It's Time For International Trade Quiz

The correct answer is to borrow foreign money from a bank, exchange it into U.S dollars at the spot rate, and then repay the bank loan when payment is received from the foreign buyer. This method allows for the efficient management of currency exchange risk and ensures that the company can fulfill its financial obligations.

A bill of lading is a legal document that serves as evidence of the contract of carriage between the shipper and the shipping company. It is issued by the shipping company to the recipient of the goods, indicating that the goods have been received for shipment. Therefore, the correct answer is "The shipping company for goods received."

If the euro weakens, it means that its value decreases compared to the dollar. In this scenario, exercising the option and converting euros into dollars at the option exchange rate would be advantageous because you would receive more dollars for each euro.

If the euro strengthens against the dollar, it means that the value of the euro increases in relation to the dollar. In this scenario, it would be more beneficial to let the option expire and convert euros into dollars at the spot rate, as you would receive more dollars in exchange for your euros.

Transaction risk occurs when you must make a payment or receive a payment in a foreign currency in the future. This is because exchange rates can fluctuate, resulting in potential losses or gains when converting currencies. Therefore, both options "a" and "b" are correct as they both involve the risk associated with foreign currency transactions.

The correct answer is foreign exchange rate fluctuations. Hedging is a risk management strategy that involves taking actions to protect oneself from potential losses caused by changes in foreign exchange rates. By hedging against currency fluctuations, individuals or businesses can mitigate the impact of exchange rate movements on their financial transactions, investments, or international trade activities. This can be done through various financial instruments such as forward contracts, options, or futures contracts. Hedging against bounced checks or risky investments is not related to foreign exchange rate fluctuations.

The correct answer is B/A issued as a time graph. A time graph is a document that represents the banker's acceptance. The time graph is then accepted by the seller's bank, which converts it into a banker's acceptance. Finally, the banker's acceptance is cashed at a discount at your local bank.

To get goods out of the country, two documents are needed: a general export license and a shipper's export declaration. A general export license is required to export certain types of goods, while a shipper's export declaration is a form used to provide information about the goods being exported. Therefore, the correct answer is "a and b."

A confirmed letter of credit is a guarantee of payment issued by the buyer's bank to the seller. It adds an additional level of assurance for the seller, as the buyer's bank confirms that it will honor the letter of credit and make the payment on behalf of the buyer. Therefore, the correct answer is "the buyer's bank."

A commercial invoice is a document that serves as a collection of important information regarding a transaction between a buyer and a seller. It includes details such as the quantity, description, and value of the goods or services being sold. This document is used for customs and legal purposes, as well as for payment processing and record-keeping. Therefore, the correct answer is "collection" as it accurately describes the purpose and nature of a commercial invoice.

A Pro Forma invoice is issued before the Letter of Credit (L/C) is sent. This is because the Pro Forma invoice serves as a preliminary bill that outlines the details of a transaction, including the estimated costs and terms of sale. It is typically used to provide the buyer with an idea of the final invoice amount and to facilitate the process of obtaining the necessary funds or securing the L/C. Therefore, the Pro Forma invoice is issued prior to sending the L/C to ensure that all parties involved are aware of the transaction details and can proceed accordingly.

A swap refers to a trade in assets or liabilities in different currencies. It involves exchanging one currency for another at an agreed-upon exchange rate. This can be done to manage foreign exchange risk or to take advantage of favorable interest rate differentials between two currencies. The answer "all the above" is correct because it encompasses both the options mentioned in the question, indicating that a swap can involve trading in interest rate structures as well to reduce risks or costs.