Trade Finance - Mid Term 2020 - MCQs PDF

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Trade Finance – Mid Term 2020

Question 1 Which one of the following must take place for the beneficiary to be assured of payment under a letter of credit? (a) (b) (c) (d)

The beneficiary must have an account with the issuing bank The goods must be of an acceptable quality The importer must have the money in the issuing bank All documents submitted must carefully comply with the bank

Question 2 Which of the following is a way to mitigate risks in Trade transactions: (a) (b) (c) (d)

Procuring Medical Insurance Not having Jurisdiction clause in Sales Contract Procuring Life Insurance Requesting inspection of the cargo by Independent Inspection Company or Surveyor

Question 3 Which of the following describes the difference between a ‘collection’ and a ‘letter of credit’? With a letter of credit: (a) (b) (c) (d)

A bank adds its own name to the transaction An insurance company issues a credit note The buyer will always pay on time The supplier always receives payment in advance

Question 4 In an Advance Payment Guarantee or Standby Letter of Credit: (a) (b) (c) (d)

The Applicant is usually the Importer The Applicant is usually the Exporter The Issuing Bank is the Importer’s Bank The Beneficiary is usually the Shipping Company

Question 5 Under a 90-day bill of exchange, the drawee will have an obligation to: (a) (b) (c) (d)

Accept the bill and arrange to make payment 90 days later Discount the bill and arrange to make payment 90 days later Avalise the bill with the importer and make payment 90 days later Discount the bill and pay the exporter

Question 6 Why might a ‘confirming bank’ be used in a letter of credit? To confirm that: (a) (b) (c) (d)

Adequate insurance exists while the goods are in transit The exporter will pay on the due date The goods are of acceptable quality It will meet the obligations of the Issuing Bank

Question 7 Which of the following terms on a bill of exchange giving 90 days’ credit will be acceptable? Pay this bill of exchange: (a) (b) (c) (d)

90 days after the arrival of the ship 90 days after the goods are shipped by the exporter 90 days from the date on the bill of exchange 90 days after the importer’s bank approves the financing

Question 8 An importer wishes to have sufficient time to sell goods, before making payment, whilst the exporter wishes to have certainty of payment after shipment of goods. Which method of payment would be preferable to the importer? (a) (b) (c) (d)

Documentary collection payable at sight Documentary collection payable 60 days sight Documentary credit payable 60 days from shipment 50% payment in advance and the balance paid 60 days after the shipment

Question 9 Transferrable LCs: (a) (b) (c) (d)

Must compulsorily be transferred by the Advising Bank Are subject to guidelines in Uniform Rules for Collection (URC) Need to state they are Transferrable Involves a payment undertaking by the Transferring Bank

Question 10 Which of the following is true: (a) A Confirming Bank replaces the undertaking of Issuing Bank to pay the Beneficiary under a Confirmed LC (b) For an LC to be confirmed, it needs not be stated in the LC that confirmation is to be added (c) A bank requested to add confirmation must do so (d) A confirming bank would usually charge a fee to add confirmation Question 11 Which of the following could give rise to the complications and problems in International (cross-border) trade transactions: (a) (b) (c) (d)

Government restrictions on smoking in public areas in the country Strike by workers of local commuter bus system Imposition of domestic tax on local consumption of goods Imposition of ban on export of sensitive goods due to shortage in domestic market

Question 12 Which of the following is true: (a) A transferrable Letter of Credit (LC) can be transferred to more than one Beneficiary (b) A transferrable Letter of Credit can be transferred more than once (after initial transfer) to other Beneficiaries

(c) Latest shipment date under the Transferred Letter of Credit cannot be changed (d) Expiry date of under the Transferred Letter of Credit cannot be changed Question 13 An Ocean Bill of Lading (BL) is: (a) (b) (c) (d)

A document evidencing the contract of carriage A document that conveys title to the vessel A document to protect risk of life of the crew on the vessel A document to claim payment from the Buyer

Question 14 In a back-to-back, Letter of Credit (LC) transaction: (a) There are 2 separate and independent LCs (b) The “master/mother” LC must state it is a Back-to-Back LC (c) The financial standing of the End-Buyer/Applicant under the “master/mother” LC is an important consideration for a Middleman’s bank to issue the Back-to-Back LC (d) The Bank issuing the Back-to-Back LC on behalf of the Middleman does not have a payment obligation to the Ultimate Supplier/Beneficiary of the Back-to-Back LC Question 15 Zoomzoom Auto Company Limited (ZAC) is a car manufacturer which imports auto parts. It then processes and manufactures the cars which are then sold to car dealers on credit terms. Under which of the following will ZAC have a funding tenor gap in its business modus operandi: (a) Import auto parts on Letter-of-Credit-against-Acceptance (Usance LC) 180-day terms; process for 30-days and sell on credit on 90-days (b) Import auto parts on 120-days open account terms; process for 30-days and sell on credit on Sight LC terms (c) Import auto parts on Documents-against-Acceptance (DA) 30-days terms, process for 30-days and sell on Usance LC 60-days terms (d) Import auto parts on Usance LC 150-days; process for 30-days and sell on Open account 60-days term Question 16 Sonja Importing Co Ltd Agree to buy a shipment of materials from Indonesia Trading Co ltd. It agrees payment in advance terms. When should Sonja Importing Co Ltd make the payment? (a) (b) (c) (d)

As soon as the shipping company agrees Before shipment is made When the goods arrive When they receive evidence of shipment

Question 17 Which of the following is true in respect of the advising, nominated and confirming bank in a letter of credit? (a) One bank may assume all three roles and responsibilities (b) The applicant must bank with all three institutions

(c) The beneficiary must agree which banks are used (d) The rules state that three separate banks must be used Question 18 In scenario (15) above, a suitable instrument for ZAC to cover its funding gap between its purchase and processing/sales terms are: (a) (b) (c) (d)

Issue Usance LC Issue Sight LC Advance Payment Purchase on Documents on Payment (DP) terms

Question 19 Which of the following is a key consideration for a bank to consider issuing a back-to-back LC for its Middleman customer on strength of a “master/mother” LC: (a) (b) (c) (d)

Financial standing of the issuing bank of the master/mother LC Medical standards of the country of the issuing bank of the master/mother LC Experience and competence of the End Buyer in submitting compliant documents Whether the Ultimate Supplier has covered Life Insurance

Question 20 Unless otherwise stated in the letter of credit, beneficiaries should normally present original transport documents under a letter of credit within how many days of shipment? (a) (b) (c) (d)

5 days 10 days 14 days 21 days

Question 21 Under ‘CIF’ terms, which of the following is always the responsibility of the exporter? (a) (b) (c) (d)

Insurance from the port shipment Insurance from the port of shipment and seller’s contingency insurance Insurance from the port of shipment and contract of carriage of goods Insurance and Inspection cost at port of shipment

Question 22 If an importing company cannot immediately clear goods from the port, it will incur which of the following charges from the Port Authority? (a) (b) (c) (d)

Demurrage charges Insurance premiums Confirmation fees Discrepancy fees

Question 23 Advance Payments arrangements in trade between Exporter and Importer can be expected in which of the following situation: (a) There is risk of Exporter having financial problems

(b) There is risk of fraud by Exporter (c) There is risk of foreign exchange controls in Importer’s country (d) Importer has a strong bargaining power Question 24 Which of the following is a consideration in determining requirement for Trade Financing: (a) (b) (c) (d)

Payment terms for purchase/import of goods Name of vessel on which shipment of goods is effected Applicable jurisdiction in the Sales Contract Documents required under the trade transaction between Buyer and Seller

Question 25 What is the significance of ‘dirty or ‘claused’ bill of lading? (a) (b) (c) (d)

The carrier is likely to be unsuitable The goods are likely to be damaged The goods have been seized by customs as unfit for consumers The title to the goods covered by the bill of lading is impaired

Question 26 A key aspect of letters of credit is that: (a) (b) (c) (d)

Banks deal in documents and not the underlying goods themselves Once issued, they are easy to be cancelled at any time The bank involved will always take ownership of the goods and sell them The underlying goods must be shipping by sea

Question 27 A bill of exchange, presented under a collection, has been accepted. What should the collecting bank do after advising the remitting bank? (a) (b) (c) (d)

Forward the bill to the exporter Hold the bill until the due date for payment Return the bill to the importer Send the bill to the exchange control authorities

Question 28 A Red clause Letter of Credit (LC): (a) (b) (c) (d)

Is a form of pre-shipment finance granted by Shipping Company Is a form of post-shipment finance for Importer Is a form of pre-shipment finance for Exporter Is a form of post-shipment finance granted by Exporter’s Bank

Question 29 Which of the following instruments can be used to protect the party bearing risks when making Advance Payment: (a) Performance Guarantee (b) Confirmed Letter of Credit (c) Advance Payment Guarantee

(d) Red Clause Letter of Credit

Question 30 Which of the following document assures the importer that goods are of a certain standard? (a) (b) (c) (d)

A weight certificate by an independent party An inspection certificate by an independent party An insurance certificate by a first-class insurance company A certificate of origin issued by the government authority of the exporting country

Answers: 1. D 2. D 3. A 4. B 5. A 6. D 7. C 8. C 9. C 10. D 11. D 12. A 13. A 14. A 15. C 16. B 17. C 18. A 19. A 20. D 21. C 22. A 23. C 24. A 25. B 26. A 27. B 28. C 29. C 30. B...