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ch15

Student: ___________________________________________________________________________

1.

As exporting has become easier, the volume of export activity in the world economy has been rising. True False

2.

Large revenue and profit opportunities are typically available in foreign markets. True False

3.

Proactive firms do not consider exporting until their domestic market is saturated and the emergence of excess productive capacity at home forces them to look for growth opportunities in foreign markets. True False

4.

Typically, large companies are not very proactive in seeking opportunities for profitable exporting. True False

5.

Many small and medium-sized firms tend to go out into the world to seek opportunities, rather than wait for the world to come to them. True False

6.

Many firms are not proactive simply because of their ignorance of foreign market opportunities. True False

7.

According to the UN, a typical international trade transaction can involve 50 different parties. True False

8.

Many foreign customers require face-to-face negotiations on their home turf. True False

9.

A big impediment to exporting is the simple lack of knowledge of the opportunities available. True False

10. Unlike their American and Japanese counterparts, German firms are at a disadvantage when it comes to assistance in seeking export opportunities. True False

11. For American companies, the most comprehensive source of export information is the local government trade department. True False

12. U.S. firms interested in exporting can acquire a "best prospects" list of opportunities from the U.S. Department of Commerce and its district offices all over the country. True False

13. The Small Business Administration is a good source of export assistance. True False

14. An export management company is an export specialist who acts as the export marketing department or international department for their client firms. True False

15. EMCs are experienced specialists who can help the neophyte exporter avoid common pitfalls. True False

16. To export successfully, it often makes sense to focus initially on a handful of markets. True False

17. Entering a foreign market on a large scale provides the opportunity to learn about the foreign country. True False

18. A shotgun approach to exporting will almost always result in that firm becoming established in any one market. True False

19. One of the reasons for the lack of trust between firms engaged in international trade is due to the problems of using an underdeveloped international legal system to enforce contractual obligations. True False

20. The letter of credit system has evolved to create a less risky environment for international trade. True False

21. The letter of credit is issued by the bank at the request of an exporter. True False

22. The sight draft specifies that the bank will pay a specified sum of money to the exporter upon the presentation of specified documents. True False

23. The letter of credit system effectively transfers the issue of trust to the bank. True False

24. International transactions are usually settled using drafts. True False

25. Because of the lack of trust in international transactions, payment or a formal promise to pay is required before the buyer can obtain the merchandise. True False

26. Time drafts are negotiable instruments. True False

27. Once a time draft is stamped with an acceptance, the maker can sell the draft at a premium to its face value. True False

28. The bill of lading acts as a receipt, a contract, and a document of title. True False

29. The bill of lading can act as collateral against which the exporter can draw funds. True False

30. The mission of the Eximbank is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the U.S. and other countries. True False

31. The Eximbank is a part of the WTO's efforts to facilitate trade between nations. True False

32. American exporters can minimize their risk by purchasing insurance from the Foreign Credit Insurance Association. True False

33. When conventional means of payment are difficult, a firm might turn to countertrade as a means of structuring an international sale. True False

34. Firms use countertrade to trade goods and services for other goods and services when they cannot be traded for money. True False

35. Countertrading is a common solution for nonconvertibility of currency. True False

36. Barter is the simplest form of countertrade. True False

37. An offset agreement occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. True False

38. Switch trading is the direct exchange of goods and/or services between parties without a cash transaction. True False

39. Countertrade contracts may involve the exchange of poor-quality goods that the firm cannot dispose of profitably. True False

40. Unless there is no alternative, large, diverse multinational enterprises should probably try to avoid countertrade deals. True False

41. Which of the following is true of exporting? A. B. C. D. It helps firm achieve economies of scale It creates diseconomies of scale It increases unit costs It creates diseconomies of scope

42. In terms of seeking export opportunities, studies have shown that: A. B. C. D. almost all small firms tend to be proactive about seeking profitable export opportunities. most large firms tend to be reactive about seeking export opportunities. most small firms systematically scan foreign markets to see where the opportunities lie. many medium-sized and small firms are very reactive.

43. Which of the following is true of reactive firms? A. B. C. D. They may not even consider exporting until their domestic market is saturated They create excess productive capacity and actively hunt for opportunities in foreign markets Almost all large firms fall under this category They systematically scan foreign markets for profitable export opportunities

44. Which of the following helps explain why exporters still account for only a tiny percentage of U.S. firms? A. B. C. D. Lack of export opportunities; buoyant demand within U.S. Tariffs; FDI restrictions Unfamiliarity; intimidation by the complexities Regulatory burden; barriers to free trade

45. Japanese exporters get assistance in identifying export opportunities from: A. B. C. D. MITI. the Japanese Outreach Program. guanxi. chaebol.

46. Great trading houses in Japan are called: A. B. C. D. kaizen. sogo shosha. MITI. gaunxi.

47. Unlike their German and Japanese competitors, U.S. firms are _____ when they see export opportunities. A. B. C. D. information-disadvantaged money-strapped regulation-bound much better prepared

48. In terms of international comparisons, which of the following statement is false? A. B. C. D. Japanese firms can draw on the large reservoirs of experience of its export-oriented institutions. The United States has been a relatively self-contained continental economy until recently. Many German firms are relatively blind when they seek export opportunities. Japan has long made its living as a trading nation.

49. For U.S. firms, the most comprehensive source of export opportunities information is the: A. B. C. D. Small Business Administration. U.S. Department of Commerce. Federal Trade Commission. foreign embassy.

50. The agencies of the U.S. Department of Commerce provide the potential exporter with all of these services except: A. B. C. D. matchmaker programs. trade events and exhibitions. best prospects lists. export subsidies.

51. A "best prospects" list: A. B. C. D. gives the names and addresses of potential distributors in the domestic market. is provided by the United States and Foreign Commercial Service Agency. can provide a firm free, customized market research survey on any product. provides information gathering, technical assistance, and export subsidies.

52. Which of the following is not provided by the Department of Commerce? A It provides the potential exporter with a "best prospects" list, which gives the names and addresses of . potential distributors in foreign markets. B. It has assembled a "comparison shopping service" for 14 countries that are major markets for U.S. exports. CIt coordinates the Export Legal Assistance Network (ELAN), a nationwide group of international trade . attorneys who provide free initial consultations to small businesses on export-related matters. D. It organizes trade events that help potential exporters make foreign contacts and explore export opportunities.

53. The Department of Commerce has a _____ program, in which department representatives accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and customers. A. B. C. D. best prospects matchmaker trade events comparison shopping

54. Which of the following statements about the SBA is false? A. It is the most comprehensive source of export opportunities information. B. It employs 10 regional international trade officers throughout the United States. C. It employs a 10-person international trade staff in Washington, D.C. D. It oversees some 850 volunteers to provide one-on-one counseling to active and new-to-export businesses. 55. Which of the following is a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters? A. B. C. D. EMC SBA ELAN SCORE

56. Through its _____ program, the SBA oversees some 850 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses. A. B. C. D. EMC SCORE ELAN International Trade Administration

57. _____ is an export specialist who acts as the export marketing department or international department for its client firm. A. B. C. D. An Eximbank An import trading company A sogo shosha An export management company

58. In theory, the advantage of EMCs is that they: A. B. C. D. provide export subsides to the exporting firms. are not-for-profit organizations, hence provide free service. are subsidized by the Department of Commerce. are experienced specialists who can help the neophyte exporter.

59. One drawback of relying on EMCs is that: A. B. C. D. they are not conversant with the ins and outs of the exporting process. they have no knowledge of different business mores. the company can fail to develop its own exporting capabilities. the company is unable to avoid common pitfalls.

60. A firm can increase the probability of exporting successfully by taking which of these steps? A. B. C. D. Avoiding hiring EMCs to lower head counts Hiring only home country personnel to build commitment Entering on a small scale Waiting for the export opportunities to come

61. Which of the following is not true about exporting? A. B. C. D. A firm needs to be proactive about seeking export opportunities Exporting is almost always an end in itself It is important for the exporter to retain the option of local production Localization can lead to greater market acceptance

62. A key challenge facing export and import financing is: A. B. C. D. limited market opportunities. lack of export assistance. lack of qualified EMCs. the lack of trust.

63. Which of the following states that the bank will pay a specified sum of money to a beneficiary on presentation of particular, specified documents? A. B. C. D. A draft A bill of lading A letter of credit A promissory note

64. Which of the following is also referred to as a "bill of exchange"? A. B. C. D. A letter of credit A bill of lading A draft A promissory note

65. A draft: A. B. C. D. is a document requesting payment. is the same as a letter of credit. is a reciprocal buying agreement. gives title to shipped goods.

66. In a letter of credit transaction, the importer secures the letter of credit A. B. C. D. before product shipment. after product shipment. from the exporter's bank. after receiving the product.

67. In a letter of credit transaction, the exporter ships the product A. B. C. D. after the letter of credit is issued. before the letter of credit is issued. upon receipt of payment. with the bill of lading.

68. In a letter of credit transaction, the exporter receives its payment from A. B. C. D. the importer. the importer's bank. the exporter's bank. the government.

69. What is the biggest advantage of using a letter of credit system? A. B. C. D. The exporter is guaranteed pre-export financing. It allows the importer time to resell the merchandise before requiring payment. The trust is established, for the importer and exporter, because of a reputable bank. It guarantees the importer extra funds for other purposes.

70. What is the drawback of using a letter of credit system? A. B. C. D. The exporter is no longer entitled to preexport financing The importer no longer trusts the exporter The exporter is not guaranteed any payment The importer must pay the bank a fee for the letter of credit

71. The person or business initiating a draft is known as the: A. B. C. D. beneficiary. drawee. maker. trustor.

72. A _____ is payable on presentation to the drawee. A. B. C. D. time draft bill of lading sight draft trade acceptance

73. A _____ allows for a delay in payment. A. B. C. D. bill of lading time draft banker's acceptance sight draft

74. A banker's acceptance: A. B. C. D. is payable immediately on presentation to the drawee. allows a buyer possession of the merchandise without signing a formal document. is a time draft that has been drawn on and accepted by a bank. is the same as a sight draft.

75. The bill of lading serves all of the following purposes except: A. B. C. D. it is a receipt. it is a bank note. it is a contract. it is a document of title.

76. A bill of lading: A. B. C. D. is the same as a letter of credit. is received from the importer prior to product shipment. is a financial note issued by a bank. gives title to the goods.

77. All of the following are true of the Export-Import Bank except: A. B. C. D. it provides total coverage against political risks. it is an independent agency of the U.S. government. it is also known as Eximbank. it has a direct lending operation.

78. _____ involves trading goods and services for other goods and services when they cannot be traded for money. A. B. C. D. Countertrade Forfeiting A sight draft A time draft

79. When conventional means of payment are difficult, costly, or nonexistent, a firm is more likely to use: A. B. C. D. a letter of credit. a time draft. countertrade. a sight draft.

80. The most restrictive form of countertrade is: A. B. C. D. switch trading. barter. buyback. counterpurchase.

81. When one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale, and it can fulfill the obligation with any firm in the country to which the sale is being made, it is a(n): A. B. C. D. barter. counterpurchase. offset. buyback.

82. A firm that uses a specialized third-party trading house in a countertrade arrangement is involved in: A. B. C. D. a barter. a counterpurchase. an offset. switch trading.

83. Discuss the growth of exporting. What are the factors contributing to the growth pattern?

84. Why do so many firms take a reactive approach to exporting rather than a proactive approach?

85. What are the typical problems challenging novice exporters when trying to export?

86. Compare and contrast the export assistance provided to German and Japanese companies with that given to American companies. Discuss the implications of the differences between the countries.

87. What information sources are available to American companies seeking information about export opportunities?

88. What is an export management company? What are the advantages and disadvantages associated with it?

89. Describe the process involved in financing imports and exports using a letter of credit. Why has this system developed? What is the advantage of using this system?

90. Compare and contrast time drafts and sight drafts.

91. Describe the three purposes of a bill of lading.

92. Describe a typical international trade transaction.

93. Discuss the Exim Bank, its goals, and its operations.

94. What is the Foreign Credit Insurance Association?

95. Explain what is meant by countertrade. What is the purpose of countertrade?

96. Consider the incidence of countertrade. Where is it most common?

97. What is the simplest form of countertrade? Why are firms reluctant to engage in this type of arrangement?

98. Compare and contrast counterpurchase agreements and offset arrangements. Why might an exporter prefer an offset to a counterpurchase deal?

99. Explain how switch trading works.

100.Discuss the idea of compensation or buybacks as they relate to countertrade. Provide an example of a buyback arrangement.

101.What is the main attraction of countertrade?

102.Why might a firm avoid countertrade?

103.What type of firm is most likely to engage in countertrade? Why?

ch15 Key
1.
(p. 522)

As exporting has become easier, the volume of export activity in the world economy has been rising. TRUE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #1 Learning Objective: 15-1

2.
(p. 522)

Large revenue and profit opportunities are typically available in foreign markets. TRUE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #2 Learning Objective: 15-1

3.
(p. 522)

Proactive firms do not consider exporting until their domestic market is saturated and the emergence of excess productive capacity at home forces them to look for growth opportunities in foreign markets. FALSE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #3 Learning Objective: 15-1

4.
(p. 522)

Typically, large companies are not very proactive in seeking opportunities for profitable exporting. FALSE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #4 Learning Objective: 15-1

5.
(p. 522)

Many small and medium-sized firms tend to go out into the world to seek opportunities, rather than wait for the world to come to them. FALSE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #5 Learning Objective: 15-1

6.
(p. 523)

Many firms are not proactive simply because of their ignorance of foreign market opportunities. TRUE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #6 Learning Objective: 15-1

7.
(p. 523)

According to the UN, a typical international trade transaction can involve 50 different parties. FALSE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #7 Learning Objective: 15-1

8.
(p. 523)

Many foreign customers require face-to-face negotiations on their home turf. TRUE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #8 Learning Objective: 15-1

9.
(p. 523)

A big impediment to exporting is the simple lack of knowledge of the opportunities available. TRUE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #9 Learning Objective: 15-2

10.
(p. 524)

Unlike their American and Japanese counterparts, German firms are at a disadvantage when it comes to assistance in seeking export opportunities. FALSE
AACSB: Reflective Thinking Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #10 Learning Objective: 15-2

11.
(p. 525)

For American companies, the most comprehensive source of export information is the local government trade department. FALSE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #11 Learning Objective: 15-2

12.
(p. 525)

U.S. firms interested in exporting can acquire a "best prospects" list of opportunities from the U.S. Department of Commerce and its district offices all over the country. TRUE
AACSB: Analytic Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #12 Learning Objective: 15-2

13.
(p. 525)

The Small Business Administration is a good source of export assistance. TRUE


AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #13 Learning Objective: 15-2

14.
(p. 525)

An export management company is an export specialist who acts as the export marketing department or international department for their client firms. TRUE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #14 Learning Objective: 15-2

15.
(p. 526)

EMCs are experienced specialists who can help the neophyte exporter avoid common pitfalls. TRUE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #15 Learning Objective: 15-2

16.
(p. 527)

To export successfully, it often makes sense to focus initially on a handful of markets. TRUE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #16 Learning Objective: 15-2

17.
(p. 527)

Entering a foreign market on a large scale provides the opportunity to learn about the foreign country. FALSE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #17 Learning Objective: 15-2

18.
(p. 527)

A shotgun approach to exporting will almost always result in that firm becoming established in any one market. FALSE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #18 Learning Objective: 15-2

19.
(p. 528)

One of the reasons for the lack of trust between firms engaged in international trade is due to the problems of using an underdeveloped international legal system to enforce contractual obligations. TRUE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #19 Learning Objective: 15-3

20.
(p. 528)

The letter of credit system has evolved to create a less risky environment for international trade. TRUE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #20 Learning Objective: 15-3

21.
(p. 530)

The letter of credit is issued by the bank at the request of an exporter. FALSE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #21 Learning Objective: 15-3

22.
(p. 530)

The sight draft specifies that the bank will pay a specified sum of money to the exporter upon the presentation of specified documents. FALSE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #22 Learning Objective: 15-3

23.
(p. 531)

The letter of credit system effectively transfers the issue of trust to the bank. TRUE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #23 Learning Objective: 15-3

24.
(p. 532)

International transactions are usually settled using drafts. TRUE


AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #24 Learning Objective: 15-3

25.
(p. 532)

Because of the lack of trust in international transactions, payment or a formal promise to pay is required before the buyer can obtain the merchandise. TRUE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #25 Learning Objective: 15-3

26.
(p. 532)

Time drafts are negotiable instruments. TRUE


AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #26 Learning Objective: 15-3

27.
(p. 532)

Once a time draft is stamped with an acceptance, the maker can sell the draft at a premium to its face value. FALSE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #27 Learning Objective: 15-3

28.
(p. 532)

The bill of lading acts as a receipt, a contract, and a document of title. TRUE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #28 Learning Objective: 15-3

29.
(p. 532)

The bill of lading can act as collateral against which the exporter can draw funds. TRUE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #29 Learning Objective: 15-3

30.
(p. 534)

The mission of the Eximbank is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the U.S. and other countries. TRUE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #30 Learning Objective: 15-4

31.
(p. 534)

The Eximbank is a part of the WTO's efforts to facilitate trade between nations. FALSE
AACSB: Analytic Skills Blooms: Comprehension Difficulty: Easy Hill - Chapter 15 #31 Learning Objective: 15-4

32.
(p. 535)

American exporters can minimize their risk by purchasing insurance from the Foreign Credit Insurance Association. TRUE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #32 Learning Objective: 15-4

33.
(p. 535)

When conventional means of payment are difficult, a firm might turn to countertrade as a means of structuring an international sale. TRUE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #33 Learning Objective: 15-5

34.
(p. 535)

Firms use countertrade to trade goods and services for other goods and services when they cannot be traded for money. TRUE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #34 Learning Objective: 15-5

35.
(p. 535)

Countertrading is a common solution for nonconvertibility of currency. TRUE


AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #35 Learning Objective: 15-5

36.
(p. 536)

Barter is the simplest form of countertrade. TRUE


AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #36 Learning Objective: 15-5

37.
(p. 536)

An offset agreement occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. FALSE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #37 Learning Objective: 15-5

38.
(p. 536)

Switch trading is the direct exchange of goods and/or services between parties without a cash transaction. FALSE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #38 Learning Objective: 15-5

39.
(p. 537)

Countertrade contracts may involve the exchange of poor-quality goods that the firm cannot dispose of profitably. TRUE
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #39 Learning Objective: 15-5

40.
(p. 538)

Unless there is no alternative, large, diverse multinational enterprises should probably try to avoid countertrade deals. FALSE
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Easy Hill - Chapter 15 #40 Learning Objective: 15-3

41.
(p. 522)

Which of the following is true of exporting? A. B. C. D. It helps firm achieve economies of scale It creates diseconomies of scale It increases unit costs It creates diseconomies of scope

Firms that do not export often lose out on significant opportunities for growth and cost reduction.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #41 Learning Objective: 15-1

42.
(p. 522)

In terms of seeking export opportunities, studies have shown that: A. B. C. D. almost all small firms tend to be proactive about seeking profitable export opportunities. most large firms tend to be reactive about seeking export opportunities. most small firms systematically scan foreign markets to see where the opportunities lie. many medium-sized and small firms are very reactive.

Reactive firms do not consider exporting until their domestic market is saturated and the emergence of excess productive capacity at home forces them to look for growth opportunities in foreign markets.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #42 Learning Objective: 15-1

43.
(p. 522)

Which of the following is true of reactive firms? A. B. C. D. They may not even consider exporting until their domestic market is saturated They create excess productive capacity and actively hunt for opportunities in foreign markets Almost all large firms fall under this category They systematically scan foreign markets for profitable export opportunities

Reactive firms tend to wait for the world to come to them, rather than going out into the world to seek opportunities.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Hard Hill - Chapter 15 #43 Learning Objective: 15-1

44.
(p. 523)

Which of the following helps explain why exporters still account for only a tiny percentage of U.S. firms? A. B. C. D. Lack of export opportunities; buoyant demand within U.S. Tariffs; FDI restrictions Unfamiliarity; intimidation by the complexities Regulatory burden; barriers to free trade

Many would-be exporters, particularly smaller firms, are often 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.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Hard Hill - Chapter 15 #44 Learning Objective: 15-1

45.
(p. 523524)

Japanese exporters get assistance in identifying export opportunities from: A. B. C. D. MITI. the Japanese Outreach Program. guanxi. chaebol.

In addition, many Japanese firms are affiliated in some way with the sogo shosha, Japan's great trading houses. The sogo shosha have offices all over the world, and they proactively, continuously seek export opportunities for their affiliated companies large and small.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #45 Learning Objective: 15-2

46.
(p. 524)

Great trading houses in Japan are called: A. B. C. D. kaizen. sogo shosha. MITI. gaunxi.

The sogo shosha have offices all over the world, and they proactively, continuously seek export opportunities for their affiliated companies large and small.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #46 Learning Objective: 15-2

47.
(p. 524)

Unlike their German and Japanese competitors, U.S. firms are _____ when they see export opportunities. A. B. C. D. information-disadvantaged money-strapped regulation-bound much better prepared

German and Japanese firms can draw on the large reservoirs of experience, skills, information, and other resources of their respective export-oriented institutions. Unlike their German and Japanese competitors, many U.S. firms are relatively blind when they seek export opportunities.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #47 Learning Objective: 15-2

48.
(p. 524)

In terms of international comparisons, which of the following statement is false? A. B. C. D. Japanese firms can draw on the large reservoirs of experience of its export-oriented institutions. The United States has been a relatively self-contained continental economy until recently. Many German firms are relatively blind when they seek export opportunities. Japan has long made its living as a trading nation.

Unlike their German and Japanese competitors, many U.S. firms are relatively blind when they seek export opportunities.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Hard Hill - Chapter 15 #48 Learning Objective: 15-2

49.
(p. 525)

For U.S. firms, the most comprehensive source of export opportunities information is the: A. B. C. D. Small Business Administration. U.S. Department of Commerce. Federal Trade Commission. foreign embassy.

Within the U.S. Department of Commerce are two organizations dedicated to providing businesses with intelligence and assistance for attacking foreign markets: the International Trade Administration and the United States and Foreign Commercial Service Agency.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #49 Learning Objective: 15-2

50.
(p. 525)

The agencies of the U.S. Department of Commerce provide the potential exporter with all of these services except: A. B. C. D. matchmaker programs. trade events and exhibitions. best prospects lists. export subsidies.

For a small fee, a firm can receive a customized market research survey on a product of its choice. This survey provides information on marketability, the competition, comparative prices, distribution channels, and names of potential sales representatives. Each study is conducted on-site by an officer of the Department of Commerce.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #50 Learning Objective: 15-2

51.
(p. 525)

A "best prospects" list: A. B. C. D. gives the names and addresses of potential distributors in the domestic market. is provided by the United States and Foreign Commercial Service Agency. can provide a firm free, customized market research survey on any product. provides information gathering, technical assistance, and export subsidies.

In addition, the Department of Commerce has assembled a "comparison shopping service" for 14 countries that are major markets for U.S. exports.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #51 Learning Objective: 15-2

52.
(p. 525)

Which of the following is not provided by the Department of Commerce? A It provides the potential exporter with a "best prospects" list, which gives the names and addresses of . potential distributors in foreign markets. B. It has assembled a "comparison shopping service" for 14 countries that are major markets for U.S. exports. CIt coordinates the Export Legal Assistance Network (ELAN), a nationwide group of international trade . attorneys who provide free initial consultations to small businesses on export-related matters. D. It organizes trade events that help potential exporters make foreign contacts and explore export opportunities. The Small Business Administration (SBA) coordinates the Export Legal Assistance Network, the SBA also oversees some 850 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #52 Learning Objective: 15-2

53.
(p. 525)

The Department of Commerce has a _____ program, in which department representatives accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and customers. A. B. C. D. best prospects matchmaker trade events comparison shopping

The Department of Commerce also organizes exhibitions at international trade fairs, which are held regularly in major cities worldwide.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #53 Learning Objective: 15-2

54.
(p. 525)

Which of the following statements about the SBA is false? A. It is the most comprehensive source of export opportunities information. B. It employs 10 regional international trade officers throughout the United States. C. It employs a 10-person international trade staff in Washington, D.C. D. It oversees some 850 volunteers to provide one-on-one counseling to active and new-to-export businesses. The most comprehensive source of information is the U.S. Department of Commerce and its district offices all over the country.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Hard Hill - Chapter 15 #54 Learning Objective: 15-2

55.
(p. 525)

Which of the following is a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters? A. B. C. D. EMC SBA ELAN SCORE

Through its Service Corps of Retired Executives (SCORE) program, the SBA also oversees some 850 volunteers with international trade experience to provide one-on-one counseling to active and new-toexport businesses.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #55 Learning Objective: 15-2

56.
(p. 525)

Through its _____ program, the SBA oversees some 850 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses. A. B. C. D. EMC SCORE ELAN International Trade Administration

The SBA employs 76 district international trade officers and 10 regional international trade officers throughout the United States as well as a 10-person international trade staff in Washington, D.C.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #56 Learning Objective: 15-2

57.
(p. 525)

_____ is an export specialist who acts as the export marketing department or international department for its client firm. A. B. C. D. An Eximbank An import trading company A sogo shosha An export management company

One way for first-time exporters to identify the opportunities associated with exporting and to avoid many of the associated pitfalls is to hire an export management company (EMC).
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #57 Learning Objective: 15-2

58.
(p. 526)

In theory, the advantage of EMCs is that they: A. B. C. D. provide export subsides to the exporting firms. are not-for-profit organizations, hence provide free service. are subsidized by the Department of Commerce. are experienced specialists who can help the neophyte exporter.

A good EMC will have a network of contacts in potential markets, have multilingual employees, have a good knowledge of different business mores, and be fully conversant with the ins and outs of the exporting process and with local business regulations.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #58 Learning Objective: 15-2

59.
(p. 527)

One drawback of relying on EMCs is that: A. B. C. D. they are not conversant with the ins and outs of the exporting process. they have no knowledge of different business mores. the company can fail to develop its own exporting capabilities. the company is unable to avoid common pitfalls.

EMCs are export specialists who act as the export marketing department or international department for their client firms.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Hard Hill - Chapter 15 #59 Learning Objective: 15-2

60.
(p. 527)

A firm can increase the probability of exporting successfully by taking which of these steps? A. B. C. D. Avoiding hiring EMCs to lower head counts Hiring only home country personnel to build commitment Entering on a small scale Waiting for the export opportunities to come

Entering on a small scale provides the time and opportunity to learn about the foreign country before making significant capital commitments to that market.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #60 Learning Objective: 15-2

61.
(p. 527)

Which of the following is not true about exporting? A. B. C. D. A firm needs to be proactive about seeking export opportunities Exporting is almost always an end in itself It is important for the exporter to retain the option of local production Localization can lead to greater market acceptance

Exporting is merely a step on the road toward establishing foreign production.


AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #61 Learning Objective: 15-2

62.
(p. 528)

A key challenge facing export and import financing is: A. B. C. D. limited market opportunities. lack of export assistance. lack of qualified EMCs. the lack of trust.

Firms engaged in international trade have to trust someone they may have never seen, who lives in a different country, who speaks a different language, who abides by (or does not abide by) a different legal system, and who could be very difficult to track down if he or she defaults on an obligation.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #62 Learning Objective: 15-3

63.
(p. 530)

Which of the following states that the bank will pay a specified sum of money to a beneficiary on presentation of particular, specified documents? A. B. C. D. A draft A bill of lading A letter of credit A promissory note

A letter of credit, abbreviated as L/C, stands at the center of international commercial transactions.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #63 Learning Objective: 15-3

64.
(p. 531)

Which of the following is also referred to as a "bill of exchange"? A. B. C. D. A letter of credit A bill of lading A draft A promissory note

A draft is an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #64 Learning Objective: 15-3

65.
(p. 531)

A draft: A. B. C. D. is a document requesting payment. is the same as a letter of credit. is a reciprocal buying agreement. gives title to shipped goods.

A draft is the instrument normally used in international commerce to effect payment.


AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #65 Learning Objective: 15-3

66.
(p. 531)

In a letter of credit transaction, the importer secures the letter of credit A. B. C. D. before product shipment. after product shipment. from the exporter's bank. after receiving the product.

Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular specified documents.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Hard Hill - Chapter 15 #66 Learning Objective: 15-3

67.
(p. 531)

In a letter of credit transaction, the exporter ships the product A. B. C. D. after the letter of credit is issued. before the letter of credit is issued. upon receipt of payment. with the bill of lading.

Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular specified documents.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #67 Learning Objective: 15-3

68.
(p. 531)

In a letter of credit transaction, the exporter receives its payment from A. B. C. D. the importer. the importer's bank. the exporter's bank. the government.

The great advantage of this system is that both the importer and the exporter are likely to trust reputable banks, even if they do not trust each other.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #68 Learning Objective: 15-3

69.
(p. 531)

What is the biggest advantage of using a letter of credit system? A. B. C. D. The exporter is guaranteed pre-export financing. It allows the importer time to resell the merchandise before requiring payment. The trust is established, for the importer and exporter, because of a reputable bank. It guarantees the importer extra funds for other purposes.

Once the exporter has seen a letter of credit, he knows that he is guaranteed payment and will ship the merchandise.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #69 Learning Objective: 15-3

70.
(p. 531)

What is the drawback of using a letter of credit system? A. B. C. D. The exporter is no longer entitled to preexport financing The importer no longer trusts the exporter The exporter is not guaranteed any payment The importer must pay the bank a fee for the letter of credit

Since the letter of credit is a financial liability against the importer, it may reduce his/her ability to borrow funds for other purposes.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Hard Hill - Chapter 15 #70 Learning Objective: 15-3

71.
(p. 531)

The person or business initiating a draft is known as the: A. B. C. D. beneficiary. drawee. maker. trustor.

A draft is an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Easy Hill - Chapter 15 #71 Learning Objective: 15-3

72.
(p. 532)

A _____ is payable on presentation to the drawee. A. B. C. D. time draft bill of lading sight draft trade acceptance

Drafts fall into two categories, sight drafts and time drafts.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #72 Learning Objective: 15-3

73.
(p. 532)

A _____ allows for a delay in payment. A. B. C. D. bill of lading time draft banker's acceptance sight draft

Once accepted, the time draft becomes a promise to pay by the accepting party.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #73 Learning Objective: 15-3

74.
(p. 532)

A banker's acceptance: A. B. C. D. is payable immediately on presentation to the drawee. allows a buyer possession of the merchandise without signing a formal document. is a time draft that has been drawn on and accepted by a bank. is the same as a sight draft.

When a business firm draws on and accepts the draft, it is called a trade acceptance.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #74 Learning Objective: 15-3

75.
(p. 532)

The bill of lading serves all of the following purposes except: A. B. C. D. it is a receipt. it is a bank note. it is a contract. it is a document of title.

The bill of lading is issued to the exporter by the common carrier transporting the merchandise.
AACSB: Analytic Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #75 Learning Objective: 15-3

76.
(p. 532)

A bill of lading: A. B. C. D. is the same as a letter of credit. is received from the importer prior to product shipment. is a financial note issued by a bank. gives title to the goods.

It serves three purposes: it is a receipt, a contract, and a document of title.


AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #76 Learning Objective: 15-3

77.
(p. 534)

All of the following are true of the Export-Import Bank except: A. B. C. D. it provides total coverage against political risks. it is an independent agency of the U.S. government. it is also known as Eximbank. it has a direct lending operation.

The mission of Export-Import bank is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #77 Learning Objective: 15-4

78.
(p. 535)

_____ involves trading goods and services for other goods and services when they cannot be traded for money. A. B. C. D. Countertrade Forfeiting A sight draft A time draft

Countertrade is an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #78 Learning Objective: 15-5

79.
(p. 535)

When conventional means of payment are difficult, costly, or nonexistent, a firm is more likely to use: A. B. C. D. a letter of credit. a time draft. countertrade. a sight draft.

Countertrade denotes a whole range of barter like agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #79 Learning Objective: 15-5

80.
(p. 536)

The most restrictive form of countertrade is: A. B. C. D. switch trading. barter. buyback. counterpurchase.

It is primarily used for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #80 Learning Objective: 15-5

81.
(p. 536)

When one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale, and it can fulfill the obligation with any firm in the country to which the sale is being made, it is a(n): A. B. C. D. barter. counterpurchase. offset. buyback.

From an exporter's perspective, this is more attractive than a straight counterpurchase agreement because it gives the exporter greater flexibility to choose the goods that it wishes to purchase.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #81 Learning Objective: 15-5

82.
(p. 537)

A firm that uses a specialized third-party trading house in a countertrade arrangement is involved in: A. B. C. D. a barter. a counterpurchase. an offset. switch trading.

Switch trading occurs when a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them.
AACSB: Analytic Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #82 Learning Objective: 15-5

83.
(p. 522)

Discuss the growth of exporting. What are the factors contributing to the growth pattern? The volume of export activity in the world economy is increasing as exporting has become easier. The decline in trade barriers brought about by the GATT and the WTO along with the move toward regional economic integration have significantly increased export opportunities. In addition, modern communication and transportation technologies have alleviated logistical problems associated with exporting.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #83 Learning Objective: 15-1

84.
(p. 523)

Why do so many firms take a reactive approach to exporting rather than a proactive approach? There are several reasons why firms do not take a proactive approach to seeking export opportunities. One reason is that most firms are unfamiliar with foreign market opportunities, they do not realize how big the potential market is, or where the opportunities are. A second reason why firms take a reactive approach to exporting is because 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. A third reason for firms not being proactive about exporting is the number of problems neophyte exporters typically face when trying to do business abroad.
AACSB: Reflective Thinking Skills Blooms: Knowledge Difficulty: Medium Hill - Chapter 15 #84 Learning Objective: 15-1

85.
(p. 523)

What are the typical problems challenging novice exporters when trying to export? Novice exporters run into significant problems when first trying to do business abroad. Typically, this sours the companies on future export opportunities. Common pitfalls include poor market analysis, a poor understanding of competitive conditions in the foreign market, a failure to customize the product offering to the needs of foreign customers, lack of an effective distribution program, a poorly executed promotional campaign in the foreign market, and problems securing financing. Furthermore, novice exporters tend to underestimate the time and expertise needed to cultivate business in foreign countries. Few realize the amount of management resources that have to be dedicated to this activity.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #85 Learning Objective: 15-1

86.
(p. 523524)

Compare and contrast the export assistance provided to German and Japanese companies with that given to American companies. Discuss the implications of the differences between the countries. Germany, one of the world's most successful exporting nations, provides assistance through government agencies, trade associations, and commercial banks to firms seeking export opportunities. In Japan, similar assistance is provided by the Japanese Ministry of Trade and Industry. In addition, many Japanese firms are associated with the sogo shosha, Japan's great trading houses. The sogo shosha have offices all over the world, and they proactively and continuously seek export opportunities for their companies. In contrast, many American firms are relatively blind when they seek export opportunities because they are information disadvantaged. Consequently, because an institutional structure for promoting exports has yet to evolve in the U.S., American firms are at a competitive disadvantage compared to their German and Japanese counterparts.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Hard Hill - Chapter 15 #86 Learning Objective: 15-2

87.
(p. 525)

What information sources are available to American companies seeking information about export opportunities? There are several sources of information available to American companies looking for export assistance. The most comprehensive source of information is the U.S. Department of Commerce. Within the Department of Commerce, there are two organizations dedicated to providing businesses with intelligence and assistance for attacking foreign markets: the International Trade Administration and the United States and Foreign Commercial Service Agency. These agencies provide the potential exporter with a "best prospects" list, which gives the names and addresses of potential distributors in foreign markets along with the businesses they are in, the products they handle, and their contact person. The Department of Commerce has assembled a "comparison shopping service" where companies can receive a customized market research survey on a product. The survey provides information on marketability, the competition, comparative prices, distribution channels, and names of potential sales representatives. The Small Business Administration is also a source of information for exporters, providing counseling and legal assistance. Finally, most states have active trade commissions that can be a source of information.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #87 Learning Objective: 15-2

88.
(p. 525527)

What is an export management company? What are the advantages and disadvantages associated with it? An export management company is an export specialist who acts as the expert marketing department or international department for its client firms. An export management company can help new exporters identify opportunities and avoid common pitfalls. However, the quality of export management companies varies. Furthermore, relying on an export management company prevents the firm from developing its own exporting capabilities.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #88 Learning Objective: 15-2

89.
(p. 530531)

Describe the process involved in financing imports and exports using a letter of credit. Why has this system developed? What is the advantage of using this system? The letter of credit is at the center of international commercial transactions. A letter of credit is issued by a bank at the request of an importer. The letter of credit states the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. The advantage of the system is that it introduces an element of trust into the relationship in that both the importer and the exporter are likely to trust reputable banks even if they do not trust each other.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Hard Hill - Chapter 15 #89 Learning Objective: 15-3

90.
(p. 531532)

Compare and contrast time drafts and sight drafts. Drafts, also known as bills of exchange, are the instruments typically used to effect payment in international trade. There are two types of drafts, sight drafts and time drafts. The sight draft is payable on presentation to the drawee. A time draft allows for a delay in payment - normally 30, 60, 90, or 120 days. It is presented to the drawee, who signifies acceptance of it by writing or stamping a notice of acceptance on its face. Once accepted, the time draft becomes a promise to pay by the accepting party. Time drafts are negotiable instruments; that is, once the draft is stamped with an acceptance, the maker can sell the draft to an investor at a discount from its face value.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #90 Learning Objective: 15-3

91.
(p. 532)

Describe the three purposes of a bill of lading. The bill of lading is an important document for financing international trade. The bill of lading is issued to the exporter by the common carrier transporting the merchandise. It serves three purposes: it is a receipt, a contract, and a document of title. As a receipt, the bill of lading indicates that the carrier has received the merchandise described on the face of the document. As a contract, it specifies that the carrier is obligated to provide a transportation service in return for a certain charge. As a document of title, it can be used to obtain payment or a written promise of payment before the merchandise is released to the importer. The bill of lading can also function as collateral against which funds may be drawn by the exporter to its local bank before or during shipment and before final payment by the importer.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #91 Learning Objective: 15-3

92.
(p. 532533)

Describe a typical international trade transaction. The typical transaction involves 14 steps: 1. The importer places an order with the exporter and asks if he would be willing to ship under a letter of credit. 2. The exporter agrees to ship under a letter of credit and specifies relevant information such as prices and delivery terms. 3. The importer applies to the importer's bank (any bank of the importer's country) for a letter of credit to be issued in favor of the exporter for the merchandise the importer wishes to buy. 4. The importer's bank issues a letter of credit in the importer's favor and sends it to the exporter's bank (any bank in the exporter's country). 5. The exporter's bank advises the exporter that a letter of credit has been opened in his favor. 6. The exporter ships the goods to the importer on a common carrier. An official of the carrier gives the exporter a bill of lading. 7. The exporter presents a 90-day time draft drawn on the importer's bank in accordance with its letter of credit and the bill of lading to the exporter's bank. The exporter endorses the bill of lading so title to the goods is transferred to the exporter's bank. 8. The exporter's bank sends the draft and bill of lading to the importer's bank. The importer's bank accepts the draft, taking possession of the documents and promising to pay the now-accepted draft in 90 days. 9. The importer's bank returns the accepted draft to the exporter's bank. 10. The exporter's bank tells the exporter that it has received the accepted bank draft, which is payable in 90 days. 11. The exporter sells the draft to his bank at a discount from its face value and receives the discounted cash value of the draft in return. 12. The importer's bank notifies the importer of the arrival of the documents. He/She agrees to pay the in 90 days. The importer's bank releases the documents so the importer can take possession of the shipment. 13. In 90 days, the importer's bank receives the importer's payment, so it has funds to pay the maturing draft. 14. In 90 days, the holder of the matured acceptance presents it to the importer's bank for payment. The importer's bank pays.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Hard Hill - Chapter 15 #92 Learning Objective: 15-3

93.
(p. 534)

Discuss the Exim Bank, its goals, and its operations. The Exim Bank, otherwise known as the Export-Import Bank, is an independent agency of the U.S. government. Its mission is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the U.S. and the rest of the world. The bank pursues its mission through various loan and loan-guarantee programs. The agency guarantees repayment of medium and long-term loans U.S. commercial banks make to foreign borrowers for purchasing U.S. exports. It also guarantees to make the commercial banks more willing to lend cash to foreign enterprises. Eximbank also has a direct lending operation under which it lends dollars to foreign borrowers for use in purchasing U.S. exports. It grants loans that commercial banks would not if it sees a potential benefit to the U.S. in doing so. The foreign borrowers use the loans to pay U.S. suppliers and repay the loan to Eximbank with interest.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #93 Learning Objective: 15-4

94.
(p. 535)

What is the Foreign Credit Insurance Association? The Foreign Credit Insurance Association (FCIA) is an association of private commercial institutions operating under the guidance of the Export-Import Bank to provide export credit insurance. The FCIA provides coverage against commercial risks and political risks. Losses due to commercial risk result from the buyer's insolvency or payment default. Political losses arise from actions of governments that are beyond the control of either buyer or seller.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #94 Learning Objective: 15-4

95.
(p. 535)

Explain what is meant by countertrade. What is the purpose of countertrade? When conventional means of payment are difficult, costly, or nonexistent, firms may turn to countertrade as an alternative means of structuring an international sale. Countertrade denotes a whole range of barter-like agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money. Countertrade can be used when a government restricts the convertibility of its currency to preserve its foreign exchange reserves so they can be used to service international debt commitments and purchase crucial imports.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #95 Learning Objective: 15-5

96.
(p. 535536)

Consider the incidence of countertrade. Where is it most common? Countertrade became popular in the1960s as a way for the Soviet Union and the Communist states of Eastern Europe, whose currencies were generally nonconvertible, to purchase imports. During the1980s, the practice became popular in many developing nations that lacked the foreign exchange to purchase necessary imports. Estimates of the percentage of world trade covered by some sort of countertrade agreement range from highs of 8 and 10 percent by value to lows of around 2 percent. In the tight monetary regime that followed the crisis in 1997, many Asian firms found it very difficult to get access to export credits to finance their own international trade. Thus they turned to the only option available to themcountertrade.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #96 Learning Objective: 15-5

97.
(p. 536)

What is the simplest form of countertrade? Why are firms reluctant to engage in this type of arrangement? The simplest form of countertrade is barter. Barter is the direct exchange of goods and/or services between two parties without a cash transition. Barter is not common because of the challenges it presents to the parties involved. In particular, if goods are not exchanged simultaneously, one party ends up financing the other for a period. Moreover, firms engaged in barter run the risk of having to accept goods they do not want, cannot use, or have difficulty reselling at a reasonable price.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #97 Learning Objective: 15-5

98.
(p. 536537)

Compare and contrast counterpurchase agreements and offset arrangements. Why might an exporter prefer an offset to a counterpurchase deal? A counterpurchase agreement is a reciprocal buying agreement that occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. An offset is similar to a counterpurchase insofar as one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale. The difference is that this party can fulfill the obligation with any firm in the county to which as sale is being made. This type of arrangement gives an exporter greater flexibility to choose the goods it wishes to purchase.
AACSB: Reflective Thinking Skills Blooms: Evaluation Difficulty: Medium Hill - Chapter 15 #98 Learning Objective: 15-5

99.
(p. 537)

Explain how switch trading works. Switch trading refers to the use of a specialized third-party trading house in a countertrade arrangement. When a firm enters a counterpurchase or offset agreement with a country, it may receive counterpurchase credits that can be used for purchasing goods from that country. Switch trading occurs when a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them.
AACSB: Reflective Thinking Skills Blooms: Evaluation Difficulty: Medium Hill - Chapter 15 #99 Learning Objective: 15-5

100.
(p. 537)

Discuss the idea of compensation or buybacks as they relate to countertrade. Provide an example of a buyback arrangement. When a firm builds a plant in another country - or supplies technology, equipment, training, or other services to the country - and agrees to take a certain percentage of the plant's output as partial payment for the contract, a buyback agreement has been reached. Buyback agreements are a form of countertrade. For example, Occidental Petroleum negotiated a deal with Russia under which Occidental would build several ammonia plants in Russia and, as partial payment for their work, would receive ammonia from the plant over a 20-year period.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Hard Hill - Chapter 15 #100 Learning Objective: 15-5

101.
(p. 537)

What is the main attraction of countertrade? The main attraction of countertrade is that it can give a firm a way to finance an export deal when other means are not available. Many developing nations have problems raising the foreign exchange necessary to pay for imports. Countertrade may be the only option available when doing business in these countries. Even when other options exist many countries prefer countertrade to cash deals.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #101 Learning Objective: 15-5

102.
(p. 537538)

Why might a firm avoid countertrade? There are several reasons why a firm might avoid countertrade. Countertrade contracts may involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably. In addition, even if the goods it receives are of high quality, the firm still needs to dispose of them profitably. Countertrade requires the firm to invest in an in-house trading department dedicated to arranging and managing countertrade deals in order to maintain a profit. These new departments can be expensive and time-consuming.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Medium Hill - Chapter 15 #102 Learning Objective: 15-5

103.
(p. 538)

What type of firm is most likely to engage in countertrade? Why? Countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading. Unless there is no alternative, small and medium-sized companies should probably avoid countertrade deals because they lack the worldwide network of operations that may be required to profitably utilize or dispose of goods acquired through them.
AACSB: Reflective Thinking Skills Blooms: Comprehension Difficulty: Hard Hill - Chapter 15 #103 Learning Objective: 15-5

ch15 Summary
Category AACSB: Analytic Skills AACSB: Reflective Thinking Skills Blooms: Comprehension Blooms: Evaluation Blooms: Knowledge Difficulty: Easy Difficulty: Hard Difficulty: Medium Hill - Chapter 15 Learning Objective: 15-1 Learning Objective: 15-2 Learning Objective: 15-3 Learning Objective: 15-4 Learning Objective: 15-5 # of Questions 50 53 52 2 49 23 12 68 103 15 30 31 6 21