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 (C)</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 (B)</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 (D)</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 (D)</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 (D)</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 (D)</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 (C)</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 (C)</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 (C)</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) (C)</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 (A)</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 (C)</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 (A)</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 (C)</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 (A)</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 (D)</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 (B)</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 (A)</p> Signup and view all the answers

    What is a documentary credit?

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

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

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

    What is the intent of a demand guarantee?

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

    What does a demand guarantee represent?

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

    What is the expiry event of a demand guarantee?

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

    What has ICC issued a recommendation paper concerning?

    <p>Sanction regulations (A)</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 (B)</p> Signup and view all the answers

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

    <p>ISP98 (C)</p> Signup and view all the answers

    What is the primary purpose of a standby credit?

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

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

    <p>United States (D)</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 (A)</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 (C)</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 (B)</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 (D)</p> Signup and view all the answers

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

    <p>US$1.5 trillion (A)</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 (D)</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) (B)</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 (B)</p> Signup and view all the answers

    Which publication introduced the Uniform Rules for Collections?

    <p>ICC Publication No. 322 (A)</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 (D)</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 (B)</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 (B)</p> Signup and view all the answers

    Which of the following is a synonym for factoring?

    <p>Receivables discounting (A)</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 (B)</p> Signup and view all the answers

    What is the average tenor of forfaiting transactions?

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

    Which publication introduced rules for demand guarantees in 1992?

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

    What is the main purpose of UCP 600?

    <p>To establish uniformity in practice (C)</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 (A)</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 (C)</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 (A)</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 (B)</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 (C)</p> Signup and view all the answers

    What is another term for receivables lending or receivables finance?

    <p>Trade receivable loans (D)</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 (A)</p> Signup and view all the answers

    Which organization is the main provider of Islamic finance?

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

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

    <p>Islamic finance (C)</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 (C)</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 (D)</p> Signup and view all the answers

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

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

    What is the purpose of export credit insurance?

    <p>To mitigate risks and uncertainties in export credit (B)</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 (D)</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 (D)</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 (D)</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 (C)</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 (B)</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 (B)</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. (C)</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. (A)</p> Signup and view all the answers

    What is the typical tenor of RBL facilities?

    <p>One year to five years (D)</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 (A)</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 (D)</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 (D)</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 (B)</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 (B)</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 (C)</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 (D)</p> Signup and view all the answers

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

    <p>EBRD (D)</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 (A)</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 (B)</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 (B)</p> Signup and view all the answers

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

    <p>EUR (C)</p> Signup and view all the answers

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

    <p>1997 (B)</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 (A)</p> Signup and view all the answers

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

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

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

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

    What does the author of the text compare data to?

    <p>Oil (D)</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 (C)</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 (D)</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 (A)</p> Signup and view all the answers

    What is the role of miners in blockchain validation?

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

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

    <p>Decentralization of trust (A)</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 (D)</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 (D)</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 (B)</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 (A)</p> Signup and view all the answers

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

    <p>Money laundering (C)</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 (C)</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 (A)</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) (C)</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. (C)</p> Signup and view all the answers

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

    <p>Placement, layering, and integration (B)</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 (D)</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. (D)</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. (D)</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. (B)</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. (C)</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. (D)</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 (C)</p> Signup and view all the answers

    What are sanctions in trade controls?

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

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

    <p>To interrupt economic relations (D)</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 (C)</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 (C)</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 (D)</p> Signup and view all the answers

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