International Payment and Financing Quiz

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Questions and Answers

What is the result if the specified currency depreciates between the contract date and payment date for the buyer?

It benefits the buyer.

It harms the buyer. (correct)

It results in a binding dispute.

It has no effect on the buyer.

Which type of currencies are referred to as 'hard currencies'?

Currencies widely accepted in international transactions. (correct)

National currencies of developing countries.

Currencies with low acceptance rates.

Currencies that depreciate rapidly.

What is a characteristic of soft currencies?

They are stable and highly valued.

They have fixed exchange rates.

They are widely accepted in international markets.

They fluctuate erratically or depreciate. (correct)

What is one approach to managing currency risk?

Currency hedging through simultaneous purchase and sale of contracts. Signup and view all the answers

If a drawer’s payment is delayed, what happens to their liability?

The drawer remains liable for the payment. Signup and view all the answers

When must formal protest or noting occur for dishonour in an international payment context?

Formal protest is required. Signup and view all the answers

What does the term 'currency fluctuation clause' refer to?

A clause allowing renegotiation if exchange rates change significantly. Signup and view all the answers

What does 'discharge from liability' mean in relation to a drawer?

The drawer is discharged only if the payment is not presented. Signup and view all the answers

What happens during an open account transaction before the buyer makes a payment?

The seller ships goods without receiving payment. Signup and view all the answers

What is one significant advantage for the buyer in an open account transaction?

The buyer can save costs associated with payment methods. Signup and view all the answers

What is a potential risk for the seller when using an open account payment method?

The seller can lose control over the goods without payment. Signup and view all the answers

How does the buyer typically pay under an open account arrangement?

By transferring funds directly through their bank. Signup and view all the answers

What is one of the disadvantages related to the seller's security in an open account transaction?

The seller has no direct control over payment security. Signup and view all the answers

What document does the seller send to the buyer in an open account transaction?

Shipping documents and an invoice. Signup and view all the answers

Which of the following reflects a potential concern for the buyer in an open account transaction?

The buyer may incur additional collection fees. Signup and view all the answers

In an open account method, what action can the buyer take when the goods are received?

Inspect the goods before making payment. Signup and view all the answers

What does the advising bank do when it adds its confirmation to a letter of credit?

It conducts a separate credit decision. Signup and view all the answers

Why is it important for the seller to check the terms of the letter of credit?

To confirm all details and instructions can be met later. Signup and view all the answers

What should the seller do if the terms of the letter of credit do not match the agreed payment terms?

Communicate directly with the buyer for amendments. Signup and view all the answers

What does the seller gain after the advising bank confirms the letter of credit?

Security that underpins the entire transaction. Signup and view all the answers

What is a key piece of information included in the notification from the advising bank?

The location for payment and acceptance. Signup and view all the answers

What could happen if the seller fails to communicate discrepancies in the letter of credit?

The seller could lose the security of the transaction. Signup and view all the answers

What action is required after confirming the letter of credit to ensure a smooth transaction process?

The seller must verify all conditions and instructions. Signup and view all the answers

What signifies that a letter of credit has been confirmed?

The advising bank's confirmation is received. Signup and view all the answers

What is the payment method used by Telecom España for the sale made to Nikken Microsystems?

Banker acceptance Signup and view all the answers

What does a compensating balance represent in the context of Sunny Coast Enterprises’ loan?

A percentage of the loan that must be kept in the account Signup and view all the answers

What is the anticipated cash flow for Inca Breweries if they choose to hold the acceptance until maturity?

Exact face value of the shipment Signup and view all the answers

What distinguishes an open account transaction from other payment methods?

The buyer pays at a future due date. Signup and view all the answers

In which type of documentary collection does the buyer receive documents only after payment?

Document against payment (D/P) Signup and view all the answers

What role does a bank play in the collection payment method?

The bank serves as an agent to collect payments. Signup and view all the answers

Which of the following documents is typically NOT included in the set of export documents for documentary collection?

Purchase order Signup and view all the answers

What defines documentary credit in the context of payment methods?

The issuing bank pays upon compliant document presentation. Signup and view all the answers

What is clean collection in the context of payment collection methods?

Collection of financial documents without accompanying commercial documents. Signup and view all the answers

Which payment method requires the buyer to sign a contract defining terms of payment?

Document against payment (D/P) Signup and view all the answers

What type of documentation is necessary for a documentary collection?

Commercial documents and financial documents Signup and view all the answers

What role does the collecting bank play after the shipment arrives in the destination country?

It presents the documents to the importer for review. Signup and view all the answers

What happens upon the acceptance of the time draft by the importer?

The collecting bank releases the documents to the importer. Signup and view all the answers

Which document is NOT typically submitted by the exporter to the remitting bank?

Letter of credit Signup and view all the answers

What must the importer do on the maturity date of the accepted draft?

Make payment to the collecting bank. Signup and view all the answers

What documents typically accompany a shipment from the exporter to the remitting bank?

Bill of lading and import manifest Signup and view all the answers

How does the remitting bank contribute to the documentary collection process?

By reviewing documents before passing them to the collecting bank. Signup and view all the answers

What occurs after the collecting bank receives payment from the importer?

It transfers the funds to the remitting bank. Signup and view all the answers

What is the initial step taken by the exporter and importer regarding the terms of payment?

They define the terms and sign a contract. Signup and view all the answers

Study Notes

International Payment and Export-Import Financing

This subject covers international payment methods and export-import financing.
International payments involve transactions between parties in different countries.
International payment activities are regulated by international law, national law, and international customs and practices.
Key examples include international conventions like the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention 1980).

Question Group 1 - International Payment

Definition of International Payment: The performance of payment obligations between parties in different countries, involving economic and non-economic activities.
Characteristics: Governed by national and international laws, conventions, customs, and exchange rate variations. Mostly done through commercial banking systems.
Sources of Law: International law, national law, and international customs and practices. Examples include the United Nations Convention on Contracts for the International Sale of Goods, conventions on bills of exchange, and international promissory notes.

Question Group 1 - Types of Documents

Financial Documents: These include bills of exchange, promissory notes, checks, used for obtaining payment.
Commercial Documents: These include transport documents (multimodal bill of lading, ocean bill of lading, airway bill, railway bill), commercial invoices, insurance certificates, packing lists, and certificates of origin.

Question Group 1 - Bills of Exchange (B/E)

Definition: Unconditional written order from one party (drawer) to another (drawee) to pay a specific sum of money to a third party (payee).
Characteristics: Must be written, addressed to a specific drawee, unconditional, with a fixed or determinable due date, payable to a specified person or bearer.

Question Group 1 - Cheques

Definition: A type of bill of exchange payable on demand from a drawer to a drawee (bank).
Key Differences from Bills of Exchange: Cheques are always payable on demand, while bills can be payable at a future date. Cheques are typically drawn on banks, while bills can be drawn on any person.

Question Group 1 - Payment Methods

Documentary Collection: Involves the transfer of documents (like invoices and bills of lading) against payment.
Documentary Credit (Letter of Credit): The issuing bank guarantees payment to the seller if the buyer's documents meet the stipulated terms.
Open Account: The seller ships goods, sends documents to the buyer, and the buyer pays later.

Question Group 1 - Payment Terms

Currency: The currency specified for payment.
Time: When the payment is due (e.g., on demand, after a certain date).
Place: The location where the payment should be made.
Method: The specific way of payment (e.g., documentary collection, letter of credit, open account).

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Description

Test your knowledge on international payment methods and export-import financing. This quiz covers key concepts, sources of law, and characteristics of international payments as regulated by national and international laws. From conventions to banking systems, challenge your understanding of cross-border transactions.