Chapter 7

EXPORT AND IMPORT PRACTICES

Section 1 –Match the words on the left with the right explanations on the right

1. Term of sale A. A time draft with maturity of less than 270 days that has been
accepted by the bank on which the draft was drawn, thus becoming the
accepting bank’s obligation; may be bought and sold at a discount in the
financial markets like other commercial paper.

2. INCOTERMS B. INCOTERM equivalent of FOB

3. FOB C. universal trade terminology developed by the International Chamber

of Commerce.

4. Ex-Works D. document issued by the buyer’s bank in which the bank promises to
pay the seller a specified amount under specified conditions.

5. Letter of credit (L/C) E. disounting without recourse an account receivable

6. Confirmed L/C F. conditions of a sale that stipulate the pint at which costs and risks are
borne by the buyer.

7. Irrevocable L/C G. a confirmation made by a correspondent bank in the seller’s country

by which it agrees to honor the issuing bank’s letter of credit.

8. Banker’s acceptance H. pricing policy in which risks pass from seller to buyer at the factory
door.

9. Factoring I. purchasing without recourse an account receivable whose credit terms

are longer than the 90 to 180 days usual in factoring.

10. Forfaiting K. a stipulation that a letter of credit cannot be cancelled.

Section 2 – Fill in each of the gaps with a suitable word or phrase.

Smaller firms, like larger ones, export to increase (1)_____________. Large multinationals export
to serve markets where they have no (2)_____________ plants or where the local plant does not
produce all the (3)_____________. Some host governments require an affiliate to export, and
many firms export to remain competitive in the (4)_____________. Exporting is also an
inexpensive way to test foreign markets.
One pricing area of concern for many firms beginning to export is the need to quote
(5)_____________ that differ from those used in (6)_____________. For foreign transactions, the
exporter needs to be familiar with (7)_____________, 13 trade terms that describe the
(8)_____________ of the buyer and seller in international trade. They were created by the
International Chamber of Commerce and are revised every 10 years.
In recent years, two new types of export financing have been developed, (9)_____________ and
(10)_____________. The first type permits the exporter to be more competitive by selling on open
account rather than by means of the more costly (11)_____________ method. This financing
technique is the sale of export accounts receivable to a (12)_____________, which assumes the
credit risk. The second type is the purchase of obligations that arise from the sale of goods and
services that fall due at some date beyond the 90 to 180 days. These receivables are usually in the
form of trade drafts or promisory notes with (13)_____________ ranging from six months to five
years.

Section 3 – Find the best answer.

1. The reasons for companies to become involved in exporting are linked to the desire to
______________.
A. boost profits and sales.
B. keep profits and sales from being eroded.
C. both a and b
D. none of the above.

2. All of the followings are the reasons for exporting, except for______________.
A. offsetting cyclical sales of the world market.
B. meeting a host government’s requirement that the local subsidiary export.
C. remaining competitive in the local market.
D. testing overseas markets and foreign competition inexpensively.

3. One of the major causes given for a firm not exporting is ______________.
A. preoccupation with corporate restructuring
B. preoccupation with the vast American market
C. no knowledge of foreign operations
D. insufficient capital for foreign markets’ expansion
4. The first step in locating foreign markets, whether for export or for foreign manufacturing is the
determination of whether ______________.
A. sufficient personnel are available to solve the foreign operations
B. sufficient capital is available to expand internationally
C. excess production capacity exists in the local market
D. a market exists for the firm’s product
5. An export marketing plan is ________________ a domestic marketing plan.
A. essentially the same as
B. more comprehensive than
C. more detailed than
D. more specific than

6. When a foreign customer insists on a FAS (free alongside ship), the seller ______________.
A. quotes a price that consists of the cost of the goods, insurance and all transportation costs
B. quotes a price that consists of the cost of the goods and all transportation costs
C. pays all of the transportation and delivery expense up to the ship’s side
D. quotes a price covering all costs up to the border

7. The sales agreement should specify ______________.

A. all of the terms and conditions of the purchasing
B. as simply as possible the tasks of the representative and the firm
C. as comprehensively as possible the tasks of the representative and the firm
D. none of the above

8. Which of the following is not the kind of payment terms applied by exporters to foreign
buyers?
A. Cash on delivery
B. Cash in advance
C. Consignment
D. Documentary drafts

9. That an unconditional order that is drawn by the seller on the buyer to pay the draft’s
amount on presentation or at an agreed future date and that must be paid before the buyer
receives shipping documents is called ______________.
A. an unconditional draft
B. a presentation draft
C. an export draft
D. a documentary draft
10. In spite of the fact that exporters prefer to sell on the almost riskless letter of credit terms,
increased foreign competition and the universally tight money situation are forcing them to
______________.
A. accept payment in foreign currency
B. accept export drafts
C. accept documentary drafts
D. offer credit

11. When non-exporters complain about the complicated export procedures, they are
generally referring to ______________.
A. government requirements
B. dealing with overseas regulations
C. documentation
D. all of the above

12. All of the following are the purposes served by the export bill of lading, except for…
A. a contract for carriage between the shipper and carrier
B. a receipt from the carrier for the goods shipped
C. a certificate of ownership
D. a certificate for release of liability
13. Which of the following is known as a typical services export?
A. Tourism and transportation
B. Sales and forecasting
C. Technology and e-commerce
D. All of the above

14. For developing nations, determinants of import demand consist of____________.

A. Government limitations on all exports
B. Government limitations on imports
C. Government limitations on commercial exports only
D. Government limitations on gold shipments
15. Which of the following explains the reason for larger countries’ import of less
manufactured goods on a per capita basis?
A. bigger countries have a diversified economy, so goods produced are usually offshored
B. Larger countries have the land capacity and ability to make their own goods
C. Larger countries have a larger population to help production of their own goods, thus
contributing to a diversified economy
D. Larger nations have a diversified economy and do export of more services than
manufactured goods

16. Which of the following is not part of the four Pacific Rim nations?
A. Hong Kong
B. South Korea
C. China
D. Taiwan

17. What have developing nations focused on with regard to trade?

A. enhance international trade
B. Increase production and exports
C. Demand tariff cuts by rich nations
D. Increase trade assistance
18. Most occupations show a form of an equal amount of exports and imports, except for jobs,
which are shrinking in most nations because of low-wage imports?
A. Net loss, white-collar, developed
B. Net gain, blue-collar, developed
C. Net gain, blue-collar, developing
D. Net loss, white-collar, developing

19. Exports cause ______________.

A. Low wage employment
B. High wage employment
C. No increase or decrease in employment
D. None of the above

Section 4 – Decide whether the following sentences are true or false and correct if they are
false.
1. The export marketing plan is the same as the domestic marketing plan that should be specific
about the markets to be developed, the marketing strategy for serving them, and the tactics required
to carry out the strategy.
2. FAS is the term of sale that the price includes the cost of the goods, insurance, and all
transportation and miscellaneous charges to the named port of final destination.
3. FOB is the term of sale that the seller pays all the transportation and delivery expense up to the
ship’s side and clears the goods for export.
4. The domestic marketing and general administrative costs included in the domestic selling price
are frequently lower than the actual cost of making a CIF export sale.
5. Although exporters would prefer to sell on the almost risky letter-of-credit terms, increased
foreign competition and the universally tight money situation are forcing them to offer credit.
6. The companies export to shorten a product’s life cycle by exporting to currently unserved
markets where the product will be at the introduction stage of the life cycle.
7. Exports may enable firms to test market strategies and make adjustments with reduced risk in a
smaller market.
8. Exporting allows a company to achieve additional sales, which allows the firm to use its excess
production capacity to lower per-unit cost.
9. If a firm decides to set up its own export operation versus indirect exporting, the firm must
obtain overseas distribution.
10. A disadvantage for companies that insist on less risky transactions, such as a letter of credit, is
that they may be losing business to competitors who sell on open accounts.
11. One big impediment to exporting is ignorance of domestic market opportunities.
12. Many of the pitfalls associated with exporting can be avoided if a company hires an
experienced export management company, or export consultant, and if it adopts the appropriate
export strategy.
13. The problems arising from lack of trust between exporters and importers cannot be solved.
14. A bill of lading is issued by a bank at the request of an importer.
15. A draft is the instrument normally used in international commerce to effect payment. It is an
order written by an exporter instructing an importer, or an importer's agent, to pay a specified
amount of money at a specified time.