chap 2

Payment will be by irrevocable, confirmed, at sight letter of credit.. Payment will be by irrevocable, confirmed, at sight letter of credit.. Payment will be by irrevocable, confirmed, a

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MCQ Questions for Chapter 2 – Negotiating Price and Payment

Choose the answer that suits the question most.

1 What are the set of assumptions with which a price quotation is based?

A Mode of payment, timing, place of payment

B Delay in payment and results of delay

C Choices of method of payment

D Delivery, payment and warranty terms

2 A term or terms in a contract could raise the contract price

A A shorter warranty period

B Customer orders goods in one color

C No additional packaging or safety warnings are required beyond normal

standards

D A longer warranty period

3 What would be the effect on the price of the goods traded if the buyer wants the goods sooner?

A The price of the goods will go up

B The price of the goods will go down

C There is no change in price

D The price of the goods will go up as extra costs involved due to extra working shift from the manufacturer

4 Why can a manufacturer sometimes accept a loss on an export deal?

A He wants to win a regular customer

B His factory may be short of work

C He can get some export incentives from the government

D Any of the above

5 Gorm Trading exports canned foods from Verbena Gorm is negotiating export of 600 cases of apricot jam by road to a neighboring country Gorm’s price per case is $20 The price is based on delivery FCA with no special packaging or labeling The jam has a six – month expiry date stamped on the label Payment will be by irrevocable, confirmed, at sight letter of credit Delivery date is two days after the opening of the credit

If there is a reduction of the order from 600 cases to 300 cases, the price will be …

A Increasing minimally

B Increasing appreciably

C Increasing largely

D Decreasing

If delivery is EXW (Exporter must have the goods ready for collection in his

warehouse), there will be ……

A A minimal increase in price

B A minimal decrease in price

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C An appreciable decrease in price.

D A large decrease in price

If there is a replacement of single flavor (apricot jam) by a range of 10 flavors, some

of which are ‘exotic’, there will be ……

A An appreciable increase in price

B A minimal decrease in price

C An appreciable decrease in price

D A large increase in price

If there is a change of labeling to show exact nutritional values and ingredients (not normally supplied by Gorm), there will be ……

B No change in price

C An appreciable increase in price

If there is a change of payment from letter of credit to open account, payment due 45 days from date of invoice, there will be …

B An appreciable decrease in price

C An appreciable increase in price

If there is a replacement of a single delivery with delivery in 10 installments of 60 cases over a period of one year, there will be…

B An appreciable increase in price

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C An appreciable decrease in price.

If there is an increase of the expiry period from six months from date of manufacture

to two years, there will be…

A A large increase in price

B A large decrease in price

C A minimal increase in price

D An appreciable increase in price

12 The greatest fear for the exporter is…

A Being unable to meet the delivery deadline

B Being unable to meet the specifications of the goods

C Being unable to get paid for the goods sold

D Having no guarantee for payment

13 The things that the exporter should keep in mind in negotiating payment are …

A Payment mode, timing, place, delay and results of delay

B How payment will be made and the date of payment

C Where the money must be before payment is considered complete and what delay in payment is excusable

D Results of non- excusable delay in payment and time of payment

14 Small purchases in private life are often in the form of …

A Cash on delivery

B Cash against invoice

C Cash with order

D Any of the above

15 The method of payment which is completely safe for the seller in small purchases is……

A Open account

B Cash on delivery

C Cash against invoice

D Cash with order

16 The word ‘cash’ in international trade means ………

A Coins and notes

B Gold

C Checks or bank transfers

D Prepayment

17 In international trade, if payment is made on delivery, the method of payment to be chosen will be …………

A Bank guarantee

B Open account

C Export credit insurance

D At sight letter of credit

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18 A bank guarantee which gives the exporter an acceptable level of security in terms of payment shall be paid by…

A The buyer

B The exporter

C A bank

D A third party

19 Export credit insurance which gives the exporter an acceptable level of security in terms of payment shall be paid by……

A The buyer

B The exporter

C A bank

D An insurance company

20 Who issues a bank guarantee?

A The buyer

B The exporter

C Any third party

D A bank

21 Who issues export credit insurance?

A The buyer

B The exporter

C An insurance company

D Any export company

22 Why do most exporters offer a discount for early payment, for example a 1% discount

if payment is made within 10 days of the date of invoice?

A Because the discount is so attractive to the buyer

B Because the buyer can save on the invoice price

C Because the exporter can substantially improves his cash flow

D Because the exporter just wants to get payment on delivery

23 To avoid the dangers of slow payment, exporters try to protect themselves with a clause like this: “Payment shall be deemed to have been made only when ……”

A the buyer instructs the bank to pay

B the buyer pays the money into his bank

C the buyer’s bank transfers funds

D funds reach the seller’s bank account and at his full disposal

24 The place of payment is very important because late payment is subject to payment

of interest and the cost of any delay along the payment route properly belongs to …

A The buyer

B The exporter

C The bank of the exporter

D The bank of the buyer

25 The force majeure clause suggested by the International Chamber of Commerce, for example, states that payment of interest on overdue sums payable to the seller is

………… by ………

A excused /force majeure

B not excused/force majeure

C excused/Acts of God

D excused/contingencies

26 The best solution for the exporter to make late payment impossible is…

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A a typical contract clause in which there are regulations on the amount of interest the seller shall be entitled to receive in case of late payment

B an agreement with the buyer to strengthen the payment provisions with a

payment guarantee

C an agreement with an insurance company in case the buyer fails to pay on time

D a confirmed, irrevocable, at sight letter of credit

27 A price and payment clause taken from an export contract is as follows:

“The price payable for the Contract Goods as specified in Annex A is $500,000” What is missing?

A The clause does not specify how payment will be made

B The clause does not specify when payment is due

C The clause lacks all the necessary five steps in negotiating payment like payment mode, time, place, delay and results of delay

D The clause does not say where the money must be before the buyer is deemed

to have paid, define delay in payment and mention the consequences of delay

28 The method of payment which is dangerous for the exporter is……

A Cash on delivery

B Accepting a personal check

C Prepayment

D Export credit insurance

29 In terms of payment in international trade,

A Risk rises and cost rises as well

B Risk falls and cost falls as a consequence

C Risk and cost have no relationship with each other

D Risk and cost rise and fall together

30 ‘Export credit insurance is a kind of special privilege that an exporter may get from his government’s export incentives and support’ Right or wrong?

A Completely right

B Absolutely wrong

C Neither right nor wrong

D It is not a charity It is beneficial for both exporter and insurance company

31 What do export insurance premiums depend on?

A Type of goods exported

B Creditworthiness of the buyer

C The political stability of the buyer’s country

D All of the above

32 Export credit insurance is very attractive; however, it has certain limitations like…

A high premiums paid by the exporter

B long time waiting for compensation from the insurance company

C long time since the buyer fails to pay up to the time the insurance company compensates the exporter and the inability of covering 100% of the original invoice price

D Refusal from the insurance company to quote premiums due to risky business or the buyer’s non-creditworthiness

33 In which situation should exporters use export credit insurance?

A Long – term customers

B Transactions represent a high proportion of their turnover

C Buyers are willing to spend money on a payment guarantee

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D In a seller’s market.

34 Payment guarantee means ……

A A bond

B A surety

C A warranty

D A triangle relationship amongst guarantor, principal and beneficiary

35 The two terminologies which mean the same thing are…

A Guarantee and Warranty

B Bond and Surety

C Warranty and Defects Liability

D Guarantee and Insurance

36 A payment guarantee simply commits the bank to pay if the buyer defaults The payment guarantee is usually for …… of the contract price

A 100%

B Less than 100%

C 10%

D Between 5% and 10%

37 In a performance guarantee, if the seller works badly or not at all, the guarantor will pay the buyer, within stated limits, ………

A 100% of the loss of the beneficiary

B the costs of the principal’s failure to perform

C the whole contract price

D between 5% and 10% of the contract price

38 In most guarantees, the bank agrees to pay “on first demand” which means…

A serious and objective conditions must be met by the beneficiary before claiming payment of the guarantee

B With demur or objection

C Without cavil and demur

D Without demur or objection

39 Why do few exporters ask for bank guarantees as security for payment?

A Because they are not expensive to set up

B Because they run into trouble so often

C Because they are conditional guarantees

D Because the Letter of credit is much preferred

40 What does it mean by “irrevocable” letter of credit?

A It means the letter of credit can be canceled at any time by the buyer or issuing bank

B It means the letter of credit cannot be canceled at any time by the buyer or issuing bank

C It means the letter of credit can be cancelled at any time if the beneficiary agrees

to do so

D It means the letter of credit can only be cancelled if the buyer agrees to do so

41 Why letters of credit are formally called ‘documentary credits’?

A Because a letter of credit is a binding agreement by a bank to pay a certain sum

of money when the exporter presents the necessary documents to the bank

B Because the letter of credit is issued by an issuing bank at the request of the buyer

C Because in a letter of credit situation, documents are exchanged for money

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D Because the documents in a letter of credit are proofs of trust.

42 The bank that the buyer asks to open a letter of credit is called ………

A The issuing bank

B The advising bank

C The confirming bank

D The opening bank

43 The bank notifying the exporter that the letter of credit has been opened is called

…………

A The issuing bank

B The advising bank

D The opening bank

44 The bank helping the exporter to check the correctness of the documents and set the payment procedure in motion is ………

A The issuing bank

B The advising bank

D Any third bank

45 After making the shipment of the goods to the buyer, the exporter presents the shipping documents to …………

A The issuing bank

B The advising bank

D The opening bank

46 The advising bank never pays the exporter directly Right or wrong?

A Right

B Wrong

C It depends on the type of credit

D Neither right nor wrong

47 There is no connection between the letter of credit and the sales contract Right or wrong?

A Completely right

B Completely wrong

C It depends

D The exporter and the buyer may agree that all the terms in their sales contract must be stated in the letter of credit

48 Discount Records bought phonograph records from an exporter Payment was by letter of credit issued by Barclays Bank The exporter delivered a mix of cassettes, eight – track cartridges and other non - contractual goods Discount Records tried to get an injunction to stop Barclays from paying under the letter of credit What you think the court would do in that case?

A The court refused

B The court accepted

C The court would not involve

D The exporter will be paid – although later action in the courts may oblige him to make good any damage he has caused the buyer

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49 An FOB sales contract agrees that the exporter can deposit the goods in a

warehouse if the ship arrives late and that this counts as delivery If the letter of credit requires a bill of lading and makes no mention of a warehouse receipt,

A the exporter will still be paid against a warehouse receipt

B the bank simply cannot pay against a warehouse receipt

C the buyer refuses to pay the exporter against a warehouse receipt

D The buyer still has to pay the exporter against the warehouse receipt because his isignated vessel has arrived late at the port of loading

50 Dawson bought vanilla beans from Indonesia Dawson instructed an American bank

to open a letter of credit One of the required shipping documents was a certificate of quality issued “by experts” The bank paid the exporter The beans, when they arrived, were rubbish The certificate of quality was signed, however, by only one

“expert” Could the bank collect from Dawson the money it had paid to the exporter?

A Definitely, it could

B Probably, it could

C No, it couldn’t

D No question, it could

51 The majority of shipping documents presented to banks under documentary credit transactions are accepted on first presentation Right or wrong?

A Completely right

B Definitely wrong

C Neither right nor wrong

D It depends

52 What happens first when a bank refuses to pay under a letter of credit?

A The bank will cite a “discrepancy”, some aspect of the documentation that is not

in line with the terms of the credit

B A check – list of commonly cited discrepancies will be used by banks

C The exporter will have to re-submit their shipping documents

D The exporter must contact the buyer asking the buyer to instruct the issuing bank

to extend the date of the credit

53 Once the bank has indicated the discrepancies, what can the exporter do?

A The exporter can provide the missing paperwork or correct errors

B The exporter can ask the buyer to instruct the bank to change the terms of the letter of credit

C The exporter can ask the bank to process the letter of credit with the

discrepancies but to pay only when (and if) the issuing bank permits payment

D Any of the above

54 The costs of L/C amendments are normally for ………

A the buyer’s account

B the exporter’s account

C the issuing bank’s account

D the one who asks for such amendments

55 The exporter’s interests are best served by ………

A An irrevocable letter of credit

B A confirmed letter of credit

C An at-sight letter of credit

D A combination of all of the above

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56 A letter of credit can be either “revocable” or “irrevocable” Few exporters will accept

a revocable letter of credit, so the plain expression “letter of credit” generally means the irrevocable kind The word “irrevocable”, therefore, should not always appear in the text of the credit and of the contract Right or wrong?

A Wrong

B Wrong, because it should always appear in the text of the credit and of the contract according to the ICC’s rules

C Right

D Right, because in the absence of a clear indication, letter of credit are deemed to

be irrevocable

57 What are common discrepancies reported by banks in practice?

A They are problems with the letter of credit

B They are problems with the Bill of lading

C They are problems with insurance and/or the inconsistencies among the

documents

D Any of the above

58 Which of the following discrepancies is NOT the problem with the Letter of Credit?

A The shipment was short

B The shipment was late

C There is no endorsement if endorsement is necessary

D The credit has expired

59 Which of the following discrepancies is NOT the problem with the Bill of Lading?

A The bill of lading is ‘unclean’

B The bill of lading shows shipment between ports other than those specified in the credit

C The description of the goods on the invoice and the description of the goods in the credit are different

D There is no endorsement if endorsement is necessary

60 Which of the following discrepancies is NOT the problem with Insurance?

A Documents are not presented within the required time

B The sum insured is below the figure required

C The insurance risks are not those specified in the credit

D A certificate of insurance is produced while the credit calls for a policy

61 Which of the following discrepancies is NOT the problem with inconsistencies among the documents?

A The description of the goods on the invoice and the description of the goods in the credit are different

B Documents are not presented within the required time

C Weights differ between two documents

D Marks and numbers differ among documents

62 Which of the following discrepancies is NOT the problem with the Letter of Credit?

A The credit has expired

B Documents required by the credit are missing

C The credit amount is exceeded

D Insurance cover is expressed in a currency other than that of the credit

63 The mechanism of a confirmed letter of credit works as follows:

A Buyer instructs issuing bank to issue a letter of credit in favor of the seller

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B Buyer instructs an issuing bank to instruct an advising bank to pay under a letter

of credit in favor of the seller

C Buyer instructs an issuing bank to instruct a confirming bank to pay under a letter

of credit in favor of the seller

D Buyer instructs an issuing bank to instruct any third bank to pay under a letter of credit in favor of the seller

64 What happens if the issuing bank finds a problem with the documents and refuses to send funds to the advising bank to cover payment?

A The advising bank has to suffer that loss due to their carelessness in checking the shipping documents

B The advising bank gets its money back from the exporter

C The payments from the advising bank to the exporter are always made with recourse The exporter has to pay back the advising bank in such a case

D It is the responsibility of the issuing bank of paying back the advising bank in such a case

65 In a confirmed letter of credit, what happens if the bank pays the exporter and the issuing bank finds something wrong with the documents?

A The exporter has a problem

B The confirming bank has a problem

C It is the issuing bank which has an absolute obligation to pay the exporter

according to the terms of the credit

D The confirming bank has paid the money to the exporter and has no way of recovering it The confirming bank must pay the exporter without recourse

66 Is there any ‘reconfirming’ bank?

A No, there isn’t

B Yes, there is one in case banks are reluctant to confirm letters of credit,

especially those from obscure banks

C Never is there

D It depends

67 The stand-by letter of credit originated in the U.S is used there because……

A it is very popular for U.S exporters to ask for payment from their buyers or customers

B it is much more convenient to ask for one in the U.S instead of the ordinary letters of credit

C the banking law in some states forbids banks to issue payment guarantees

D English banks prefer to issue demand guarantees and ordinary letters of credit

68 In settlement by sight payment ………

A The seller presents the necessary documents to the issuing bank

B The seller presents the necessary documents to the advising bank

C The seller presents the necessary documents to the paying bank

D The seller presents the necessary documents to the reconfirming bank

69 In settlement by deferred payment, the letter of credit is paid after delivery Right or wrong?

A Completely right

B Definitely wrong

C It depends

D The letter of credit is not payable until a number of days

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