Question 1: In negotiating a trade transaction, the party with the most leverage will: _____ a) finance the seller. _____ b) be able to dictate the terms. _____ c) have none of the advantages. _____ d) incur foreign exchange risk. Question 2: In a documentary collection, the banks: _____ a) monitor the quality of the goods shipped. _____ b) assume the buyer’s credit risk. ___ c) act as intermediaries in the collection process. _____ d) verify that the number of goods shipped agrees with the title document. Question 3: An exporter receives a purchase order and payment for 1500 pairs of shoes. This is an example of which type of payment option? _____ a) Documentary Collections _____ b) Open Account _____ c) Cash in Advance _____ d) On Consignment L/C: Question 1: Which party typically adds its promise to pay under a confirmed letter of credit? _____ a) Buyer _____ b) Bank in the beneficiary’s country _____ c) Bank that issued the letter of credit _____ d) Beneficiary Question 2: Typically, under what conditions will the paying bank pay the seller under a commercial letter of credit? (Select all that apply.) _____ a) Seller presents to the paying bank the documents that meet the L/C terms and conditions _____ b) Buyer confirms receipt of the goods _____ c) Buyer presents the title document and guarantees to the issuing bank _____ d) Buyer places sufficient funds in his or her account with the issuing bank _____ e) Paying bank receives funds from issuing bank or its agent bank Question 3: The best protection for the seller is provided by a(n): _____ a) straight letter of credit. _____ b) open account. _____ c) revolving letter of credit. _____ d) confirmed, irrevocable letter of credit. Question 4: Identify the type of commercial letter of credit used by an importer with multiple scheduled payments: _____ a) Revolving, irrevocable letter of credit _____ b) Confirmed, irrevocable letter of credit _____ c) Negotiable, import letter of credit _____ d) Red clause, straight letter of credit Question 5: A commercial letter of credit whereby the beneficiary has the right to request that it be made available to one or more parties and is less risky to the nominated advisory / confirming bank, is known as a: _____ a) red clause letter of credit. _____ b) transferable letter of credit. _____ c) back-to-back letter of credit. _____ d) clean letter of credit. Question 6: In a letter of credit, banks deal: _____ a) only in goods, not with documents. _____ b) only with documents, not in goods. _____ c) with documents and in goods. _____ d) only with documents, not in goods, as long as it is a standby letter of credit

Name…………………………………….. …………………………Class: ITF-CLC Check – Term of Payments and Trade services

6. Political risk 7. Credit risk of the beneficiary

Question 10: A seller, who will have a letter of credit opened in his favor, does not have funds to purchase the goods from his supplier and does not qualify for a bank loan. What would be the least complicated letter of credit to be issued that would enable the seller to obtain the goods? _____ a) Revolving _____ b) Back-to-Back _____ c) Transferable _____ d) Red Clause Question 11: Match the type of standby letter of credit with the application. Use G for guarantee and P for payment. _____ a) In lieu of a bid bond _____ b) In lieu of bank guarantees _____ c) Salary disbursements _____ d) Principal and/or interest on bonds payments _____ e) Security for advance payments Question 12: A standby letter of credit is different from a commercial letter of credit because a:

_____ a) commercial letter of credit requires the beneficiary to present shipping documentation to draw against the letter of credit. _____ b) standby letter of credit is always revocable. _____ c) commercial letter of credit does not have an expiration date. _____ d) standby letter of credit can be viewed as either an import letter of credit or an export letter of credit. Question 13: What option is available to a beneficiary who is in need of financing to pay its supplier, but does not wish to issue another letter of credit or change a letter of credit already opened in its favor? _____ a) Revolving _____ b) Back-to-Back _____ c) Transferable _____ d) Assignment of Proceeds Question 14: Select the one correct tenor for each settlement. _1____ a) Sight Payment _3____ b) Negotiation _2____ c) Deferred Payment _2____ d) Acceptance 1. Payment is made immediately to the beneficiary when complying documents are presented 2. Payment is made to the beneficiary at a specified future date

Name…………………………………….. …………………………Question 7: In a straight letter of credit, the parties involved are always the: _____ a) applicant, issuing bank, and beneficiary. _____ b) applicant, issuing bank, paying bank, and beneficiary. _____ c) applicant, issuing bank, negotiating bank, and beneficiary. _____ d) applicant, issuing bank, advising bank, and beneficiary. Question 8: An exporter and importer are about to close a large trade deal but the issuing bank is unknown to the exporter. What commercial letter of credit would best meet the needs of the exporter to minimize its risk? _____ a) Negotiable _____ b) Confirmed _____ c) Straight _____ d) Back-to-Back Question 9: For each role that a bank plays in a commercial letter of credit, identify one or more of the most common risks associated with the role. _____ a) Issuing Bank 1. Credit risk of the applicant _____ b) Advising Bank 2. Operational risk _____ c) Paying Bank 3. Credit risk of the issuing bank _____ d) Negotiating Bank 4. Foreign exchange risk _____ e) Confirming Bank 5. Interest rate risk

to bid includes a stipulation that all bidders must post a bond or promise to establish financial responsibility and to assure that, if awarded the bid, the bidder will enter into a firm contract. _____ d) A company may enter into a contract to supply services in which the buyer requires the supplier to post a bond or ensure that, if the supplier fails to perform and execute the contract in accordance with all its terms and conditions, a monetary compensation will be made. _____ e) In the course of a project, a buyer may be required to make progress payments to the supplier. The buyer may require that the supplier obtain a bank guarantee that, in the event of nonperformance by the supplier, the buyer will be reimbursed for all of the progress payments. _____ f) As part of a divorce settlement, one of the parties requires alimony payments under a letter of credit by the other party who has moved to a distant country. The condition is that if the party receiving alimony marries, the other party is no longer under obligation to continue the payments. What is the appropriate letter of credit for this situation? Instruments available: 1. Standby letter of credit, irrevocable, payment type 2. Standby letter of credit, irrevocable, guarantee type 3. Standby letter of credit, revocable, payment type Documents using in Trade Finance Question 1: The document that transfers title is the: _____ a) commercial invoice. _____ b) bill of lading. _____ c) draft. _____ d) certificate of origin. Question 2: Which document covers the risks that may affect the merchandise from the time it is delivered by the seller until it is received by the buyer? _____ a) Insurance document _____ b) Analysis certificate _____ c) Commercial invoice _____ d) Quality certificate Question 3: Which document is provided by the seller to the buyer and gives a description and cost of goods and/or services? _____ a) Analysis certificate _____ b) Inspection certificate _____ c) Weight list _____ d) Commercial invoice Question 4: A document that demands payment when it is presented is a: _____ a) commercial invoice. _____ b) sight draft. _____ c) time draft. _____ d) promissory note. Question 5: Merchandise imports that are priced according to a quality criteria may require a(n): _____ a) certificate of origin. _____ b) shipping guaranty. _____ c) letter of indemnity.

Name…………………………………….. …………………………3. Payment is made immediately to the beneficiary, normally at a discount, upon presentation of the complying documents Question 15: Match each of the five customer needs to one of the three instruments that will best meet the need. _____ a) A seller who is shipping to a buyer on open account may expect the buyer to provide a bank assurance that payment will be made when due. _____ b) A company may need to support a foreign subsidiary in its local borrowing needs. A foreign lending bank has indicated a willingness to accommodate the subsidiary’s borrowing needs if such borrowings are backed by a prime international bank. _____ c) A company may be interested in bidding on a sale of goods to a certain buyer. The buyer’s invitation

Name…………………………………….. ………………………… _____ d) inspection certificate. Question 6: Which of the following documents are negotiable instruments? _____ a) Promissory Note _____ b) Commercial Invoice _____ c) Bill of Lading _____ d) Bill of Exchange Question 7: Place an F in front of the names of financial documents and a C in front of the names of commercial documents. _____ Bill of Exchange ____ Bill of Lading _____ Promissory Note ____ Commercial Invoice _____ Certificate of Origin _____ Weight List Question 8: A document that represents the buyer’s commitment to pay is a: _____ a) commercial invoice. _____ b) sight draft. _____ c) time draft. _____ d) promissory note.