TBChap 016

Chapter 16
Exporting, Importing, and Countertrade
True / False Questions
1. Proactive firms do not consider exporting until their domestic market is saturated.
True False
2. Exporters often face voluminous paperwork and complex formalities.
True False
3. The U.S. Department of Commerce organizes trade events that help potential exporters make foreign
contacts and explore export opportunities.
True False
4. Nearly every state in the U.S. maintains active trade commissions to promote exports.
True False
5. Hiring an EMC will help a novice exporter identify opportunities and navigate the paperwork involved
in exporting.
True False
6. Lack of knowledge is one of the biggest impediments to a company becoming a successful exporter.
True False
16-1
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Education.
7. A letter of credit states that an exporter has availed credit from the bank to manufacture goods.
True False
8. The bank promises to pay on behalf of the importer when a bank is used as a third party in
international transactions.
True False
9. A draft is simply an order written by an exporter instructing an importer to pay a specified amount of
money at a specified time.
True False
10. A sight draft allows for a delay in payment.
True False
11. When a time draft is drawn on and accepted by a business firm, it is called a trade acceptance.
True False
12. Time drafts cannot be sold to investors at a discount from its face value.
True False
13. The bill of lading does not serve as a document of title as such.
True False
14. The bill of lading can function as collateral against which funds may be advanced to the exporter by its
local bank.
True False
16-2
Education.
15. U.S. organizations can get financing aid from the Export-Import Bank.
True False
16. Ex-Im Bank has a direct lending operation under which it lends dollars to foreign borrowers.
True False
17. Foreign Credit Insurance Association is a part of the U.S Department of Commerce and guides the
activities of the Export-Import Bank.
True False
18. Countertrade denotes a whole range of agreements that involve financial exchanges.
True False
19. Barter is a reciprocal buying agreement that occurs when a firm agrees to purchase a certain amount
of materials back from a country to which a sale is made.
True False
20. A counterpurchase gives exporters more flexibility than an offset.
True False
21. The term switch trading refers to the use of a specialized third-party trading house in a countertrade
arrangement.
True False
22. Countertrade is least attractive to large, diverse multinational enterprises.
True False
16-3
Education.
Multiple Choice Questions
23. Which of the following is true of exporting?
A. A common pitfall of exporting is a poor understanding of competitive conditions in the foreign

market.
B. Securing financing is rarely a problem for exporters.
C. A common pitfall of exporting is trying too hard to customize a product offering rather than
"sticking with what you know."
D. Most exporters have a very good understanding of the competitive conditions in the foreign
market.
24. Japan's great trading houses are called _____.
A. Nikei
B. sogo shosha
C. Yen houses
D. Samurai houses
25. _____ is a nationwide group of international trade attorneys who provide free initial consultations to
small businesses on export-related matters.
A. SCORE
B. SBDC
C. ELAN
D. CIBER
16-4
Education.
26. _____ are export specialists that act as the export marketing department or international department
for their client firms.
A. Small Business Development Centers (SBDCs)

B. Centers for International Business Education and Research (CIBERs)
C. Export Legal Assistance Networks (ELANs)
D. Export Management Companies (EMCs)
27. Firms commonly employ a(n) _____ as third party in international transactions.
A. reputable bank
B. stock exchange
C. export management company
D. customs broker
28. Importers usually issue a _____ to importers in international transactions.
A. sight draft
B. letter of credit
C. time draft
D. bill of lading
29. A ____ is the instrument normally used in international commerce to effect payment.
A. bill of lading
B. letter of credit
C. draft
D. countertrade
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Education.
30. A _____ allows for a delay in payment—normally 30, 60, 90, or 120 days.
A. bill of lading
B. sight draft
C. bill of exchange
D. time draft
31. The _____ is issued to the exporter by the common carrier transporting the merchandise.
A. bill of lading
B. sight draft
C. letter of credit
D. time draft
32. A _____ serves as a receipt, a contract, and a document of title.
A. letter of credit
B. bill of lading
C. draft
D. bill of exchange
33. An importer obtains a _____ from a local bank in a typical international transaction.
A. draft
B. bill of lading
C. letter of credit
D. bill of exchange
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Education.
34. The Export-Import Bank is an independent agency of the _____.
A. European Union
B. World Trade Organization
C. United Nations
D. U.S. government
35. _____ can avail loans from Ex-Im Bank to pay U.S. suppliers.
A. Foreign borrowers
B. Individuals
C. Domestic borrowers
D. U.S.-based corporations
36. The Foreign Credit Insurance Association provides coverage:
A. to insure products during shipment.

B. against commercial risks and political risks faced by exporters.
C. to insure that products are delivered that have already been paid for.
D. against political risks faced by importers.
37. _____ is an alternative means of structuring an international sale when conventional means of payment
are difficult, costly, or nonexistent.
A. Barter
B. Offset
C. Countertrade
D. Buyback
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Education.
38. In the modern era, the concept of countertrade arose as a way for the _____ to purchase imports.
A. United States
B. European Union
C. ASEAN countries
D. Soviet Union and the Communist states of Eastern Europe
39. _____ is viewed as the most restrictive countertrade arrangement.
A. Barter
B. Offset
C. Buyback
D. Switch trading
40. _____ is primarily used for one-time-only deals in transactions with trading partners who are not
creditworthy or trustworthy.
A. Counterpurchase
B. Barter
C. Offset
D. Buyback
41. _____ occurs when a firm agrees to purchase a certain amount of materials back from a country to
which a sale is made.
A. Barter
B. Offset
C. Counterpurchase
D. Buyback
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Education.
42. A(n) _____ occurs when a firm supplies technology, equipment, training, or other services in a country
and agrees to take a certain percentage of the resultant output as partial payment for the contract.
A. counterpurchase
B. offset
C. barter
D. buyback
43. The main attraction of a(n) _____ is that it can give a firm a way to finance an export deal when there
are no other means available.
A. countertrade
B. buyback
C. counterpurchase
D. offset
44. Which of the following statements is true of exporting?
A. It increases the trade deficit that nations have.

B. Exporting leads to diseconomies of scope.
C. It helps a firm achieve economies of scale.
D. Exporting is not beneficial to a country's economy.
45. The great promise of exporting is that:
A. large revenue opportunities are often found in foreign markets.

B. it provides more opportunities to smaller firms than larger firms.
C. international trade is protected against exchange risks.
D. it reduces the need for insuring businesses against political risks.
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Education.
46. Which of the following statements is true of reactive firms?
A. Reactive firms consider a variety of markets for selling their products and services.
B. They consider exporting only after their domestic market is saturated.
C. They systematically scan foreign markets for profitable export opportunities.
D. They create excess productive capacity and actively hunt for opportunities in foreign markets.
47. Which of the following is a common difficulty that traders face when exporting goods or services to
other countries?
A. Small firms tend to be more aggressive than larger firms in global trade.
B. Governments do not provide much assistance to exporters.
C. Growth opportunities are often limited in global markets.
D. Exporters often face voluminous paperwork and complex formalities.
48. Japan's _____ have offices all over the world, and they proactively, continuously seek export
opportunities for their affiliated companies large and small.
A. sogo shosha
B. kaizen
C. MITI
D. Samurai
49. In the _____ program organized by the U.S. Department of Commerce, department representatives
accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and
customers.
A. best prospects
B. SCORE
C. capital assistance
D. matchmaker
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Education.
50. Which of the following statements is true about Small Business Administration (SBA)?
A. It is the most comprehensive source of export opportunities information.

B. SBA is a private organization managed by leaders of large corporate.
C. The SBA employs trade officers throughout the United States.
D. SBA offers help exclusively to small businesses that sell products within U.S.
51. Which of the following is a nationwide group of international trade attorneys who provide free initial
consultations to miniature businesses on export-related matters?
A. ELAN
B. EMC
C. MITI
D. SCORE
52. Through its _____ program, the SBA oversees about 850 volunteers with international trade experience
to provide one-on-one counseling to active and new-to-export businesses.
A. matchmaker
B. SCORE
C. ELAN
D. trade fair
53. Which of the following statements is true of EMCs?
A. An EMC is a transportation company that engages in international business.

B. EMCs are export-import banks that manage foreign exchanges.
C. EMCs are export specialists that act on behalf of their client firms.
D. An EMC is an intermediary that facilitates talks between two nations.
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Education.
54. In theory, the advantage of EMCs is that they are:
A. managed by governments that provide export subsidies.

B. not-for-profit organizations that provide free service.
C. subsidized by the Department of Commerce.
D. experienced specialists who can help the neophyte exporter.
55. Which of the following is a successful exporting strategy used by 3M?
A. Add additional products once exporting becomes successful.

B. Enter many markets at one time to gain maximum exposure.
C. Bring in expert marketing specialists to promote the firm's products.
D. Enter on a large scale to flood the market.
56. In a letter of credit transaction, the importer secures the letter of credit:
A. before product shipment.

B. after product shipment.
C. from the exporter's bank.
D. after receiving the product.
57. Which of the following is a document used to give the title of the products to a bank?
A. Bill of lading
B. Letter of credit
C. Draft
D. Promissory note
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Education.
58. A _____ states that the bank will pay a specified sum of money to a beneficiary, normally the exporter,
on presentation of particular, specified documents.
A. bill of exchange
B. bill of lading
C. letter of credit
D. bank statement
59. Bank charges on letters of credit will depend on the:
A. exporter's creditworthiness.
B. size of the transaction.
C. exporter's means of finance.
D. time taken to approve the sale.
60. A draft used in international transactions:
A. is a document requesting payment.

B. explains the conditions of a contract.
C. is the same as a letter of credit.
D. gives a bank guarantee to an exporter.
61. In an international transaction involving a bank as a third party, the exporter ships the product after:
A. the bank receives materials from the importer.

B. receiving a cleared payment through bank.
C. the importer has paid the bank.
D. the bank promises to pay on the importer's behalf.
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Education.
62. Which of the following is a major advantage of using a letter of credit?
A. It gives the importer time to resell the merchandise before payment.

B. It guarantees the exporter pre-export financing.
C. It helps international traders engage in trade with trust.
D. It guarantees the importer extra funds for other purposes.
63. Which of the following is a disadvantage of using a letter of credit (L/C)?
A. A letter of credit does not give protection to the importer.

B. A letter of credit does not give protection to the exporter.
C. The exporter cannot avail pre-export financing when using a L/C.
D. The importer must pay a bank fee for the letter of credit.
64. The person or business initiating a draft is known as the ____.
A. beneficiary
B. drawee
C. maker
D. trustee
65. A _____ is simply 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.
A. letter of credit
B. bill of lading
C. draft
D. banker's letter
16-14
Education.
66. A _____ is payable on presentation to the drawee.
A. bill of lading
B. time draft
C. sight draft
D. letter of credit
67. A _____ allows for a delay in payment.
A. bill of lading
B. time draft
C. sight draft
D. letter of credit
68. A banker's acceptance:
A. is payable to the drawee immediately on presentation in a bank.

B. is a time draft that has been drawn on and accepted by a bank.
C. is a sight draft that can be used as a negotiable instrument in banks.
D. allows a buyer possession of the merchandise without signing any formal documents.
69. A _____ is issued to the exporter by the common carrier transporting the merchandise.
A. bill of lading
B. sight draft
C. time draft
D. letter of credit
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Education.
70. As a receipt, the bill of lading indicates that the carrier:
A. provides a written promise of payment before releasing the merchandise.

B. has obtained the merchandise described on the face of the document.
C. receives payment from a third-party such as a bank or trading house.
D. is obligated to provide a transportation service in return for a certain charge.
71. In a typical international trade transaction, the:
A. exporter should obtain a letter of credit to initiate transactions.

B. importer and exporter maintain an account with the same bank.
C. importer's bank sends a letter of credit to the exporter's bank.
D. importer's bank sends the draft and bill of lading to the exporter's bank.
72. The Export-Import Bank:
A. is an international financial institution that provides loans for capital programs.

B. provides finance to facilitate trade between United States and other countries.
C. is an independent agency of the United Nations.
D. focuses on policies that have an impact on the exchange rate and the balance of payments.
73. Which of the following statements is true of export credit insurance?
A. Exporter will require more insurance if a letter of credit is used in transactions.

B. The FCIA provides coverage against commercial risks and political risks.
C. Private associations cannot offer export insurance in the United States.
D. Organizations do not receive coverage against political risks of global trade.
16-16
Education.
74. _____ is an alternative means of structuring an international sale when conventional means of payment
are difficult, costly, or nonexistent.
A. Floating exchange system

B. Countertrade
C. Letter of credit trade
D. Fixed exchange system
75. _____ denotes a whole range of barter-like agreements and its principle is to trade goods and services
for other goods and services when they cannot be traded for money.
A. Countertrade
B. Cross-selling
C. Matchmaking
D. Letter of credit
76. Which of the following statements is true of countertrade?
A. Countertrade reduces the profitability of competing firms and is considered an unethical practice.
B. Countertrade is a conventional means to pay exporters.
C. Smaller organizations commonly use countertrade in international transactions.
D. Countertrade occurs when goods and services are traded for other goods and services.
77. _____ is the direct exchange of goods and/or services between two parties without a cash transaction
and is the simplest arrangement.
A. Counterpurchase
B. Barter
C. Offset
D. Switch trading
16-17
Education.
78. _____ is viewed as the most restrictive countertrade arrangement and is primarily used for one-time-
only deals in transactions with trading partners who are not creditworthy or trustworthy.
A. Switch trading
B. Offset
C. Barter
D. Buyback
79. _____ is a reciprocal buying agreement and occurs when a firm agrees to buy a certain amount of
materials back from a country to which a sale is made.
A. Counterpurchase
B. Barter
C. Offset
D. Switch trading
80. In a(n) ____, one party agrees to purchase goods and services with a specified percentage of the
proceeds from the original sale and this party can fulfill the obligation with any firm in the country to
which the sale is being made.
A. switch trade
B. offset
C. barter
D. buyback
81. Which of the following terms refers to the use of a specialized third-party trading house in a
countertrade arrangement?
A. Counterpurchase
B. Barter
C. Offset
D. Switch trading
16-18
Education.
82. A(n) _____ occurs 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.
A. buyback
B. barter
C. offset
D. switch trade
83. Which of the following is an advantage of countertrade?
A. Countertrade uses instruments such as time draft and sight draft.

B. It is an effective way of doing business with developing nations.
C. It provides exporters and opportunity to obtain direct revenue.
D. Countertrade prevents exchange of unusable or poor-quality goods.
84. Which of the following is a major drawback of engaging in countertrade?
A. Countertrade is not useful when trading with developing nations.

B. Financing is difficult when engaging in a countertrade.
C. It is not attractive to small organizations.
D. Countertrade may involve the exchange of unusable goods.
85. Countertrade is:
A. most attractive to small, primarily domestic enterprises.

B. least attractive to small, primarily domestic enterprises.
C. most attractive to large, diverse multinational enterprises.
D. least attractive to large, diverse multinational enterprises.
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Education.
86. A(n) _____ can help new exporters identify opportunities and avoid common pitfalls.
A. MITI
B. Export-Import Bank
C. in-house trading department
D. export management company
87. As a document of title, a _____ can be used to obtain payment or a written promise of payment before
the merchandise is released to the importer.
A. bill of lading
B. letter of credit
C. bill of exchange
D. draft
88. _____ can be used when a government restricts the convertibility of its currency to preserve its foreign
exchange reserves so they can be used to service international debt commitments and purchase
crucial imports.
A. A buyback
B. Countertrade
C. An offset
D. Switch trading
89. _____ occurs when a third-party trading house buys the firm's counterpurchase credits and sells them
to another firm that can better use them.
A. Countertrading
B. Offsetting
C. Switch trading
D. Bartering
16-20
Education.
90. The main attraction of _____ is that it can give a firm a way to finance an export deal when other means
are not available.
A. switch trading
B. counterpurchase
C. offsets
D. countertrade
91. Which of the following is a disadvantage of countertrade?
A. Countertrade contracts may involve the exchange of unusable or poor-quality.

B. Countertrade requires the firm to use an out-of-house trading company to which much of the profit
will go.
C. Countertrade contracts often involve high-quality, expensive goods that the firm cannot move
enough of to be profitable.
D. Countertrade requires employing lawyers who specialize in these unique types of contracts.
92. Which of the following is a reason that firms take a reactive approach to exporting rather than a
proactive approach?
A. Most firms are familiar with the foreign market opportunities and therefore do not need to utilize
proactive approaches.
B. They are intimidated by the complexities and mechanics of exporting to countries where business
practices, language, culture, legal systems, and currency are very different from the home market.
C. Most firms already know where the market potential and opportunities are and they do not need to
be proactive.
D. They are not intimidated by the complexities and mechanics of exporting to foreign countries and
can, therefore, use the same reactive approaches that work in their home market.
Essay Questions
16-21
Education.
93. Why do so many firms take a reactive approach to exporting rather than a proactive approach?
94. What are the typical problems that novice exporters face when trying to export?
95. Compare and contrast the export assistance provided to German and Japanese companies with that
given to American companies. Discuss the implications of the differences between the countries.
16-22
Education.
96. Describe the information sources that are available to American companies to learn about export
opportunities.
97. Explain 3M's main export principles that have made the company's exporting business so successful.
98. Explain the problem of trust that persists in international business.
16-23
Education.
99. Describe the process involved in financing imports and exports using a letter of credit. Why has this
system developed? What is the advantage of using this system?
100. Compare and contrast time drafts and sight drafts.
101. Describe a typical international trade transaction.
16-24
Education.
102. Discuss the importance of the Export-Import Bank, its goals, and its operations.
103. What is the Foreign Credit Insurance Association?
104. Explain why barter is viewed as the most restrictive counter-trade arrangement.
16-25
Education.
105. Compare and contrast counterpurchase agreements and offset arrangements. Why might an exporter
prefer an offset to a counterpurchase deal?
106. Discuss the idea of compensation or buybacks as they relate to countertrade. Provide an example of a
buyback arrangement.
107. What type of firms is most likely to engage in countertrade? Why?
16-26
Education.
Chapter 16 Exporting, Importing, and Countertrade Answer Key
True / False Questions
1. Proactive firms do not consider exporting until their domestic market is saturated.
FALSE
Proactive firms continually seek opportunities for profitable exporting and systematically scan
foreign markets to see where the opportunities lie for leveraging their technology, products, and
marketing skills in foreign countries. This is unlike the reactive firms who do not even consider
exporting until their domestic market is saturated.
AACSB: Knowledge Application

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 16-01 Explain the promises and risks associated with exporting.
Topic: Overview of Importing and Exporting
2. Exporters often face voluminous paperwork and complex formalities.
TRUE
Exporters often face voluminous paperwork, complex formalities, and many potential delays and
errors.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
16-27
Education.
3. The U.S. Department of Commerce organizes trade events that help potential exporters make
foreign contacts and explore export opportunities.
TRUE
The U.S. Department of Commerce organizes trade events that help potential exporters make
foreign contacts and explore export opportunities. The department organizes exhibitions at
international trade fairs, which are held regularly in major cities worldwide.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 16-03 Identify information sources and government programs that exist to help exporters.
Topic: Information Sources and Government Assistance to Exporting
4. Nearly every state in the U.S. maintains active trade commissions to promote exports.
TRUE
In addition to the Department of Commerce and SBA, nearly every state and many large cities
maintain active trade commissions, whose purpose is to promote exports.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-28
Education.
5. Hiring an EMC will help a novice exporter identify opportunities and navigate the paperwork
involved in exporting.
TRUE
For the novice exporter, it helps to hire an EMC or at least an experienced export consultant to help
identify opportunities and navigate the paperwork and regulations so often involved in exporting.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 16-02 Identify the steps managers can take to improve their firm's export performance.
6. Lack of knowledge is one of the biggest impediments to a company becoming a successful

exporter.
TRUE
One big impediment to exporting is the simple lack of knowledge of the opportunities available.
Often, there are many markets for a firm's product, but because they are in countries separated
from the firm's home base by culture, language, distance, and time, the firm does not know of
them.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-29
Education.
7. A letter of credit states that an exporter has availed credit from the bank to manufacture goods.
FALSE
A letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally
the exporter, on presentation of particular, specified documents.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 16-04 Recognize the basic steps involved in export financing.
Topic: Export and Import Financing
8. The bank promises to pay on behalf of the importer when a bank is used as a third party in
international transactions.
TRUE
When trading with bank as a third-party, the importer obtains bank's promise to pay on importer's
behalf at first. Then, the bank promises exporter to pay on behalf of importer. The exporter ships
the items after this.

Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
16-30
Education.
9. A draft is simply an order written by an exporter instructing an importer to pay a specified amount
of money at a specified time.
TRUE
A draft is simply 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.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
10. A sight draft allows for a delay in payment.
FALSE
Unlike a time draft, a sight draft is payable on presentation to the drawee.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
11. When a time draft is drawn on and accepted by a business firm, it is called a trade acceptance.
TRUE
When a time draft is drawn on and accepted by a business firm, it is called a trade acceptance.

Blooms: Remember
16-31
Education.
Difficulty: 1 Easy
Gradable: automatic
12. Time drafts cannot be sold to investors at a discount from its face value.
FALSE
Time drafts are negotiable instruments; that is, once the draft is stamped with an acceptance, the
maker can sell the draft to an investor at a discount from its face value.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
13. The bill of lading does not serve as a document of title as such.
FALSE
A bill of lading serves three purposes: it is a receipt, a contract, and a document of title. As a
document of title, it can be used to obtain payment or a written promise of payment before the
merchandise is released to the importer.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-32
Education.
14. The bill of lading can function as collateral against which funds may be advanced to the exporter by
its local bank.
TRUE
The bill of lading can function as collateral against which funds may be advanced to the exporter by
its local bank before or during shipment and before final payment by the importer.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
15. U.S. organizations can get financing aid from the Export-Import Bank.
TRUE
U.S. organizations can get financing aid from the Export-Import Bank and export credit insurance
from the Foreign Credit Insurance Association.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16. Ex-Im Bank has a direct lending operation under which it lends dollars to foreign borrowers.
TRUE
Ex-Im Bank has a direct lending operation under which it lends dollars to foreign borrowers for use
in purchasing U.S. exports.
16-33
Education.
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
17. Foreign Credit Insurance Association is a part of the U.S Department of Commerce and guides the
activities of the Export-Import Bank.
FALSE
In the United States, export credit insurance is provided by the Foreign Credit Insurance Association
(FCIA), an association of private commercial institutions operating under the guidance of the
Export-Import Bank.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
18. Countertrade denotes a whole range of agreements that involve financial exchanges.
TRUE
Countertrade denotes a whole range of barter-like agreements; its principle is to trade goods and
services for other goods and services when they cannot be traded for money.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 16-05 Describe how countertrade can be used to facilitate exporting.
Topic: Countertrade
16-34
Education.
19. Barter is a reciprocal buying agreement that occurs when a firm agrees to purchase a certain
amount of materials back from a country to which a sale is made.
FALSE
Barter is the direct exchange of goods and/or services between two parties without a cash
transaction.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
20. A counterpurchase gives exporters more flexibility than an offset.
FALSE
From an exporter's perspective, an offset is more attractive than a straight counterpurchase

agreement because it gives the exporter greater flexibility to choose the goods that it wishes to
purchase.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
16-35
Education.
21. The term switch trading refers to the use of a specialized third-party trading house in a
countertrade arrangement.
TRUE
The term switch trading refers to the use of a specialized third-party trading house in a
countertrade arrangement.

Blooms: Understand
Gradable: automatic
Topic: Countertrade
22. Countertrade is least attractive to large, diverse multinational enterprises.
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.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
Multiple Choice Questions
16-36
Education.
23. Which of the following is true of exporting?
A. A common pitfall of exporting is a poor understanding of competitive conditions in the foreign

market.
B. Securing financing is rarely a problem for exporters.
C. A common pitfall of exporting is trying too hard to customize a product offering rather than
"sticking with what you know."
D. Most exporters have a very good understanding of the competitive conditions in the foreign
market.
Common pitfalls of exporting include poor market analysis, a poor understanding of competitive
conditions in the foreign market, a failure to customize the product offering to the needs of foreign
customers, lack of an effective distribution program, a poorly executed promotional campaign, and
problems securing financing.

Blooms: Apply
Gradable: automatic
24. Japan's great trading houses are called _____.
A. Nikei
B. sogo shosha
C. Yen houses
D. Samurai houses
Japan's great trading houses are called sogo shosha.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-37
Education.
25. _____ is a nationwide group of international trade attorneys who provide free initial consultations to
small businesses on export-related matters.
A. SCORE
B. SBDC
C. ELAN
D. CIBER
Through its Service Corps of Retired Executives (SCORE) program, the SBA oversees some 850
volunteers with international trade experience to provide one-on-one counseling to active and
new-to-export businesses. The SBA also coordinates the Export Legal Assistance Network (ELAN), a
nationwide group of international trade attorneys who provide free initial consultations to small
businesses on export-related matters.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-38
Education.
26. _____ are export specialists that act as the export marketing department or international department
for their client firms.
A. Small Business Development Centers (SBDCs)

B. Centers for International Business Education and Research (CIBERs)
C. Export Legal Assistance Networks (ELANs)
D. Export Management Companies (EMCs)
EMCs are export specialists that act as the export marketing department or international
department for their client firms.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
27. Firms commonly employ a(n) _____ as third party in international transactions.
A. reputable bank
B. stock exchange
C. export management company
D. customs broker
The parties involved in international trade often find it difficult to trust each other. The problem is
solved by using a third party trusted by both—normally a reputable bank—to act as an
intermediary.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-39
Education.
28. Importers usually issue a _____ to importers in international transactions.
A. sight draft
B. letter of credit
C. time draft
D. bill of lading
Usually, importers avail a letter of credit from their bank to engage in international transactions.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
29. A ____ is the instrument normally used in international commerce to effect payment.
A. bill of lading
B. letter of credit
C. draft
D. countertrade
A draft, sometimes referred to as a bill of exchange, is the instrument normally used in international
commerce to effect payment.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-40
Education.
30. A _____ allows for a delay in payment—normally 30, 60, 90, or 120 days.
A. bill of lading
B. sight draft
C. bill of exchange
D. time draft
Unlike a sight draft, a time draft allows for a delay in payment—normally 30, 60, 90, or 120 days.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
31. The _____ is issued to the exporter by the common carrier transporting the merchandise.
A. bill of lading
B. sight draft
C. letter of credit
D. time draft
The bill of lading is issued to the exporter by the common carrier transporting the merchandise.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-41
Education.
32. A _____ serves as a receipt, a contract, and a document of title.
A. letter of credit
B. bill of lading
C. draft
D. bill of exchange
A bill of lading serves three purposes: it is a receipt, a contract, and a document of title.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
33. An importer obtains a _____ from a local bank in a typical international transaction.
A. draft
B. bill of lading
C. letter of credit
D. bill of exchange
The importer obtains a letter of credit from a local bank in a typical international transaction.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
16-42
Education.
34. The Export-Import Bank is an independent agency of the _____.
A. European Union
B. World Trade Organization
C. United Nations
D. U.S. government
The Export-Import Bank, often referred to as Ex-Im Bank, is an independent agency of the U.S.
government.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
35. _____ can avail loans from Ex-Im Bank to pay U.S. suppliers.
A. Foreign borrowers
B. Individuals
C. Domestic borrowers
D. U.S.-based corporations
Ex-Im Bank has a direct lending operation under which it lends dollars to foreign borrowers for use
in purchasing U.S. exports. The foreign borrowers use the loans to pay U.S. suppliers and repay the
loan to Ex-Im Bank with interest.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
16-43
Education.
36. The Foreign Credit Insurance Association provides coverage:
A. to insure products during shipment.

B. against commercial risks and political risks faced by exporters.
C. to insure that products are delivered that have already been paid for.
D. against political risks faced by importers.
The Foreign Credit Insurance Association provides coverage against commercial risks and political
risks.

Blooms: Apply
Gradable: automatic
37. _____ is an alternative means of structuring an international sale when conventional means of
payment are difficult, costly, or nonexistent.
A. Barter
B. Offset
C. Countertrade
D. Buyback
Countertrade is an alternative means of structuring an international sale when conventional means

of payment are difficult, costly, or nonexistent.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
16-44
Education.
38. In the modern era, the concept of countertrade arose as a way for the _____ to purchase imports.
A. United States
B. European Union
C. ASEAN countries
D. Soviet Union and the Communist states of Eastern Europe
In the modern era, countertrade arose in the 1960s as a way for the Soviet Union and the
Communist states of Eastern Europe, whose currencies were generally nonconvertible, to purchase
imports.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
39. _____ is viewed as the most restrictive countertrade arrangement.
A. Barter
B. Offset
C. Buyback
D. Switch trading
Barter has two disadvantages. First, if goods are not exchanged simultaneously, one party ends up
financing the other for a period. Second, firms engaged in barter run the risk of having to accept
goods they do not want, cannot use, or have difficulty reselling at a reasonable price. For these
reasons, barter is viewed as the most restrictive countertrade arrangement.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
16-45
Education.
Topic: Countertrade
40. _____ is primarily used for one-time-only deals in transactions with trading partners who are not
A. Counterpurchase
B. Barter
C. Offset
D. Buyback
Barter is viewed as the most restrictive countertrade arrangement. It is primarily used for one-time-
only deals in transactions with trading partners who are not creditworthy or trustworthy.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
41. _____ occurs when a firm agrees to purchase a certain amount of materials back from a country to
which a sale is made.
A. Barter
B. Offset
C. Counterpurchase
D. Buyback
Counterpurchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a

certain amount of materials back from a country to which a sale is made.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-46
Education.
Topic: Countertrade
42. A(n) _____ occurs when a firm supplies technology, equipment, training, or other services in a
country and agrees to take a certain percentage of the resultant output as partial payment for the
contract.
A. counterpurchase
B. offset
C. barter
D. buyback
A buyback occurs when a firm builds a plant in a country—or supplies technology, equipment,
training, or other services to the country—and agrees to take a certain percentage of the plant's
output as partial payment for the contract.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
43. The main attraction of a(n) _____ is that it can give a firm a way to finance an export deal when
there are no other means available.
A. countertrade
B. buyback
C. counterpurchase
D. offset
The main attraction of a countertrade is that it can give a firm a way to finance an export deal when
other means are not available.

16-47
Education.
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
44. Which of the following statements is true of exporting?
A. It increases the trade deficit that nations have.

B. Exporting leads to diseconomies of scope.
C. It helps a firm achieve economies of scale.
D. Exporting is not beneficial to a country's economy.
The international market is normally so much larger than the firm's domestic market that exporting
is nearly always a way to increase the revenue and profit base of a company. By expanding the size
of the market, exporting can enable a firm to achieve economies of scale, thereby lowering its unit
costs.

Blooms: Apply
Gradable: automatic
45. The great promise of exporting is that:
A. large revenue opportunities are often found in foreign markets.

B. it provides more opportunities to smaller firms than larger firms.
C. international trade is protected against exchange risks.
D. it reduces the need for insuring businesses against political risks.
The great promise of exporting is that large revenue and profit opportunities are to be found in
foreign markets for most firms in most industries.
16-48
Education.
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
46. Which of the following statements is true of reactive firms?
A. Reactive firms consider a variety of markets for selling their products and services.
B. They consider exporting only after their domestic market is saturated.
C. They systematically scan foreign markets for profitable export opportunities.
D. They create excess productive capacity and actively hunt for opportunities in foreign markets.
Many medium-sized and small firms are very reactive. Typically, such reactive firms do not even
consider exporting until their domestic market is saturated and the emergence of excess productive
capacity at home forces them to look for growth opportunities in foreign markets.

Blooms: Apply
Gradable: automatic
16-49
Education.
47. Which of the following is a common difficulty that traders face when exporting goods or services to
other countries?
A. Small firms tend to be more aggressive than larger firms in global trade.
B. Governments do not provide much assistance to exporters.
C. Growth opportunities are often limited in global markets.
D. Exporters often face voluminous paperwork and complex formalities.
Exporters often face voluminous paperwork, complex formalities, and many potential delays and
errors. According to a UN report on trade and development, a typical international trade
transaction may involve 30 parties, 60 original documents, and 360 document copies, all of which
have to be checked, transmitted, reentered into various information systems, processed, and filed.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
48. Japan's _____ have offices all over the world, and they proactively, continuously seek export
opportunities for their affiliated companies large and small.
A. sogo shosha
B. kaizen
C. MITI
D. Samurai
Japan's great trading houses are known as sogo shosha. The sogo shosha have offices all over the
world, and they proactively, continuously seek export opportunities for their affiliated companies
large and small.

Blooms: Remember
16-50
Education.
Difficulty: 1 Easy
Gradable: automatic
49. In the _____ program organized by the U.S. Department of Commerce, department representatives
accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and
customers.
A. best prospects
B. SCORE
C. capital assistance
D. matchmaker
The U.S. Department of Commerce offers a matchmaker program, in which department

representatives accompany groups of U.S. businesspeople abroad to meet with qualified agents,
distributors, and customers.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
50. Which of the following statements is true about Small Business Administration (SBA)?
A. It is the most comprehensive source of export opportunities information.

B. SBA is a private organization managed by leaders of large corporate.
C. The SBA employs trade officers throughout the United States.
D. SBA offers help exclusively to small businesses that sell products within U.S.
The SBA employs 76 district international trade officers and 10 regional international trade officers
throughout the United States as well as a 10-person international trade staff in Washington, D.C.
16-51
Education.
Blooms: Apply
Gradable: automatic
51. Which of the following is a nationwide group of international trade attorneys who provide free
initial consultations to miniature businesses on export-related matters?
A. ELAN
B. EMC
C. MITI
D. SCORE
The SBA coordinates the Export Legal Assistance Network (ELAN), a nationwide group of
international trade attorneys who provide free initial consultations to small businesses on export-
related matters.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-52
Education.
52. Through its _____ program, the SBA oversees about 850 volunteers with international trade
experience to provide one-on-one counseling to active and new-to-export businesses.
A. matchmaker
B. SCORE
C. ELAN
D. trade fair
Through its Service Corps of Retired Executives (SCORE) program, the SBA oversees some 850
volunteers with international trade experience to provide one-on-one counseling to active and
new-to-export businesses.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
53. Which of the following statements is true of EMCs?
A. An EMC is a transportation company that engages in international business.

B. EMCs are export-import banks that manage foreign exchanges.
C. EMCs are export specialists that act on behalf of their client firms.
D. An EMC is an intermediary that facilitates talks between two nations.
One way for first-time exporters to identify the opportunities associated with exporting and to
avoid many of the associated pitfalls is to hire an export management company (EMC). EMCs are
export specialists that act as the export marketing department or international department for their
client firms.

Blooms: Apply
Gradable: automatic
16-53
Education.
54. In theory, the advantage of EMCs is that they are:
A. managed by governments that provide export subsidies.

B. not-for-profit organizations that provide free service.
C. subsidized by the Department of Commerce.
D. experienced specialists who can help the neophyte exporter.
In theory, the advantage of EMCs is that they are experienced specialists that can help the
neophyte exporter identify opportunities and avoid common pitfalls.

Blooms: Apply
Gradable: automatic
55. Which of the following is a successful exporting strategy used by 3M?
A. Add additional products once exporting becomes successful.

B. Enter many markets at one time to gain maximum exposure.
C. Bring in expert marketing specialists to promote the firm's products.
D. Enter on a large scale to flood the market.
3M has built its export success on three main principles—enter on a small scale to reduce risks, add
additional product lines once the exporting operations start to become successful, and hire locals
to promote the firm's products.

Blooms: Apply
Gradable: automatic
16-54
Education.
56. In a letter of credit transaction, the importer secures the letter of credit:
A. before product shipment.

B. after product shipment.
C. from the exporter's bank.
D. after receiving the product.
An importer has to give a letter of credit to the exporter before shipping the items. Letter of credit
is a bank's promise to pay on the importer's behalf.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
57. Which of the following is a document used to give the title of the products to a bank?
A. Bill of lading
B. Letter of credit
C. Draft
D. Promissory note
Having seen the letter of credit, an exporter can ship the products to another country. Title to the
products is given to the bank in the form of a document called a bill of lading.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-55
Education.
58. A _____ states that the bank will pay a specified sum of money to a beneficiary, normally the
exporter, on presentation of particular, specified documents.
A. bill of exchange
B. bill of lading
C. letter of credit
D. bank statement
A letter of credit, abbreviated as L/C, stands at the center of international commercial transactions.
Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a
specified sum of money to a beneficiary, normally the exporter, on presentation of particular,
specified documents.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
59. Bank charges on letters of credit will depend on the:
A. exporter's creditworthiness.
B. size of the transaction.
C. exporter's means of finance.
D. time taken to approve the sale.
Banks will charge importers a fee for issuing a letter of credit. Typically this amounts to between 0.5
percent and 2 percent of the value of the letter of credit, depending on the importer's
creditworthiness and the size of the transaction.

Blooms: Understand
Difficulty: 1 Easy
16-56
Education.
Gradable: automatic
60. A draft used in international transactions:
A. is a document requesting payment.

B. explains the conditions of a contract.
C. is the same as a letter of credit.
D. gives a bank guarantee to an exporter.
A draft is the instrument normally used in international commerce to effect payment.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
61. In an international transaction involving a bank as a third party, the exporter ships the product
after:
A. the bank receives materials from the importer.

B. receiving a cleared payment through bank.
C. the importer has paid the bank.
D. the bank promises to pay on the importer's behalf.
When trading with bank as a third-party, the importer obtains bank's promise to pay on importer's
behalf at first. Then, the bank promises exporter to pay on behalf of importer. The exporter ships
the items after this.

Blooms: Apply
16-57
Education.
Gradable: automatic
62. Which of the following is a major advantage of using a letter of credit?
A. It gives the importer time to resell the merchandise before payment.

B. It guarantees the exporter pre-export financing.
C. It helps international traders engage in trade with trust.
D. It guarantees the importer extra funds for other purposes.
The great advantage of using a letter of credit system is that both the French importer and the U.S.
exporter are likely to trust reputable banks, even if they do not trust each other. Once the U.S.
exporter has seen a letter of credit, he knows that he is guaranteed payment and will ship the
merchandise.

Blooms: Apply
Gradable: automatic
63. Which of the following is a disadvantage of using a letter of credit (L/C)?
A. A letter of credit does not give protection to the importer.

B. A letter of credit does not give protection to the exporter.
C. The exporter cannot avail pre-export financing when using a L/C.
D. The importer must pay a bank fee for the letter of credit.
The main drawback for the importer is that she must pay the issuing bank for the letter of credit. In
addition, since the letter of credit is a financial liability against her, it may reduce her ability to
borrow funds for other purposes.

16-58
Education.
Blooms: Apply
Gradable: automatic
64. The person or business initiating a draft is known as the ____.
A. beneficiary
B. drawee
C. maker
D. trustee
The person or business initiating the draft is known as the maker (in this case, the U.S. exporter).
The party to whom the draft is presented is known as the drawee (in this case, the Bank of Paris).

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
65. A _____ is simply an order written by an exporter instructing an importer, or an importer's agent, to
A. letter of credit
B. bill of lading
C. draft
D. banker's letter
A draft is simply an order written by an exporter instructing an importer, or an importer's agent, to


16-59
Education.
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
66. A _____ is payable on presentation to the drawee.
A. bill of lading
B. time draft
C. sight draft
D. letter of credit
Drafts fall into two categories, sight drafts and time drafts. A sight draft is payable on presentation
to the drawee. A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
67. A _____ allows for a delay in payment.
A. bill of lading
B. time draft
C. sight draft
D. letter of credit
to the drawee. A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days.

Blooms: Remember
Difficulty: 1 Easy
16-60
Education.
Gradable: automatic
68. A banker's acceptance:
A. is payable to the drawee immediately on presentation in a bank.

B. is a time draft that has been drawn on and accepted by a bank.
C. is a sight draft that can be used as a negotiable instrument in banks.
D. allows a buyer possession of the merchandise without signing any formal documents.
A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days. When a time draft is
drawn on and accepted by a bank, it is called a banker's acceptance.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
69. A _____ is issued to the exporter by the common carrier transporting the merchandise.
A. bill of lading
B. sight draft
C. time draft
D. letter of credit
The bill of lading is issued to the exporter by the common carrier transporting the merchandise. It
serves three purposes: it is a receipt, a contract, and a document of title.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-61
Education.
70. As a receipt, the bill of lading indicates that the carrier:
A. provides a written promise of payment before releasing the merchandise.

B. has obtained the merchandise described on the face of the document.
C. receives payment from a third-party such as a bank or trading house.
D. is obligated to provide a transportation service in return for a certain charge.
A bill of lading serves three purposes: it is a receipt, a contract, and a document of title. As a
receipt, it indicates that the carrier has received the merchandise described on the face of the
document.

Blooms: Understand
Gradable: automatic
71. In a typical international trade transaction, the:
A. exporter should obtain a letter of credit to initiate transactions.

B. importer and exporter maintain an account with the same bank.
C. importer's bank sends a letter of credit to the exporter's bank.
D. importer's bank sends the draft and bill of lading to the exporter's bank.
In a typical international trade transaction, the importer's bank sends a letter of credit to the
exporter's bank. The exporter's bank advises the exporter of the opening of a letter of credit in his
favor.

Blooms: Apply
Gradable: automatic
16-62
Education.
72. The Export-Import Bank:
A. is an international financial institution that provides loans for capital programs.

B. provides finance to facilitate trade between United States and other countries.
C. is an independent agency of the United Nations.
D. focuses on policies that have an impact on the exchange rate and the balance of payments.
government. Its mission is to provide financing aid that will facilitate exports, imports, and the
exchange of commodities between the United States and other countries.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
73. Which of the following statements is true of export credit insurance?
A. Exporter will require more insurance if a letter of credit is used in transactions.

B. The FCIA provides coverage against commercial risks and political risks.
C. Private associations cannot offer export insurance in the United States.
D. Organizations do not receive coverage against political risks of global trade.
In the United States, export credit insurance is provided by the Foreign Credit Insurance Association
(FCIA), an association of private commercial institutions operating under the guidance of the
Export-Import Bank. The FCIA provides coverage against commercial risks and political risks.
AACSB: Analytical Thinking

Blooms: Analyze
16-63
Education.
Gradable: automatic
74. _____ is an alternative means of structuring an international sale when conventional means of
payment are difficult, costly, or nonexistent.
A. Floating exchange system

B. Countertrade
C. Letter of credit trade
D. Fixed exchange system
services for other goods and services when they cannot be traded for money. Countertrade is an
alternative means of structuring an international sale when conventional means of payment are
difficult, costly, or nonexistent.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
16-64
Education.
75. _____ denotes a whole range of barter-like agreements and its principle is to trade goods and
services for other goods and services when they cannot be traded for money.
A. Countertrade
B. Cross-selling
C. Matchmaking
D. Letter of credit

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
76. Which of the following statements is true of countertrade?
A. Countertrade reduces the profitability of competing firms and is considered an unethical

practice.
B. Countertrade is a conventional means to pay exporters.
C. Smaller organizations commonly use countertrade in international transactions.
D. Countertrade occurs when goods and services are traded for other goods and services.

16-65
Education.
Blooms: Apply
Gradable: automatic
Topic: Countertrade
77. _____ is the direct exchange of goods and/or services between two parties without a cash
transaction and is the simplest arrangement.
A. Counterpurchase
B. Barter
C. Offset
D. Switch trading
Barter is the direct exchange of goods and/or services between two parties without a cash
transaction. Although barter is the simplest arrangement, it is not common.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
16-66
Education.
78. _____ is viewed as the most restrictive countertrade arrangement and is primarily used for one-
time-only deals in transactions with trading partners who are not creditworthy or trustworthy.
A. Switch trading
B. Offset
C. Barter
D. Buyback
Barter has two disadvantages. First, if goods are not exchanged simultaneously, one party ends up
financing the other for a period. Second, firms engaged in barter run the risk of having to accept
goods they do not want, cannot use, or have difficulty reselling at a reasonable price. For these
reasons, barter is viewed as the most restrictive countertrade arrangement. It is primarily used for
one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
79. _____ is a reciprocal buying agreement and occurs when a firm agrees to buy a certain amount of
materials back from a country to which a sale is made.
A. Counterpurchase
B. Barter
C. Offset
D. Switch trading
Counterpurchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a

certain amount of materials back from a country to which a sale is made.

Blooms: Remember
16-67
Education.
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
80. In a(n) ____, one party agrees to purchase goods and services with a specified percentage of the
proceeds from the original sale and this party can fulfill the obligation with any firm in the country
to which the sale is being made.
A. switch trade
B. offset
C. barter
D. buyback
An offset is similar to a counterpurchase insofar as one party agrees to purchase goods and
services with a specified percentage of the proceeds from the original sale. The difference is that
this party can fulfill the obligation with any firm in the country to which the sale is being made.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
16-68
Education.
81. Which of the following terms refers to the use of a specialized third-party trading house in a
countertrade arrangement?
A. Counterpurchase
B. Barter
C. Offset
D. Switch trading
The term switch trading refers to the use of a specialized third-party trading house in a
countertrade arrangement. Switch trading occurs when a third-party trading house buys the firm's
counterpurchase credits and sells them to another firm that can better use them.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
82. A(n) _____ occurs 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.
A. buyback
B. barter
C. offset
D. switch trade
A buyback occurs when a firm builds a plant in a country—or supplies technology, equipment,
training, or other services to the country—and agrees to take a certain percentage of the plant's
output as partial payment for the contract.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
16-69
Education.
Topic: Countertrade
83. Which of the following is an advantage of countertrade?
A. Countertrade uses instruments such as time draft and sight draft.

B. It is an effective way of doing business with developing nations.
C. It provides exporters and opportunity to obtain direct revenue.
D. Countertrade prevents exchange of unusable or poor-quality goods.
Countertrade's main attraction is that it can give a firm a way to finance an export deal when other
means are not available. Given the problems that many developing nations have in raising the
foreign exchange necessary to pay for imports, countertrade may be the only option available
when doing business in these countries.

Blooms: Apply
Gradable: automatic
Topic: Countertrade
84. Which of the following is a major drawback of engaging in countertrade?
A. Countertrade is not useful when trading with developing nations.

B. Financing is difficult when engaging in a countertrade.
C. It is not attractive to small organizations.
D. Countertrade may involve the exchange of unusable goods.
Other things being equal, firms would normally prefer to be paid in hard currency. Countertrade
contracts may involve the exchange of unusable or poor-quality goods that the firm cannot dispose
of profitably.

Blooms: Apply
16-70
Education.
Gradable: automatic
Topic: Countertrade
85. Countertrade is:
A. most attractive to small, primarily domestic enterprises.

B. least attractive to small, primarily domestic enterprises.
C. most attractive to large, diverse multinational enterprises.
D. least attractive to large, diverse multinational enterprises.
worldwide network of contacts to dispose of goods acquired in countertrading.

Blooms: Apply
Gradable: automatic
Topic: Countertrade
86. A(n) _____ can help new exporters identify opportunities and avoid common pitfalls.
A. MITI
B. Export-Import Bank
C. in-house trading department
D. export management company
An export management company is an export specialist who acts as the expert marketing
department or international department for its client firms. An export management company can
help new exporters identify opportunities and avoid common pitfalls. However, the quality of
export management companies varies. Furthermore, relying on an export management company
prevents the firm from developing its own exporting capabilities.
16-71
Education.
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
87. As a document of title, a _____ can be used to obtain payment or a written promise of payment
before the merchandise is released to the importer.
A. bill of lading
B. letter of credit
C. bill of exchange
D. draft
The bill of lading is issued to the exporter by the common carrier transporting the merchandise. It
serves three purposes: it is a receipt, a contract, and a document of title. As a receipt, the bill of
lading indicates that the carrier has received the merchandise described on the face of the
document. As a contract, it specifies that the carrier is obligated to provide a transportation service
in return for a certain charge. As a document of title, it can be used to obtain payment or a written
promise of payment before the merchandise is released to the importer.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
16-72
Education.
88. _____ can be used when a government restricts the convertibility of its currency to preserve its
foreign exchange reserves so they can be used to service international debt commitments and
purchase crucial imports.
A. A buyback
B. Countertrade
C. An offset
D. Switch trading
When conventional means of payment are difficult, costly, or nonexistent, firms may turn to
countertrade as an alternative means of structuring an international sale. Countertrade denotes a
whole range of barter-like agreements; its principle is to trade goods and services for other goods
and services when they cannot be traded for money. Countertrade can be used when a
government restricts the convertibility of its currency to preserve its foreign exchange reserves so
they can be used to service international debt commitments and purchase crucial imports.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
16-73
Education.
89. _____ occurs when a third-party trading house buys the firm's counterpurchase credits and sells
them to another firm that can better use them.
A. Countertrading
B. Offsetting
C. Switch trading
D. Bartering
Switch trading refers to the use of a specialized third-party trading house in a countertrade
arrangement. When a firm enters a counterpurchase or offset agreement with a country, it may
receive counterpurchase credits that can be used for purchasing goods from that country. Switch
trading occurs when a third-party trading house buys the firm's counterpurchase credits and sells
them to another firm that can better use them.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
16-74
Education.
90. The main attraction of _____ is that it can give a firm a way to finance an export deal when other
means are not available.
A. switch trading
B. counterpurchase
C. offsets
D. countertrade
The main attraction of countertrade is that it can give a firm a way to finance an export deal when
other means are not available. Many developing nations have problems raising the foreign
exchange necessary to pay for imports. Countertrade may be the only option available when doing
business in these countries. Even when other options exist, many countries prefer countertrade to
cash deals.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Topic: Countertrade
16-75
Education.
91. Which of the following is a disadvantage of countertrade?
A. Countertrade contracts may involve the exchange of unusable or poor-quality.

B. Countertrade requires the firm to use an out-of-house trading company to which much of the
profit will go.
C. Countertrade contracts often involve high-quality, expensive goods that the firm cannot move
enough of to be profitable.
D. Countertrade requires employing lawyers who specialize in these unique types of contracts.
There are several reasons why a firm might avoid countertrade. Countertrade contracts may involve
the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably. In
addition, even if the goods it receives are of high quality, the firm still needs to dispose of them
profitably. Countertrade requires the firm to invest in an in-house trading department dedicated to
arranging and managing countertrade deals in order to maintain a profit. These new departments
can be expensive and time-consuming.

Blooms: Analyze
Gradable: automatic
Topic: Countertrade
16-76
Education.
92. Which of the following is a reason that firms take a reactive approach to exporting rather than a
proactive approach?
A. Most firms are familiar with the foreign market opportunities and therefore do not need to
utilize proactive approaches.
B. They are intimidated by the complexities and mechanics of exporting to countries where
business practices, language, culture, legal systems, and currency are very different from the
home market.
C. Most firms already know where the market potential and opportunities are and they do not
need to be proactive.
D. They are not intimidated by the complexities and mechanics of exporting to foreign countries
and can, therefore, use the same reactive approaches that work in their home market.
There are several reasons why firms do not take a proactive approach while seeking export
opportunities. One reason is that most firms are unfamiliar with foreign market opportunities, they
do not realize how big the potential market is, or where the opportunities are. A second reason
why firms take a reactive approach to exporting is because they are intimidated by the complexities
and mechanics of exporting to countries where business practices, language, culture, legal systems,
and currency are very different from the home market. A third reason for firms not being proactive
about exporting is the number of problems neophyte exporters typically face when trying to do
business abroad.

Blooms: Analyze
Gradable: automatic
Essay Questions
16-77
Education.
93. Why do so many firms take a reactive approach to exporting rather than a proactive approach?
There are several reasons why firms do not take a proactive approach while seeking export
opportunities. One reason is that most firms are unfamiliar with foreign market opportunities, they
do not realize how big the potential market is, or where the opportunities are. A second reason
why firms take a reactive approach to exporting is because they are intimidated by the complexities
and mechanics of exporting to countries where business practices, language, culture, legal systems,
and currency are very different from the home market. A third reason for firms not being proactive
about exporting is the number of problems neophyte exporters typically face when trying to do
business abroad.

Blooms: Analyze
Difficulty: 3 Hard
Gradable: manual
94. What are the typical problems that novice exporters face when trying to export?
Novice exporters run into significant problems when first trying to do business abroad. Typically,
this sours the companies on future export opportunities. Common pitfalls include poor market
analysis, a poor understanding of competitive conditions in the foreign market, a failure to
customize the product offering to the needs of foreign customers, lack of an effective distribution
program, a poorly executed promotional campaign in the foreign market, and problems securing
financing. Furthermore, novice exporters tend to underestimate the time and expertise needed to
cultivate business in foreign countries. Few realize the amount of management resources that have
to be dedicated to this activity.

Blooms: Understand
Difficulty: 3 Hard
Gradable: manual
16-78
Education.
95. Compare and contrast the export assistance provided to German and Japanese companies with
that given to American companies. Discuss the implications of the differences between the
countries.
Germany, one of the world's most successful exporting nations, provides assistance through
government agencies, trade associations, and commercial banks to firms seeking export
opportunities. In Japan, similar assistance is provided by the Japanese Ministry of Trade and
Industry. In addition, many Japanese firms are associated with the sogo shosha, Japan's great
trading houses. The sogo shosha have offices all over the world, and they proactively and
continuously seek export opportunities for their companies. In contrast, many American firms are
relatively blind when they seek export opportunities because they are information disadvantaged.
Consequently, because an institutional structure for promoting exports has yet to evolve in the U.S.,
American firms are at a competitive disadvantage compared to their German and Japanese
counterparts.

Blooms: Analyze
Difficulty: 3 Hard
Gradable: manual
16-79
Education.
96. Describe the information sources that are available to American companies to learn about export
opportunities.
There are several sources of information available to American companies looking for export
assistance. The most comprehensive source of information is the U.S. Department of Commerce.
Within the Department of Commerce, there are two organizations dedicated to providing
businesses with intelligence and assistance for attacking foreign markets: the International Trade
Administration and the United States and Foreign Commercial Service Agency.
These agencies provide the potential exporter with a "best prospects" list, which gives the names
and addresses of potential distributors in foreign markets along with the businesses they are in, the
products they handle, and their contact person. The Department of Commerce has assembled a
"comparison shopping service" where companies can receive a customized market research survey
on a product. The survey provides information on marketability, the competition, comparative
prices, distribution channels, and names of potential sales representatives. The Small Business
Administration is also a source of information for exporters, providing counseling and legal
assistance. Finally, most states have active trade commissions that can be a source of information.
A number of private organizations are also beginning to provide more assistance to would-be
exporters. Commercial banks and major accounting firms are more willing to assist small firms in
starting export operations than they were a decade ago.

Blooms: Understand
Difficulty: 3 Hard
Gradable: manual
16-80
Education.
97. Explain 3M's main export principles that have made the company's exporting business so
successful.
One of the most successful exporting firms in the world is 3M, originally known as Minnesota
Mining & Manufacturing Company. It has built its success on three main principles: enter on a small
scale to reduce risks, add additional product lines once the exporting operations start to become
successful, and hire locals to promote the firm's products.

Blooms: Apply
Difficulty: 3 Hard
Gradable: manual
98. Explain the problem of trust that persists in international business.
Firms engaged in international trade have to trust someone they may have never seen, who lives in
a different country, who speaks a different language, who abides by (or does not abide by) a
different legal system, and who could be very difficult to track down if he or she defaults on an
obligation.
Consider a U.S. firm exporting to a distributor in France. The U.S. businessman might be concerned
that if he ships the products to France before he receives payment from the French
businesswoman, she might take delivery of the products and not pay him. Conversely, the French
importer might worry that if she pays for the products before they are shipped, the U.S. firm might
keep the money and never ship the products or might ship defective products. Neither party to the
exchange completely trusts the other. This lack of trust is exacerbated by the distance between the
two parties—in space, language, and culture—and by the problems of using an underdeveloped
international legal system to enforce contractual obligations.

Blooms: Apply
Difficulty: 3 Hard
Gradable: manual
16-81
Education.
99. Describe the process involved in financing imports and exports using a letter of credit. Why has this
system developed? What is the advantage of using this system?
The letter of credit is at the center of international commercial transactions. A letter of credit is
issued by a bank at the request of an importer. The letter of credit states that the bank will pay a
specified sum of money to a beneficiary, normally the exporter, on presentation of particular,
specified documents. The advantage of the system is that it introduces an element of trust into the
relationship in that both the importer and the exporter are likely to trust reputable banks even if
they do not trust each other.

Blooms: Analyze
Difficulty: 3 Hard
Gradable: manual
100. Compare and contrast time drafts and sight drafts.
to the drawee. A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days. It is
presented to the drawee, who signifies acceptance of it by writing or stamping a notice of
acceptance on its face. Once accepted, the time draft becomes a promise to pay by the accepting
party. When a time draft is drawn on and accepted by a bank, it is called a banker's acceptance.
When it is drawn on and accepted by a business firm, it is called a trade acceptance.

Blooms: Analyze
Difficulty: 3 Hard
Gradable: manual
16-82
Education.
101. Describe a typical international trade transaction.
The typical international trade transaction involves 14 steps:
1. The importer places an order with the exporter and asks if he would be willing to ship under a
letter of credit.
2. The exporter agrees to ship under a letter of credit and specifies relevant information such as
prices and delivery terms.
3. The importer applies to the importer's bank (any bank of the importer's country) for a letter of
credit to be issued in favor of the exporter for the merchandise the importer wishes to buy.
4. The Importer's bank issues a letter of credit in the importer's favor and sends it to the exporter's
bank (any bank in the exporter's country).
5. The exporter's bank advises the exporter that a letter of credit has been opened in his favor.
6. The exporter ships the goods to the importer on a common carrier. An official of the carrier gives
the exporter a bill of lading.
7. The exporter presents a 90-day time draft drawn on the importer's bank in accordance with its
letter of credit and the bill of lading to the exporter's bank. The exporter endorses the bill of lading
so title to the goods is transferred to the exporter's bank.
8. The exporter's bank sends the draft and bill of lading to the importer's bank. The importer's bank
accepts the draft, taking possession of the documents and promising to pay the now-accepted
draft in 90 days.
9. The importer's bank returns the accepted draft to the exporter's bank.
10. The exporter's bank tells the exporter that it has received the accepted bank draft, which is
payable in 90 days.
11. The exporter sells the draft to his bank at a discount from its face value and receives the
discounted cash value of the draft in return.
12. The importer's bank notifies the importer of the arrival of the documents. He/She agrees to pay
the in 90 days. The importer's bank releases the documents so the importer can take possession of
the shipment.
13. In 90 days, the importer's bank receives the importer's payment, so it has funds to pay the
maturing draft.
14. In 90 days, the holder of the matured acceptance presents it to the importer's bank for
payment. The importer's bank pays.
16-83
Education.
Blooms: Understand
Difficulty: 3 Hard
Gradable: manual
102. Discuss the importance of the Export-Import Bank, its goals, and its operations.
government. Its mission is to provide financing aid that will facilitate exports, imports, and the
exchange of commodities between the United States and other countries. The bank pursues its
mission through various loan and loan-guarantee programs. The agency guarantees repayment of
medium and long-term loans U.S. commercial banks make to foreign borrowers for purchasing U.S.
exports. It also guarantees to make the commercial banks more willing to lend cash to foreign
enterprises.
Ex-Im bank also has a direct lending operation under which it lends dollars to foreign borrowers for
use in purchasing U.S. exports. It grants loans, that commercial banks would not, if it sees a
potential benefit to the U.S. in doing so. The foreign borrowers use the loans to pay U.S. suppliers
and repay the loan to Ex-Im bank with interest.

Blooms: Analyze
Difficulty: 3 Hard
Gradable: manual
16-84
Education.
103. What is the Foreign Credit Insurance Association?
The Foreign Credit Insurance Association (FCIA) is an association of private commercial institutions
operating under the guidance of the Export-Import Bank to provide export credit insurance. The
FCIA provides coverage against commercial risks and political risks. Losses due to commercial risk
result from the buyer's insolvency or payment default. Political losses arise from actions of
governments that are beyond the control of either buyer or seller.

Blooms: Understand
Difficulty: 3 Hard
Gradable: manual
104. Explain why barter is viewed as the most restrictive counter-trade arrangement.
The simplest form of countertrade is barter. Barter is the direct exchange of goods and/or services
between two parties without a cash transition. First, if goods are not exchanged simultaneously, one
party ends up financing the other for a period. Second, firms engaged in barter run the risk of
having to accept goods they do not want, cannot use, or have difficulty reselling at a reasonable
price. For these reasons, barter is viewed as the most restrictive countertrade arrangement. It is
primarily used for one-time-only deals in transactions with trading partners who are not

Blooms: Understand
Difficulty: 3 Hard
Gradable: manual
Topic: Countertrade
16-85
Education.
105. Compare and contrast counterpurchase agreements and offset arrangements. Why might an
exporter prefer an offset to a counterpurchase deal?
A counterpurchase agreement is a reciprocal buying agreement that occurs when a firm agrees to
purchase a certain amount of materials back from a country to which a sale is made. An offset is
similar to a counterpurchase insofar as one party agrees to purchase goods and services with a
specified percentage of the proceeds from the original sale. The difference is that this party can
fulfill the obligation with any firm in the county to which as sale is being made. This type of
arrangement gives an exporter greater flexibility to choose the goods it wishes to purchase.

Blooms: Analyze
Difficulty: 3 Hard
Gradable: manual
Topic: Countertrade
106. Discuss the idea of compensation or buybacks as they relate to countertrade. Provide an example
of a buyback arrangement.
A buyback occurs when a firm builds a plant in another country—or supplies technology,
equipment, training, or other services to the country—and agrees to take a certain percentage of
the plant's output as partial payment for the contract. Buyback agreements are a form of
countertrade. For example, Occidental Petroleum negotiated a deal with Russia under which
Occidental would build several ammonia plants in Russia and, as partial payment for their work,
would receive ammonia from the plant over a 20-year period.

Blooms: Understand
Difficulty: 3 Hard
Gradable: manual
Topic: Countertrade
16-86
Education.
107. What type of firms is most likely to engage in countertrade? Why?
worldwide network of contacts to dispose of goods acquired in countertrading. Unless there is no
alternative, small and medium-sized companies should probably avoid countertrade deals because
they lack the worldwide network of operations that may be required to profitably utilize or dispose
of goods acquired through them.

Blooms: Apply
Difficulty: equipment
Difficulty: or other services
Difficulty: supplies technology
Difficulty: training
Gradable: manual
Topic: Countertrade
16-87
Education.

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Chapter 16

Exporting, Importing, and Countertrade

True / False Questions

2. Exporters often face voluminous paperwork and complex formalities.

10. A sight draft allows for a delay in payment.

20. A counterpurchase gives exporters more flexibility than an offset.

22. Countertrade is least attractive to large, diverse multinational enterprises.

23. Which of the following is true of exporting?

A. A common pitfall of exporting is a poor understanding of competitive conditions in the foreign

24. Japan's great trading houses are called _____.

A. Small Business Development Centers (SBDCs)

28. Importers usually issue a _____ to importers in international transactions.

32. A _____ serves as a receipt, a contract, and a document of title.

36. The Foreign Credit Insurance Association provides coverage:

A. to insure products during shipment.

39. _____ is viewed as the most restrictive countertrade arrangement.

44. Which of the following statements is true of exporting?

A. It increases the trade deficit that nations have.

45. The great promise of exporting is that:

A. large revenue opportunities are often found in foreign markets.

A. It is the most comprehensive source of export opportunities information.

53. Which of the following statements is true of EMCs?

A. An EMC is a transportation company that engages in international business.

A. managed by governments that provide export subsidies.

55. Which of the following is a successful exporting strategy used by 3M?

A. Add additional products once exporting becomes successful.

A. before product shipment.

59. Bank charges on letters of credit will depend on the:

60. A draft used in international transactions:

A. is a document requesting payment.

A. the bank receives materials from the importer.

A. It gives the importer time to resell the merchandise before payment.

63. Which of the following is a disadvantage of using a letter of credit (L/C)?

A. A letter of credit does not give protection to the importer.

64. The person or business initiating a draft is known as the ____.

67. A _____ allows for a delay in payment.

68. A banker's acceptance:

A. is payable to the drawee immediately on presentation in a bank.

A. provides a written promise of payment before releasing the merchandise.

71. In a typical international trade transaction, the:

A. exporter should obtain a letter of credit to initiate transactions.

72. The Export-Import Bank:

A. is an international financial institution that provides loans for capital programs.

73. Which of the following statements is true of export credit insurance?

A. Exporter will require more insurance if a letter of credit is used in transactions.

A. Floating exchange system

76. Which of the following statements is true of countertrade?

83. Which of the following is an advantage of countertrade?

A. Countertrade uses instruments such as time draft and sight draft.

84. Which of the following is a major drawback of engaging in countertrade?

A. Countertrade is not useful when trading with developing nations.

85. Countertrade is:

A. most attractive to small, primarily domestic enterprises.

91. Which of the following is a disadvantage of countertrade?

A. Countertrade contracts may involve the exchange of unusable or poor-quality.

98. Explain the problem of trust that persists in international business.

100. Compare and contrast time drafts and sight drafts.

101. Describe a typical international trade transaction.

103. What is the Foreign Credit Insurance Association?

107. What type of firms is most likely to engage in countertrade? Why?

True / False Questions

AACSB: Knowledge Application

2. Exporters often face voluminous paperwork and complex formalities.