Chapter 13 Exporting, Importing, and Countertrade

Firms that export lose out on opportunities of profit and revenue.
Topic: The Promise and Pitfalls of Exporting
FALSE
Studies have shown that while small firms tend to be proactive about seeking opportunities for profitable exporting, systematically scanning foreign markets to see where the opportunities lie for leveraging their marketing skills in foreign countries, many large firms are very reactive.
Topic: The Promise and Pitfalls of Exporting
FALSE
Simple ignorance of potential opportunities is a huge barrier to exporting.
Topic: The Promise and Pitfalls of Exporting
TRUE
The combination of unfamiliarity and intimidation probably explains why exporters still account for only a tiny percentage of U.S. firms, less than 5 percent of firms with fewer than 500 employees, according to the Small Business Administration.
Topic: The Promise and Pitfalls of Exporting
TRUE
Many neophyte exporters run into significant problems when first trying to do business abroad, which sours them on future exporting ventures.
Topic: The Promise and Pitfalls of Exporting
TRUE
Most novice exporters realize the amount of management resources that have to be dedicated to cultivate business in foreign countries.
Topic: The Promise and Pitfalls of Exporting
FALSE
The United Nations has calculated that the time involved in preparing documentation, along with the costs of common errors in paperwork, often amounts to 10 percent of the final value of goods exported.
Topic: The Promise and Pitfalls of Exporting
TRUE
One big impediment to exporting is the simple lack of knowledge of the opportunities available.
Topic: Improving Export Performance
TRUE
) The way to overcome ignorance in exporting is to collect information.
Topic: Improving Export Performance
TRUE
Identifying export opportunities is made even more complex because more than 200 countries with widely differing cultures compose the world of potential opportunities.
Topic: Improving Export Performance
TRUE
In Indonesia, one of the world’s most successful exporting nations, trade associations, government agencies, and commercial banks gather information, helping small firms identify export opportunities.
Topic: Improving Export Performance
FALSE
German and Japanese firms can draw on the large reservoirs of experience, skills, information, and other resources of their respective export-oriented institutions.
Topic: Improving Export Performance
TRUE
The U.S. Department of Industries organizes trade events that help potential exporters make foreign contacts and explore export opportunities.
Topic: Improving Export Performance
FALSE
Unfortunately, due to higher default risks, commercial banks and major accounting firms are less willing to assist small firms in starting export operations than they were a decade ago.
Topic: Improving Export Performance
FALSE
In theory, the advantage of EMCs is that they are experienced specialists who can help the neophyte exporter identify opportunities and avoid common pitfalls.
Topic: Improving Export Performance
TRUE
EMCs normally accept only one type of export assignment where they start exporting operations for a firm with the understanding that the firm will take over operations after they are well established.
Topic: Improving Export Performance
FALSE
One advantage of relying on EMCs is that the company can develop its own exporting capabilities by imitating the EMC.
Topic: Improving Export Performance
FALSE
The firm that enters many markets at once runs the risk of spreading its limited management resources too thin.
Topic: Improving Export Performance
TRUE
It often makes sense to enter a foreign market on a large scale to reduce the costs of any subsequent failure.
Topic: Improving Export Performance
FALSE
Lack of trust in international trade is exacerbated by the distance between the two parties in space, language, and culture.
Topic: Export and Import Financing
TRUE
One way to solve the lack of financial backing problem is to use a third party trusted by both parties.
Topic: Export and Import Financing
FALSE
Issued by a bank at the request of an importer, the letter of credit states that they will pay a specified sum of money to the beneficiary, normally the exporter, on presentation of particular, specified documents.
Topic: Export and Import Financing
TRUE
A draft is the instrument normally used in international commerce to effect payment.
Topic: Export and Import Financing
TRUE
A letter of credit is sometimes referred to as a bill of exchange.
Topic: Export and Import Financing
FALSE
The letter of credit reduces the importer’s ability to borrow funds for other purposes.
Topic: Export and Import Financing
TRUE
International practice is to use drafts to settle trade transactions.
Topic: Export and Import Financing
TRUE
The person or business initiating a draft is known as the drafter and the party to whom the draft is presented is known as the draftee.
Topic: Export and Import Financing
FALSE
In domestic transactions, the buyer can often obtain possession of the merchandise without signing formal documents acknowledging his/her obligation to pay.
Topic: Export and Import Financing
TRUE
Sight draft allows for a delay in payment.
Topic: Export and Import Financing
FALSE
Time drafts are nonnegotiable instruments.
Topic: Export and Import Financing
FALSE
The bill of lading can function as collateral against which funds may be advanced to the exporter by its local bank before final payments by the importer.
Topic: Export and Import Financing
TRUE
The two forms of government-backed assistance that prospective U.S. exporters can draw on to help finance their export programs are financing aid from the Export-Import Bank, and export credit insurance from the Foreign Credit Insurance Association.
Topic: Export Assistance
TRUE
The mission of the Foreign Credit Insurance Association is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the U.S. and other countries.
Topic: Export Assistance
FALSE
In the event of lack of a letter of credit, export credit insurance can protect the exporter against the payment default.
Topic: Export Assistance
TRUE
Countertrade is a common solution when a currency is considered nonconvertible.
Topic: Countertrade
TRUE
Between 30 and 40 percent of world trade by value is now in the form of countertrade.
Topic: Countertrade
FALSE
Barter is primarily used with trading partners who are not creditworthy or trustworthy.
Topic: Countertrade
TRUE
Offset refers to the use of a specialized third party trading house in a countertrade arrangement.
Topic: Countertrade
FALSE
Countertrade’s main attraction is that it can give a firm a way to finance an export deal through a foreign exchange.
Topic: Countertrade
FALSE
Countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading.
Topic: Countertrade
TRUE
Large firms generally tend to be _____ about seeking opportunities for profitable exporting, whereas medium-sized and small firms are:
proactive; reactive.
Which of the following statements about medium and small-sized firms is true?
They consider exporting only after domestic markets are saturated.
Why are small and medium-sized firms not proactive in seeking export opportunities?
They are intimidated by the complexities and mechanics of exporting to countries.
The combination of _____ and _____ explains why exporters still account for only a tiny percentage of U.S. firms.
unfamiliarity; intimidation
The great promise of _____ is that large revenue and profit opportunities are to be found in foreign markets for most firms in many industries.
exporting
Common pitfalls for neophyte exporters include all of the following EXCEPT:
intimidating the foreign customers.
Novice exporters tend to underestimate the _____ involved in cultivating business in foreign countries.
time and expertise
What should novice exporters determine before considering exporting?
Time and expertise required to cultivate business opportunities in foreign countries.
Which of these countries is considered as one of the world’s most successful exporting nations?
Germany
Great trading houses in Japan are called:
sogo shosha.
The _____ have offices all over the world, and they proactively, continuously seek export opportunities for their affiliated companies.
sogo shosha
For U.S. firms, the most comprehensive source of export opportunities information is the:
U.S. Department of Commerce.
Which of the following institutions within the U.S. Department of Commerce is dedicated to providing businesses with intelligence and assistance for attacking foreign markets?
The International Trade Administration
A _____ gives the names and addresses of potential distributors in foreign markets along with businesses they are in, the products they handle, and the contact person.
best prospects list
How does the U.S. Department of Commerce help potential exporters?
It has assembled a “comparison shopping service” for 14 countries that are major markets for U.S. exports.
The U.S. Department of Commerce agencies provide the potential exporter with all of these services except:
letter of credit.
A program in which department representatives accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and customers is called:
the matchmaker program.
Which organization is affiliated with the Service Corps of Retired Executives?
Small Business Administration
Trade commissions provide all of the following EXCEPT:
management personnel.
A company of export specialists that acts as an export marketing department for client firms is called a(n):
export management company.
A good EMC has all of the following qualities EXCEPT:
English-speaking employees only.
What is a drawback of relying on an EMC?
The exporting company can fail to develop its own capabilities.
3M has built its export success on all of the following principles EXCEPT:
get into a market first and learn about the country.
A firm can increase the probability of exporting successfully by taking which of these steps?
Recognize time and managerial commitment.
Which of the following is NOT recommended as a way to increase success of exporting?
Invest significantly large capital in a foreign market.
Lack of trust is a major issue for firms engaged in international trade for all of the following reasons EXCEPT:
parties are easy to track
In international trade, due to _____ between two parties, each has his/her own preferences as to how the transaction should be configured.
the lack of trust
Lack of trust between two parties engaged in international trade is accentuated by:
the problems of using an underdeveloped international legal system to enforce contractual obligations.
Title to products is given to a bank in the form of a document called:
bill of lading.
Which of the following stands at the center of international commercial transactions?
Letter of credit
The letter of credit is issued by a bank at the request of a(n):
importer.
Which of the following would NOT occur when using a bank in exporting arrangements?
Importer pays to the exporter directly.
The great advantage of the _____ system is that two parties are likely to trust reputable banks, even if they do not trust each other.
letter of credit
What is the drawback for the importer in using a letter of credit?
It may reduce his/her ability to borrow funds for other purposes.
Why does a letter of credit reduce an importer’s ability to borrow funds?
It is a financial liability against the importer.
A draft is sometimes referred to as a:
bill of exchange.
A _____ is simply an order written by an exporter instructing an importer to pay a specified amount of money at a specified time.
draft
How does the international practice of settling trade transactions differ from domestic practice?
In international business, a formal promise to pay is required before obtaining the merchandise.
A party initiating a draft is known as the _____, while the party to whom the draft is presented is known as the:
maker; drawee.
The two categories of drafts are:
sight drafts and time drafts.
Which of the following is payable on presentation to the drawee?
Sight draft
Which of the following allows for a delay in payment?
Time draft
When a time draft is drawn on and accepted by a business firm, it is called a(n):
trade acceptance.
Time drafts:
are negotiable instruments.
An importer calls an exporter to present the bank with a time draft requiring payment 120 days after presentation. Which instrument is the importer using for the transaction?
A negotiable instrument
As a _____, a bill of lading specifies that the carrier is obligated to provide a transportation service in return for a certain charge.
contract
A bill of lading serves all of the following purposes EXCEPT:
letter of credit
As a collateral, the bill of lading:
can be used to advance funds to the exporter by its local bank before or during shipment.
As a _____, a bill of lading can be used to obtain payment or written promise of payment before the merchandise is released to the importer.
document of title
In the U.S., export credit insurance is provided by the:
FCIA.
The _____ guarantees repayment of medium and long-term loans U.S. commercial banks make to foreign borrowers for purchasing U.S. exports.
Ex-Im Bank
The mission of the _____ is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries.
Ex-Im Bank
Exporters clearly prefer to get a _____ from importers
letter of credit
When does an exporter have to forgo a letter of credit?
When the importer is in a strong bargaining position.
The _____ provides coverage against commercial risks and political risks.
Foreign Credit Insurance Association
In the United States, export credit insurance is provided by the:
Foreign Credit Insurance Association.
When should an exporter get export credit insurance?
When the exporter is facing a situation where the importer may default on payment.
What is the advantage of export credit insurance?
It will cover losses due to the buyer’s insolvency or payment default.
The principle of a _____ is to trade goods and services when they cannot be traded for money.
countertrade
When do firms engage in countertrade?
When the exporter may not be paid in his/her home currency.
Saudi Arabia agreed to buy 10 747 jets from Boeing with payment in crude oil, discounted at 10 percent below posted world oil prices. This is an example of:
countertrade.
In the modern era, countertrade arose in the 1960s as a way for _____ to purchase imports.
the Soviet Union
Which of the following is NOT a distinct countertrade arrangement?
Merger
The direct exchange of goods and/or services between two parties without a cash transaction refers to:
bartering.
The most restrictive countertrade arrangement is:
barter.
Why is barter is not a common arrangement?
Firms run the risk of having to accept goods they do not want.
Albania offered such items as spring water, tomato juice, and chrome ore in exchange for a $60 million fertilizer and methanol complex. Which type of countertrade is this?
Barter
When a firm agrees to purchase a certain amount of materials back from a country to which a sale is made, it is called:
counterpurchase.
A U.S. firm sells some products to China. China pays the U.S. firm in dollars, but in exchange, the U.S. firm agrees to spend some of its proceeds from the sale on textiles produced by China. Which type of countertrade is this?
Counterpurchase
A(n) _____ is similar to a counterpurchase, although one party can fulfill the obligation with any firm in the country to which the sale is being made.
offset
When a specialized third-party trading house is used in a countertrade arrangement, it is called:
switch trading.
When a firm builds a plant in a country and agrees to take a certain percentage of the plant’s output as partial payment for the contract, it is called:
a buyback.
What is the main attraction of countertrade?
A firm can finance an export deal when other means are not available.
Occidental Petroleum negotiated a deal with Russia under which Occidental would build several ammonia plants in Russia and as partial payment receive ammonia over a 20-year period. This is an example of:
a buyback.
_____ agreement may be required by the government of a country that has a problem in paying for imports.
Countertrade
Countertrade is most attractive to:
large multinational enterprises.
What is a drawback of countertrade?
It requires the firm to invest in an in-house trading department dedicated to arranging and managing deals.
One U.S. firm got burned when 50 percent of the television sets it received in a(n) _____ agreement with Hungary were defective and could not be sold.
countertrade
The _____ are masters of countertrade that use their vast networks of affiliated companies to profitably dispose of goods acquired through countertrade agreements.
sogo shosha
Why should small and medium-sized firms avoid countertrade deals?
They lack the worldwide network of operations that may be required to profitably utilize goods.