Trade Finance
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Questions and Answers

Which country was the world's leading overall trader of merchandise and services in 2018?

  • China
  • United States (correct)
  • Germany
  • United Kingdom

    • In 2018, what was the value of world merchandise trade?

  • US$19.67trn (correct)
  • US$3.00trn
  • US$8.00trn
  • US$5.63trn

    • What is the predicted impact of Covid-19 on trade from 2020 according to the WTO?

  • Rapid expansion
  • Stagnant growth
  • Significant contractions (correct)
  • Moderate growth

    • According to the text, what does global economic growth depend on?

    <p>Trade</p> Signup and view all the answers

    Which of the following is true about the performance of developing economies in world trade in the past 10 years?

    <p>Developing economies had mixed performance compared to developed economies</p> Signup and view all the answers

    What are some specific risks that importers and exporters are exposed to when carrying out cross-border business?

    <p>All of the above</p> Signup and view all the answers

    According to the text, what is the purpose of data in mitigating trade risks?

    <p>To make assessments</p> Signup and view all the answers

    What is the major challenge in the trade finance industry when it comes to sharing information?

    <p>Difficulty in sharing information across entities</p> Signup and view all the answers

    Which method of payment in trade finance involves the buyer paying the seller in advance of the goods being shipped?

    <p>Payment in advance</p> Signup and view all the answers

    Under a documentary collection, who presents financial and/or commercial documents related to the goods to the importer for payment?

    <p>The collecting bank</p> Signup and view all the answers

    Which method of payment in trade finance is normally utilized when each party is known to the other and trusted?

    <p>Open account</p> Signup and view all the answers

    What is the purpose of a documentary collection in trade finance?

    <p>To obtain payment and/or acceptance of financial documents and/or commercial documents</p> Signup and view all the answers

    Which organization serves as a global forum and rule-making body for banks worldwide, with a focus on the financing of international trade?

    <p>International Chamber of Commerce (ICC)</p> Signup and view all the answers

    According to the text, what are the risks associated with conducting cross-border trade?

    <p>Regulatory, Fraud, Disputes</p> Signup and view all the answers

    What are the conditions for a valid trade finance contract, according to the London Institute of Banking & Finance?

    <p>Consideration, capacity to contract, consent, legal purpose</p> Signup and view all the answers

    What is the purpose of the International Chamber of Commerce (ICC)?

    <p>To promote international trade and investment</p> Signup and view all the answers

    Which type of credit allows for advance payment but provides for storage in the name of the bank as security?

    <p>Green clause credit</p> Signup and view all the answers

    Under a secured or documentary red clause credit, advances are made against presentation of warehouse receipts or similar documents together with the beneficiaries undertaking to deliver the bill of lading and/or other documents required upon shipment.

    <p>True</p> Signup and view all the answers

    What is the primary source of repayment for the second issuing bank in a back-to-back credit?

    <p>Proceeds received from the master credit</p> Signup and view all the answers

    A transferred credit can be transferred at the request of a second beneficiary to any subsequent beneficiary.

    <p>False</p> Signup and view all the answers

    Which one of the following is a risk that may occur during the movement of goods in a trade transaction?

    <p>Damage, loss, or theft</p> Signup and view all the answers

    What is a documentary credit?

    <p>A means to facilitate the settlement of international trade transactions</p> Signup and view all the answers

    What is the difference between a revocable and an irrevocable credit?

    <p>A revocable credit can be amended or cancelled by the issuing bank at any time, while an irrevocable credit can only be amended or cancelled with the agreement of all parties</p> Signup and view all the answers

    What is a special type of documentary credit that authorizes advance payment to the beneficiary before presentation of documents?

    <p>Red clause</p> Signup and view all the answers

    Which of the following is NOT mentioned as a specific guideline for transactions by a bank?

    <p>Export of armaments</p> Signup and view all the answers

    What are some regional and global sanctions mentioned in the text?

    <p>World Trade Organization (WTO)</p> Signup and view all the answers

    What is the intent of a demand guarantee?

    <p>To ensure timely payment by the beneficiary</p> Signup and view all the answers

    What does a demand guarantee represent?

    <p>The guarantor's commitment to pay a sum of money</p> Signup and view all the answers

    What is the expiry event of a demand guarantee?

    <p>Expiration of the guarantee period</p> Signup and view all the answers

    What has ICC issued a recommendation paper concerning?

    <p>Sanction regulations</p> Signup and view all the answers

    Which of the following is NOT a type of standby credit commonly seen in trade finance transactions?

    <p>Direct-pay</p> Signup and view all the answers

    What is the most appropriate set of rules for handling standby credits?

    <p>ISP98</p> Signup and view all the answers

    What is the primary purpose of a standby credit?

    <p>To provide security against non-performance</p> Signup and view all the answers

    What is the origin of the term 'standby letter of credit'?

    <p>United States</p> Signup and view all the answers

    Which statement accurately describes the concept of confirmation in trade finance?

    <p>Confirmation is not required for demand guarantees</p> Signup and view all the answers

    What is the purpose of a counter-guarantee in trade finance?

    <p>To support the issuance of a guarantee by one bank to another</p> Signup and view all the answers

    What is the difference between a direct guarantee and an indirect guarantee?

    <p>A direct guarantee involves the seller giving the bank a counter indemnity, while an indirect guarantee involves the seller arranging for his bank to instruct the local bank</p> Signup and view all the answers

    What may be required in a counter-guarantee document for the issuance of a guarantee by the guarantor or issuing bank?

    <p>The required wording of the guarantee</p> Signup and view all the answers

    What is the estimated value of the trade finance financing gap?

    <p>US$1.5 trillion</p> Signup and view all the answers

    What is the basis for future trade finance offerings according to the text?

    <p>Coordination of data and information</p> Signup and view all the answers

    Which organization jointly produced a paper on standard definitions for techniques of supply chain finance?

    <p>Bankers Association for Finance and Trade (BAFT)</p> Signup and view all the answers

    What is the purpose of the Global Supply Chain Finance Forum (GSCFF) according to the text?

    <p>To create a consistent and common understanding of supply chain finance</p> Signup and view all the answers

    Which publication introduced the Uniform Rules for Collections?

    <p>ICC Publication No. 322</p> Signup and view all the answers

    When did the latest revision of the Uniform Rules for Collections come into effect?

    <p>1 January 1996</p> Signup and view all the answers

    What is the purpose of the Uniform Rules for Collections?

    <p>To set a standard for trade finance contracts</p> Signup and view all the answers

    What is the purpose of the ICC Rules for Documentary Instruments Dispute Resolution Expertise (DOCDEX)?

    <p>To provide a rapid, cost-effective dispute resolution procedure</p> Signup and view all the answers

    Which of the following is a synonym for factoring?

    <p>Receivables discounting</p> Signup and view all the answers

    What is the main difference between forfaiting and factoring?

    <p>Forfaiting involves the purchase of future payment obligations, while factoring involves the sale of outstanding invoices</p> Signup and view all the answers

    What is the average tenor of forfaiting transactions?

    <p>3 to 5 years</p> Signup and view all the answers

    What is the role of the factor in factoring?

    <p>To manage the debtor portfolio and collect payment of the receivables</p> Signup and view all the answers

    Which publication introduced rules for demand guarantees in 1992?

    <p>URDG 758</p> Signup and view all the answers

    What is the main purpose of UCP 600?

    <p>To establish uniformity in practice</p> Signup and view all the answers

    Which set of ICC rules is considered more suitable for standby credits than UCP 600?

    <p>URDG 758</p> Signup and view all the answers

    Which type of financing provides funds to a seller for the sourcing and manufacturing of goods prior to delivery to a buyer?

    <p>Pre-shipment finance</p> Signup and view all the answers

    What is the purpose of distributor finance in trade finance?

    <p>To provide financing for the holding of goods for re-sale</p> Signup and view all the answers

    What does loan or advance against inventory financing typically involve?

    <p>Providing financing for the warehousing of goods</p> Signup and view all the answers

    Which financing option allows a seller to receive the discounted value of receivables prior to the due date?

    <p>Loan against receivables</p> Signup and view all the answers

    What is another term for receivables lending or receivables finance?

    <p>Trade receivable loans</p> Signup and view all the answers

    What is the purpose of pre-shipment finance in trade finance?

    <p>To provide financing for the sourcing and manufacturing of goods</p> Signup and view all the answers

    Which organization is the main provider of Islamic finance?

    <p>Islamic Development Bank</p> Signup and view all the answers

    Which type of financing system is often described as asset-based?

    <p>Islamic finance</p> Signup and view all the answers

    What are the two key Shariah contracts used for trade financing in Islamic finance?

    <p>Murabaha and salam</p> Signup and view all the answers

    What is the purpose of countertrade in international trade?

    <p>To pay for goods or services with other goods or services instead of money</p> Signup and view all the answers

    Which of the following is a potential risk associated with structured trade finance?

    <p>Fraudulent activities</p> Signup and view all the answers

    What is the purpose of export credit insurance?

    <p>To mitigate risks and uncertainties in export credit</p> Signup and view all the answers

    What are the two main types of risks covered by export credit insurance?

    <p>Commercial risks and political risks</p> Signup and view all the answers

    What are Export Credit Agencies (ECAs) and what do they provide?

    <p>Public agencies providing government-backed loans, guarantees, and insurance to exporters</p> Signup and view all the answers

    Which of the following is NOT one of the state-owned institutions that comprise China's export financing infrastructure?

    <p>China Export Credit Insurance Corporation</p> Signup and view all the answers

    According to the text, which countries are NOT participants in the OECD's 'Arrangement on Officially Supported Export Credits'?

    <p>China</p> Signup and view all the answers

    What is the role of commercially provided export credit insurance?

    <p>To insure against the risk of non-payment</p> Signup and view all the answers

    According to the text, what is the primary source of repayment for the second issuing bank in a back-to-back credit?

    <p>The buyer</p> Signup and view all the answers

    Which of the following is true about BBF facilities?

    <p>The client can draw down more than the facility amount if the borrowing base is worth more.</p> Signup and view all the answers

    What is the purpose of warehouse financing?

    <p>To provide financing to manufacturers against the security of warehouse receipts.</p> Signup and view all the answers

    What is the typical tenor of RBL facilities?

    <p>One year to five years</p> Signup and view all the answers

    What does the borrowing base amount in RBL facilities depend on?

    <p>The value of the assets divided by coverage ratios</p> Signup and view all the answers

    Which type of financing is secured by a combination of pledged inventory and receivables, and generates self-liquidating cash flows from the sale of commodities to acceptable counterparties?

    <p>Borrowing base finance</p> Signup and view all the answers

    What is the risk exposure for the lender in a prepayment finance (PPF) loan?

    <p>Performance risk on the exporter</p> Signup and view all the answers

    What is the main difference between term loans and PPF loans?

    <p>Term loans have a fixed repayment schedule, while PPF loans have an amortization schedule</p> Signup and view all the answers

    What is the formula for calculating the borrowing base amount in borrowing base finance (BBF)?

    <p>Borrowing base amount = Advance rate * Market value of pledged commodities</p> Signup and view all the answers

    Which of the following is NOT a main political or country risk covered in insurance policies?

    <p>Embargoes on imports and cancellations of import licences</p> Signup and view all the answers

    Which of the following is NOT a role of multilateral development banks (MDBs)?

    <p>Providing insurance coverage for trade operations</p> Signup and view all the answers

    Which MDB programme aims to promote foreign trade to, from, and amongst EBRD countries?

    <p>EBRD</p> Signup and view all the answers

    Which MDB programme supports a wide range of transactions, from commodities and capital goods to medical supplies and consumer goods?

    <p>ADB</p> Signup and view all the answers

    Which of the following is NOT a feature of SAF (Supply Chain Asset Finance) products?

    <p>On-balance-sheet consideration</p> Signup and view all the answers

    What do currency codes typically consist of?

    <p>A country's two-character Internet country code plus a third character denoting the currency unit</p> Signup and view all the answers

    Which currency code does not use a currency designator initial as the third letter?

    <p>EUR</p> Signup and view all the answers

    When was the currency code for the Russian ruble changed from RUR to RUB?

    <p>1997</p> Signup and view all the answers

    What is the primary purpose of SAF based on the Industrial Internet of Things (IIoT) and real-time data?

    <p>Transferring financial benefits to clients</p> Signup and view all the answers

    Which of the following is NOT a consideration for SAF products?

    <p>Days Inventory Outstanding</p> Signup and view all the answers

    According to the text, what is the Fourth Industrial Revolution often referred to as?

    <p>4IR</p> Signup and view all the answers

    According to Professor Klaus Schwab, what is the Fourth Industrial Revolution fundamentally changing?

    <p>The way we live, work, and relate to one another</p> Signup and view all the answers

    What does the author of the text compare data to?

    <p>Oil</p> Signup and view all the answers

    What does the author state would likely be the preference of clients in relation to data ownership?

    <p>Clients would want to own the rights to the crude in the seabed</p> Signup and view all the answers

    Which of the following is NOT an advantage of blockchain validation in trade finance?

    <p>Centralized and trusted third party</p> Signup and view all the answers

    What is the purpose of a smart contract in trade finance?

    <p>To facilitate the formulation of contracts and documents</p> Signup and view all the answers

    What is the role of miners in blockchain validation?

    <p>To validate and authenticate transactions</p> Signup and view all the answers

    What is the main advantage of distributed ledger technology (DLT) in trade finance?

    <p>Decentralization of trust</p> Signup and view all the answers

    What is the aim of the WEF's Center for the Fourth Industrial Revolution?

    <p>To bring market participants together for collaboration</p> Signup and view all the answers

    According to the text, what is the purpose of the UK government's policy paper on the Fourth Industrial Revolution?

    <p>To regulate businesses for 4IR while retaining agility and entrepreneurship</p> Signup and view all the answers

    What is the main benefit of the Internet of Things (IoT) technology?

    <p>It embeds sensory and wireless technology within objects</p> Signup and view all the answers

    According to the text, what impact does regulation have on innovation?

    <p>It can stimulate ideas and block their implementation</p> Signup and view all the answers

    Which of the following is considered a financial crime in trade finance?

    <p>Money laundering</p> Signup and view all the answers

    What is the objective of the URDTT?

    <p>To develop a high-level framework outlining obligations, rules, and standards for the digitalization of trade finance</p> Signup and view all the answers

    What is the potential consequence of reputational risk for a bank in trade finance?

    <p>Irreparable damage to its reputation</p> Signup and view all the answers

    Which type of document is questionable in terms of transferring rights and liabilities without specific contractual agreement?

    <p>Electronic Bill of Lading (eBL)</p> Signup and view all the answers

    Which of the following best describes money laundering in trade finance?

    <p>The misrepresentation of the price, quantity, or quality of an import or export.</p> Signup and view all the answers

    What are the three distinct phases of money laundering in trade finance?

    <p>Placement, layering, and integration</p> Signup and view all the answers

    Which of the following is NOT a risk factor considered by the Financial Action Task Force (FATF) for terrorist financing?

    <p>Profitability</p> Signup and view all the answers

    What is the definition of proliferation financing according to the FATF?

    <p>The act of providing funds or financial services which are used for the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical or biological weapons.</p> Signup and view all the answers

    Which of the following accurately describes a smart contract?

    <p>A smart contract is a secure mathematical code that executes when a triggering event occurs, without the need for an intermediary.</p> Signup and view all the answers

    What is the purpose of artificial intelligence (AI) in smart devices?

    <p>To simulate intelligent behavior in order to make decisions with minimal or no human intervention.</p> Signup and view all the answers

    What is the difference between AI and machine learning?

    <p>AI is a broader concept than machine learning.</p> Signup and view all the answers

    How does SWIFT support banks' finance offerings in trade finance?

    <p>By standardizing corporate-to-bank trade messaging.</p> Signup and view all the answers

    Which of the following best describes dual-use items?

    <p>Goods that can be used for both civil and military applications</p> Signup and view all the answers

    What are sanctions in trade controls?

    <p>Measures involving the interruption of economic relations</p> Signup and view all the answers

    What is the primary purpose of sanctions according to the text?

    <p>To interrupt economic relations</p> Signup and view all the answers

    What is the difference between dual-use items and sanctions?

    <p>Dual-use items can be used for civil and military applications, while sanctions involve the interruption of economic relations</p> Signup and view all the answers

    What types of goods can be considered dual-use items?

    <p>Goods used for both civil and military applications</p> Signup and view all the answers

    What are the characteristics of transactions related to proliferation financing compared to conventional money laundering?

    <p>They involve a smaller number of customers and transactions</p> Signup and view all the answers

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