payments made by the beneficiary in advance of the work would be reimbursed if the contractor fails to start the project. 
@ A tender guarantee or bid guarantee ensures the contractor is bidding in good faith. The performance guarantee is used to insure that the contractor finishes the project. The maintenance guarantee is used to ensure that the contractor performs the services necessitated by the contract after the completion of the project. The advance payment guarantee or repayment guarantee?is used to ensure that payments made by the beneficiary in advance of the work would be reimbursed if the contractor fails to start the project. 
*a. tender guarantee or bid guarantee. 
b. performance guarantee. 
c. maintenance guarantee. 
d. advance payment guarantee or repayment guarantee. 
e. seller guarantee. 

21. The most commonly used terms of payment for a customer located in the Middle East are
~ Letters of credit are the method of payment most commonly used in the Middle East. 
@ Letters of credit are the method of payment most commonly used in the Middle East. 
*a. letters of credit. 
b. open accounts. 
c. documentary collections. 
d. cash in advance terms. 
e. open accounts with credit insurance. 

22. Among the following terms of payment, which is the one which is the most customer-friendly and still protects the exporter from the risk of non-payment?
~ An open account with credit insurance presents the most customer-friendly terms, since the importer does not have any cash-flow requirements prior to the transaction, and the exporter is covered against the risk of non-payment. 
@ An open account with credit insurance presents the most customer-friendly terms, since the importer does not have any cash-flow requirements prior to the transaction, and the exporter is covered against the risk of non-payment. 
a. a letter of credit
b. open account
*c. open account with credit insurance
d. international forfeiting
e. documentary collection


Type: F
1. In a cash-in-advance transaction, all risk is transferred to the ____________________. 
a. importer
b. buyer

Type: F
2. While a cash-in-advance transaction shows a lack of it, an open account demonstrates that the exporter has ____________________ toward the importer. 
a. trust
b. confidence

Type: F
3. Because of the risks associated with open-account transactions, when an exporter is forced for competitive reasons to offer an open account, the exporter should acquire credit ____________________ on those sales. 
a. insurance

Type: F
4. In a letter-of-credit transaction, the importer is called the ____________________. 
a. applicant

Type: F
5. The issuing banks promise to pay is contingent upon the proper ____________________ being in order. 
a. documents
b. documentation
c. docs

Type: F
6. When a letter of credit and the required documents do not match perfectly, it is normally the role of the ____________________ bank to request an amendment to the letter of credit from the bank of the other party. 
a. advising

Type: F
7. A ____________________ is an instrument that legally binds the importer to pay within a certain period of time (and allows the exporter to grant commercial credit to the importer whenever it is deemed necessary). 
a. draft
b. promissory note 

Type: F
8. The rules of the URR 725 of the International Chamber of Commerce apply to ___________________ rather than to exporters. 
a. banks

Type: F
9. In documentary collection activity, the exporters bank is called the ____________________ bank. 
a. remitting

Type: F
10. In some cases, the exporter may want to grant some credit terms to the importer but still want some means to ensure it will be paid. In that case, it can request that the bank exchange documentation against a ____________________ draft in which the importer endorses to promise to pay within a certain time period. 
a. time
b. date
 
Type: F
11. The most commonly used term of payment in the European Union is ____________________. 
a. open account

Type: F
12. The less developed an area of the world is, the more likely it is that an exporter will use a ____________________ term of payment. 
a. letter of credit
b. secure