David IL3e TB Ch06 PDF

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David IL3e TB Ch06...

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Chapter 6: Terms of Trade or Incoterms

TRUE/FALSE 1. Under the Free Carrier Incoterm, the exporter is responsible for clearing the merchandise for export. ANS: T

DIF: Easy

REF: 6-5b

2. An advantage of the Free Alongside Ship Incoterm is the thorough documentation of the receipt of goods at a port holding area or to the quay alongside the ship. ANS: F

DIF: Hard

REF: 6-6a

3. Under the FOB Incoterm, in countries where export authorities require a pre-shipment inspection, the importer must pay for it. ANS: F

DIF: Moderate

REF: 6-7b

4. The CFR Incoterm means “Cost and Freight.” ANS: T

DIF: Easy

REF: 6-8

5. The Cost, Insurance, and Freight Incoterm is specifically designed for land transportation. ANS: F

DIF: Moderate

REF: 6-9

6. Under the Cost, Insurance, and Freight Incoterm, the importer takes responsibility for the goods when they are placed upon the importer’s loading dock. ANS: F

DIF: Moderate

REF: 6-9b

7. Conceptually, the CPT Incoterm is the same as the CFR Incoterm, except it applies to goods shipped by means other than ocean transport, or shipped by sea without being handed over the ship’s rail (roll-on-roll-off cargo or intermodal containers). ANS: T

DIF: Moderate

REF: 6-10

8. The Incoterm CPT means “Cargo Placed at Terminal.” ANS: F

DIF: Easy

REF: 6-10

9. An Incoterm expressed as “CIP Sofia, Bulgaria, Incoterms 2000” means that under Incoterms as of 2000, the goods are “Carriage and Insurance Paid” to Sofia, Bulgaria, where the importer will take control of them. ANS: T

DIF: Easy

REF: 6-11

6-1

Chapter 6: Terms of Trade or Incoterms 10. A bill of lading or equivalent document (air waybill, sea waybill, multi-modal bill of lading) acts as proof of delivery under the CIP Incoterm. ANS: T

DIF: Moderate

REF: 6-11a

11. The DES Incoterm is mostly used for bulk shipments of commodities where the parties wish to have the exporter pay for the unloading of the ship. ANS: F

DIF: Moderate

REF: 6-12

12. Under Incoterms EXW, FCA, and FAS, the importer is the party responsible for loading the goods onto the carrier. ANS: T

DIF: Hard

REF: 6-4, 6-5, 6-6

13. Under Incoterm DEQ, transfer of responsibility for cargo from importer to exporter is at the ship’s rail as the cargo is loaded onto the ship ANS: F

DIF: Hard

REF: 6-13a

14. The DAF Incoterm means “Deliver All Freight.” ANS: F

DIF: Easy

REF: 6-14

15. Under the DAF Incoterm, the exporter is responsible for the costs of transportation from the border city to the final destination and for the costs of clearing customs. ANS: F

DIF: Moderate

REF: 6-14b

16. Under the DDU Incoterm, it is the responsibility of the importer to arrange and pay for the unloading of the goods. ANS: T

DIF: Hard

REF: 6-15a

17. Under the DDP Incoterm, the importer usually takes control of the goods at the city where the exporter is located. ANS: F

DIF: Hard

REF: 6-16

18. Use of Electronic Data Interchange (EDI) is still fairly new and limited to developed countries. ANS: T

DIF: Easy

REF: 6-17

19. In planning their export strategy, companies generally determine which Incoterm they will use on a case-by-case basis. ANS: F

DIF: Moderate

REF: 6-3

20. Under the CIF Incoterm, the proof of delivery is an ocean bill of lading or a sea waybill. ANS: T

DIF: Moderate

REF: 6-9a

6-2

Testbank

21. It is always best to use only one term of trade in a quote to a potential customer so that there is no possible confusion. ANS: F

DIF: Moderate

REF: 6-19

22. The least customer-friendly of the Incoterms in the EXW (Ex-Works) Incoterm. ANS: T

DIF: Moderate

REF: 6-19

MULTIPLE CHOICE 1. Incoterms stands for a. terminal incorporation procedures. b. in-country termination. c. international company terminology.

d. intercontinental term standards. e. None of the above

ANS: E Incoterms is the acronym for International Commerce Terms. DIF: Moderate

REF: 6-1

2. While on the surface Incoterms determine who pays what when, ultimately the _____ directly or indirectly pay(s) the costs of transportation and international shipping. d. All of the above a. importer b. exporter e. None of the above c. customs office ANS: A The importer ultimately pays since any costs the exporter pays will be built into the price. DIF: Hard

REF: 6-3

3. The choice of the Incoterm is almost always the decision of the a. importer. d. distributor. e. None of the above b. agent. c. exporter. ANS: C Agents and distributors are importers, so in this case, these terms are essentially synonymous and they do not select the choice of Incoterm. DIF: Moderate

REF: 6-3

6-3

Chapter 6: Terms of Trade or Incoterms 4. The choice of a proper Incoterm is a critical decision because a. it can be an integral part of export d. All of the above strategy. b. it is linked to the level of customer service e. None of the above the firm is attempting to provide. c. it can be a competitive advantage. ANS: D Choosing the proper Incoterm is crucial because it can be an integral part of an export strategy, and it is linked to the level of customer service the firm is attempting to provide, while the competitive advantage is implied. DIF: Hard

REF: 6-3

5. In terms of cost and responsibility, the easiest Incoterm for the exporter which is, in turn, the most difficult for the importer is a. Delivered Duty Unpaid (DDU). d. Delivered at Frontier (DAF). b. Ex-Works (EXW). e. None of the above c. Delivered Duty Paid (DDP). ANS: B Delivered Duty Unpaid (DDU) and Delivered Duty Paid (DDP) require the most responsibility for the exporter rather than the importer. Delivered at Frontier (DAF) basically splits the responsibility for the shipment between the exporter and the importer. Ex-Works (EXW) is correct as it is the easiest for the exporter. DIF: Moderate

REF: 6-4

6. The Incoterm FCA means a. Free Carrier. b. From California. c. For Countries Abroad.

d. Free Customs Administration. e. None of the above.

ANS: A FCA stands for Free Carrier. DIF: Easy

REF: 6-5

6-4

Testbank 7. FOB is a. Free On Board. b. an Incoterm that can be used for any merchandise. c. an Incoterm specifically designed for ocean transportation.

d. All of the above e. None of the above

ANS: D All of these options are relevant to FOB. DIF: Moderate

REF: 6-7

8. Under the Incoterm FOB, responsibility for the cargo a. shifts from exporter to importer at the d. shifts from exporter to importer when the ship’s rail. importer pays the exporter. b. shifts from exporter to importer when the e. None of the above goods are placed on the exporter’s loading dock. c. shifts from exporter to importer when the goods are unloaded from the ship in the country to which the goods are going. ANS: A In FOB, the responsibility shifts from the exporter to the importer at the ship’s rail. DIF: Moderate

REF: 6-7a

9. Electronic Data Interchange (EDI) has changed what issue in Incoterms? d. All of the above. a. who pays for insurance b. who pays for import clearance e. None of the above. c. documentation of delivery ANS: C Exporters can send an Electronic Data Interchange (EDI) notice that acts as a document for both parties. DIF: Moderate

REF: 6-17

6-5

Chapter 6: Terms of Trade or Incoterms 10. Incoterms determine a. how much the agents commission will be. d. All of the above b. which tasks will be performed by the e. None of the above exporter. c. how much duty will be charged by the importing country. ANS: B Incoterms define several aspects of an international sale, one being which tasks will be performed by the exporter. DIF: Easy

REF: 6-2

11. The Incoterm EXW specifies what regarding delivery? a. the mode of transportation for delivery d. All of the above b. who pays for delivery e. None of the above c. who buys insurance for delivery ANS: E EXW says nothing about delivery. DIF: Hard

REF: 6-4a

12. The document that corresponds clearly to the transfer of responsibility for a Free Carrier shipment is the receipt given by the carrier to the exporter. This receipt can be d. All of the above a. a sea waybill. b. an air waybill. e. None of the above c. a multi-modal bill of lading. ANS: D Each of these can function as a receipt indicating responsibility transfer. DIF: Moderate

REF: 6-5a

13. As of the revision in 2000, the only Incoterm which requires the importer to clear the merchandise for export from the country from which it is coming is a. Free Alongside Ship. d. Delivered Ex Quay. b. Ex-Works. e. None of the above c. Cost and Freight. ANS: B Free Alongside Ship, Cost and Freight, and Delivered Ex Quay all require the exporter to clear the merchandise for export. DIF: Hard

REF: 6-4

6-6

Testbank 14. Under the ancient maritime custom regarding Free On Board, if a piece of cargo breaks loose while crossing the ship’s rail and lands on the ship, it becomes the responsibility of a. the exporter. d. All of the above b. the importer. e. None of the above c. the harbor master. ANS: B If the cargo lands on the ship, it is the responsibility of the importer. If it falls back on the quay, it remains the responsibility of the exporter. The ship’s rail is the dividing point. DIF: Easy

REF: 6-7a

15. Under the Cost, Insurance, and Freight Incoterm, a. the exporter must pre-pay the insurance. d. All of the above b. the insurance must total at least 110 e. None of the above percent of the value of the goods. c. the exporter pays all shipping costs, except for inland freight. ANS: D Under CIF, the exporter must pre-pay the insurance, which must total at least 110 percent of the value of the goods. Also, the exporter pays all shipping costs, except for inland freight. DIF: Moderate

REF: 6-9, 6-8b

16. The only difference between the Delivered Ex Ship Incoterm and the Delivered Ex Quay Incoterm is a. the unloading costs of the ship at the port d. unloading costs are borne by the ship owner in the Delivered Ex Quay of destination are borne by the exporter in transaction. the Delivered Ex Quay transaction. b. the unloading costs of the ship at the port e. None of the above of destination are borne by the importer in the Delivered Ex Quay transaction. c. both importer and exporter share unloading costs of the ship at the port of destination in the Delivered Ex Quay transaction. ANS: A The DES and DEQ Incoterms are identical, except that the unloading costs of the ship at the port of destination are borne by the exporter in the Delivered Ex Quay transaction. DIF: Moderate

REF: 6-13

6-7

Chapter 6: Terms of Trade or Incoterms 17. Delivered at Frontier is an Incoterm designed specifically for a. ocean transportation. d. barge transportation. b. land transportation. e. None of the above c. air transportation. ANS: B Delivered at Frontier is for any merchandise, but only for land transportation. DIF: Easy

REF: 6-14

18. The FOB term not only means “Free On Board,” it is also sometimes referred to as a. Freight On Bow. d. Freight Over Ballast. e. None of the above b. Free Over Bow. c. Freight On Board. ANS: C The Free On Board term is sometimes called Freight On Board, and is one of the oldest maritime terms of trade. DIF: Easy

REF: 6-7

19. Under the Delivered Duty Unpaid Incoterm, unloading costs are borne by the a. railroad. d. harbor. b. ship line. e. None of the above c. exporter. ANS: E Unloading costs are borne by the importer. DIF: Moderate.

REF: 6-15

20. The Incoterm(s) requiring the exporter to pay import duty is/are a. FCA. d. All of the above b. CIP. e. None of the above c. DDP. ANS: C Only DDP (Delivered Duty Paid) requires the exporter to pay duty. DIF: Hard

REF: 6-16

6-8

Testbank 21. In a quote which includes multiple Incoterms, so that the customer can choose, the Incoterm that has the highest invoiced amount is a. EXW. d. CIP. b. FCA. e. None of the above c. DDP. ANS: C DDP (Delivered Duty Paid) requires the greatest effort on the part of the exporter and the greatest costs, which are then invoiced to the importer. DIF: Moderate

REF: 6-19

22. Among the following, the most customer-friendly Incoterm is a. FCA. d. DES. b. CIP. e. None of the above c. DDU. ANS: C Under a DDU transaction, the exporter is providing more services to the importer than for FCA, CIP, or DES. DIF: Hard

REF: 6-19

COMPLETION 1. Under the FAS Incoterm, in countries where export authorities require a pre-shipment inspection, the ____________________ has to pay for it. ANS: exporter DIF: Hard

REF: 6-6b

2. Under the CFR Incoterm, until the merchandise has cleared the ship’s ____________________, it is the responsibility of the exporter, after that, of the importer. ANS: rail DIF: Easy

REF: 6-8a

3. Under the CFR Incoterm, if the pre-paid contract of carriage does not include the unloading of the ship, then the ____________________ must pay for it. ANS: importer DIF: Hard

REF: 6-8b

6-9

Chapter 6: Terms of Trade or Incoterms 4. Under the CPT Incoterm, the bill of ____________________ can act as a proof of delivery from the carrier. ANS: lading DIF: Easy

REF: 6-10a

5. Under the CPT Incoterm, the ____________________ is responsible for unloading the goods from the carrier’s truck, clearing customs, and paying for any inland transportation beyond the city of destination. ANS: importer DIF: Moderate

REF: 6-10b

6. Under the DES Incoterm, the exporter is responsible for the goods until they are placed at the disposal of the importer at the ____________________ of destination. ANS: port DIF: Moderate

REF: 6-12

7. As far as the importer is concerned, under the DDP Incoterm, receiving an international shipment is no different that receiving a(n) _____________________ shipment. ANS: domestic DIF: Moderate

REF: 6-16

8. Variants to the CFR Incoterm were created to reflect which of the trade partners was responsible for unloading costs. When the exporter bears the costs, the term “CFR ____________________” is used. ANS: Landed DIF: Hard

REF: 6-8

9. The Incoterm CPT means “____________________ Paid To.” ANS: Carriage DIF: Easy

REF: 6-10

10. The Incoterm DDU means “Delivered _____________________ Unpaid.” ANS: Duty DIF: Easy

REF: 6-15

6-10

Testbank 11. The customer-focused exporter gives the importer a quote in which the importer can determine which ____________________ should govern the transaction. ANS: Incoterm DIF: Easy

REF: 6-19

12. The choice of an Incoterm, as well as the choice of the method of payment and of other related transaction alternatives, constitute an exporter’s ____________________ service strategy. ANS: customer DIF: Hard

REF: 6-19

6-11...