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MULTIPLE CHOICE 1. This is not an advantage of countertrade. a) market access c) pricing alternative 2. The simplest type of countertrade is a) counterpurchase c) barter (X) b) parallel barter d) buyback b) foreign exchange d) efficiency (X)

3. A one-time direct and simultaneous exchange of products of equal value is a) barter (X) c) buyback b) parallel barter d) counterpurchase

4. The former Soviet Union bought construction machinery from Japan. In return, the Japanese took Russian timber. This set of parallel cash sales agreements is a) counterpurchase (X) c) offset b) clearing agreement d) buyback

5. This type of countertrade is used when a seller provides machinery and agrees to buy the related output (i.e., made by that machinery). a) counterpurchase c) offset b) clearing agreement d) buyback (X)

6. When a U.S. company is required by China to manufacture its product in China for the right to sell there, this type of countertrade is used. a) barter c) compensation trade b) counterpurchase d) offset (X)

7. This method of countertrade involves a triangular rather than bilateral trade. a) barter c) offset b) compensation trade d) switch trading (X)

8. Countertrade incurs extra costs that must be borne by a) a selling nation c) both nations b) a buying nation (X)

9. Developing countries that impose countertrade have this characteristic. a) increasing balance of trade c) declining foreign exchange reserve (X)

b) declining debt-service ratios

10. Firms that are likely to benefit from countertrade are: a) small firms b) high-technology firms c) firms that are not vertically integrated d) firms that have extensive trade operations (X) 11. Countertrade is a) cumbersome c) costly e) all of the above (X) b) difficult to get financing from banks d) a psychological problem

12. The U.S. government permits these parties to participate in countertrade arrangements. a) U.S. firms (X) c) both private and public entities b) U.S. government agencies

13. This quotation term includes the unloading at the overseas port with the appropriate duty paid. a) FOB c) ex works b) ex dock (X) d) delivered duty paid

14. To conserve cash, the exporter should not quote a) C&F c) FOB b) FAS d) CIF (X)

15. This term of sale makes it most difficult for an exporter to conserve cash. a) C&F c) FOB b) FAS d) CIF (X)

16. If an exporter wants to minimize currency convertibility problems, this term of sale should be used. a) CIF c) C&F b) FOB (X) d) delivered duty paid

17. This document is used for quotation rather than payment purposes. a) commercial invoice c) insurance certificate b) pro forma invoice (X) d) bill of lading

18. This method is used when goods are shipped but ownership is retained by the seller. a) consignment (X) c) bill of exchange b) bankers’ acceptance d) letter of credit

19. This method of financing poses a high degree of risk to the seller. a) consignment (X)

b) cash in advance

c) bill of exchange e) bankers’ acceptance

d) letter of credit

20. This term of payment is the one most desired by importers. a) bill of exchange c) open account (X) b) letter of credit d) cash in advance

21. This financial instrument is an unconditional order in writing from an exporter to an importer to pay at a determined time (e.g., three months). a) consignment c) sight draft b) time draft (X) d) letter of credit

22. This method of payment makes goods available to a buyer before payment. a) letter of credit c) time draft (X) b) sight draft d) documents against payment

23. Which of the following cannot be discounted? a) bill of exchange c) bill of lading (X) b) time draft d) letter of credit

24. Compared to a bill of exchange, a letter of credit is discounted at a) a higher rate c) the same rate b) a lower rate (X)

25. This method of payment presents the least risk to an exporter. a) sight draft c) open account b) time draft d) letter of credit (X)

26. This is not a characteristic of a letter of credit. a) high risk (X) c) being cumbersome b) lack of flexibility d) complexity

27. This financial instrument is a document, issued by a bank at a buyer's request in favor of a seller, promising that the bank will pay an agreed amount of money upon its receipt of certain documents. a) sight draft c) bill of exchange b) time draft d) letter of credit (X)

28. This kind of letter of credit gives the exporter maximum security and minimum delay in receiving payment. a) revocable and confirmed c) irrevocable and confirmed (X) b) revocable and unconfirmed d) irrevocable and unconfirmed

29. This kind of letter of credit is a performance bond that guarantees a seller’s obligation under a contract or agreement.

a) back-to-back c) irrevocable

b) transferable d) standby (X)

TRUE OR FALSE 1. Countertrade is a goods-for-goods deal. (T) 2. In an offset, a foreign supplier is required to manufacture the product locally as an exchange for the right to sell the product there. (T) 3. The relationship between a country’s credit rating and its propensity to countertrade is very strong. (F) 4. Vertically integrated firms are likely to benefit from countertrade. (T) 5. A country that requires countertrade as a trade condition is able to shift the extra costs of doing business to the seller. (F) 6. A country that requires countertrade as a trade condition must alone bear the cost of inefficiency. (T) 7. Countertrade does not increase the cost of doing business. (F) 8. For a barter or countertrade to be completed, it requires a "double coincidence of wants." (T) 9. Recognizing the importance of countertrade, the U.S. government encourages federal agencies to promote countertrade. (F) 10. It is the policy of the U.S. government to encourage U.S. government agencies and U.S. firms to use countertrade when doing business with less developed countries. (F) 11. Problems of countertrade are more psychological rather than real obstacles. (T) 12. Ex dock should not be used in quotations for export. (T) 13. If currency convertibility is a problem, FOB terms are desirable for both the buyer and the seller. (T) 14. Importers prefer FOB price quotes to CIF price quotes. (F) 15. When a sight draft is used, the risk to an exporter is that a buyer can refuse the goods shipped. (T) 16. A bankers' acceptance is not a negotiable instrument. (F) 17. Banks prefer to handle a transferable letter of credit instead of being involved with a backto-back letter of credit. (T) 18. Both the letter of credit and bill of exchange can be discounted. (T)


19. A revocable and unconfirmed letter of credit gives the exporter maximum security and minimum delay in receiving payment. (F) 20. The existence of a letter credit is not a substitution for proper business investigation concerning buyers. (T)


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