Chapter 1

Test Questions

TRUE/FALSE
1. International trade is the exchange of goods and services within domestic borders.
Answer: False. It is the exchange of goods and services across national boundaries.
2. Exports create high-wage employment. This can be seen by the study conducted by the USTR,
which found that workers in export-related sectors earn 17 percent more than the average worker
in the United States.
Answer: True.
3. A recent study on wages and trade found a negative correlation between export intensity and
wages.
Answer: False. A positive correlation was found.
4. Trade in services constitutes 25 percent of overall trade in 2004.
Answer: True.
5. Export-related wages are higher in the service sector than in manufacturing.
Answer: False. They are higher in manufacturing.
6. Import penetration is associated with lower demand elasticity, which increases workers’
bargaining power.
Answer: False. Import penetration is associated with greater demand elasticity, which
reduces workers’ bargaining power.
7. Key factors that have contributed to the increase in Singapore’s exports include the country’s
open trade, investment, and economic policies.
Answer: True.
8. Large countries tend to be more dependent on international trade than smaller countries.
Answer: False. Smaller countries are more dependent since they do not have a diversified
economy.
9. In 2004, developing countries accounted for about half of the world’s top twenty-five
exporters and importers.
Answer: False. Developing countries accounted for more than one-third of the world’s top
twenty-five exporters and importers.
10. Global imbalances may be reduced by a reduction in excess savings.
Answer: True.

MULTIPLE CHOICE
1. In which of the following countries do services account for about 40 percent or more of total
merchandise trade?

1
 a. China and Panama
b. Panama and the Netherlands
c. China, Panama, and the Netherlands
d. China and the Netherlands
Answer: b
2. Which of the following are included in a typical services export?
a. Tourism and transportation
b. Sales and forecasting
c. Technology and e-commerce
d. All of the above
Answer: a
3. Who does international trade allow to seek out products, services, and components in foreign
countries?
a. Manufacturers and distributors
b. Distributors and suppliers
c. Suppliers and public officials
d. Manufacturers and suppliers
Answer: a
4. For developing countries, determinants of import demand include:
a. Government restrictions on all exports
b. Government restrictions on imports
c. Government restrictions on commercial exports only
d. Government restrictions on gold shipments
Answer: b
5. The dollar value of total world trade in 2004 was greater than the gross national product of
every nation except:
a. United States
b. Canada
c. Australia
d. a and b
Answer: d
6. Which technologies assisted with the physical integration of world markets?
a. Media
b. E-commerce
c. a and b
d. None of the above
Answer: a
7. Which of the following explains the reason why larger countries import less manufactured
goods on a per capita basis?
a. Larger countries have a diversified economy, so goods produced are usually outsourced.
b. Larger countries have the land capacity and ability to produce their own goods.
c. Larger countries have a larger population to help produce their own goods, thus
contributing to a diversified economy.
d. Larger countries have a diversified economy and export more services than manufactured
goods.
Answer: c

2
8. Trade in manufactured goods:
a. Has been a dynamic component of world merchandise trade
b. Has been a dynamic component of developed countries’ trade with the rest of the world
c. Has been the fastest growing part of world trade
d. Is now dominated by China, Korea, and Canada
Answer: a
9. Which of the following is an example of a free trade area/common market?
a. SURMERCO
b. DR-CAFTA
c. AFTA
d. SCHA
Answer: b
10. Unsustainable global imbalances have been a result of:
a. Weak currencies, domestic economic growth, and high savings
b. Strong currencies, domestic economic growth, and high savings
c. Weak currencies, domestic economic growth, and low savings
d. Strong currencies and domestic economic growth only
Answer: a
11. The result of the 9/11 terrorist attacks has increased costs to U.S. exporters. Which of the
following is a major factor?
a. Rise in transportation costs
b. Rise in fuel costs
c. Rise in merchandise trade costs
d. Rise in security costs
Answer: d
12. The major benefits of trade include:
a. Reduction in transportation cost
b. Increases in incomes and employment
c. Advances in technical methods
d. b and c
Answer: d
13. Faster growth in emerging economies:
a. Has resulted in higher inflation
b. Has reduced globalization efforts
c. Has put pressure on the supply of raw materials
d. Has reduced global imbalances
Answer: c
14. Which of the following will help in improving the U.S. balance of trade?
a. Trade in soybeans
b. Increasing manufactured goods’ exports
c. Increasing the share of exports by small and medium-sized businesses
d. All of the above
Answer: c
15. In 2004, what was the value of world merchandise exports compared to that of services?
a. $6.21 (trillion), $4.26 (trillion)

3
 b. $6.21 (trillion), $3.28 (trillion)
c. $8.91 (trillion), $4.26 (trillion)
d. $8.91 (trillion), $2.12 (trillion)
Answer: d
16. Between 2000–2004, the average increase in world merchandise and service exports was:
a. 3 percent
b. 0.45 percent
c. 12.77 percent
d. 9 percent
Answer: d
17. The Final Act of the Uruguay Round established:
a. Reduction in global trade barriers and a multilateral framework of discipline for trade in
services
b. Reduction in global trade barriers and protection of trade-related intellectual property
rights
c. A multilateral framework of discipline for trade in services and protection of trade-related
intellectual property rights
d. Reduction in global trade barriers, a multilateral framework of discipline for trade in
services, and protection of trade-related intellectual property rights
Answer: d
18. What was the primary focus of the Doha Round?
a. Reduction of dumping by emerging economies in other countries
b. Reduction of trade distorting agricultural subsidies by developing countries
c. Reduction of trade distorting agricultural subsidies by developed countries
d. All of the above
Answer: c
19. Which of the following is not part of the four Pacific Rim countries?
a. Hong Kong
b. South Korea
c. China
d. Taiwan
Answer: c
20. What is considered to be a significant development in world trade over the past two decades?
a. Israel’s free trade agreement with the United States
b. China’s membership in ASEAN
c. The opening of China and Eastern Europe
d. Outsourcing in India
Answer: c
21. What has been the major focus of developing countries with regard to trade?
a. Increase international trade
b. Increase production and exports
c. Demand tariff cuts by wealthy countries
d. Increase trade aid
Answer: b
22. Which of the following countries have a surplus in their service account from tourism and
workers’ remittances?

4
 a. Egypt, India, Pakistan
b. Egypt, India, China
c. China, India, Pakistan
d. China and India
Answer: a
23. Today’s integration of the world economy is driven by advances in , , and
to reduce obstacles to the flow of trade and capital.
a. Communications, trade agreement, and government’s policy
b. Communications, information technology, and trade agreements
c. Communications, information technology, and government’s policy
d. Trade agreements, information technology, and government’s policy
Answer: c
24. Most occupations show a from an equal amount of exports and imports except for
occupations, which are shrinking in most countries 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
Answer: b
25. Exports create:
a. Low wage employment
b. High wage employment
c. No increase or decrease in employment
d. None of the above
Answer: b

5
 Chapter 2

Test Questions
TRUE/FALSE
1. The GATT in theory was an organization in which participating nations were called
“contracting parties.”
Answer: False. GATT was not an organization.
2. The most current round of WTO negotiations was the Uruguay Round, which took place in
Qatar.
Answer: False. The Doha Round is the most recent round that took place in Qatar.
3. According to NAFTA, Mexico is allowed to place temporary capital limits for banks,
securities firms, and insurance companies during a transition period.
Answer: True.
4. NAFTA requires members to provide ninety days notice before adapting new standards and
allowing for comments before implementation.
Answer: False. NAFTA requires thirty days notice.
5. A common market includes elements of a customs union and allows for the free movement of
labor and capital among member nations.
Answer: True.
6. One of the objectives of the European Union is to abolish restrictions on the free movement of
all factors of production, including labor, services, and capital.
Answer: True.
7. NAFTA provides for a common external tariff.
Answer: False. It does not provide for a common external tariff.
8. The European Union does not provide economic assistance to member states. However, it
allows for economic/monetary union.
Answer: False. It does provide for economic assistance.
9. The GATT/WTO has used the principle of nondiscrimination to reduce trade barriers.
Answer: True.
10. All trade agreements seek free trade and economic cooperation.
Answer: True.

MULTIPLE CHOICE

1. Which trade policies did GATT use to reduce trade barriers among contracting parties?
a. Nondiscrimination
b. Trade liberalization

6
 c. Settlement of trade disputes
d. All of the above
Answer: d
2. Countries that are members of the GATT/WTO are called:
a. Member nations
b. Members
c. Contracting parties
d. Contracting members
Answer: c
3. The Doha Round took place during the following years:
a. 2000 to 2002
b. 2000 to 2004
c. 2001 to 2006
d. None of the above
Answer: d
4. The GATT rules apply to all products both imported and exported, although most of the rules
are relevant primarily to .
a. Exports
b. Imports
c. Services
d. Free trade
Answer: b
5. In 1982, the United States initiated a proposal to launch a new round of GATT talks. Which of
the following was not a reason behind the U.S. initiative?
a. Improve market access for U.S. through reduction of tariff/nontariff barriers
b. Extend GATT coverage to areas such as IPRs and investment
c. Bring other developed nations more effectively into the international trading system
d. a and b.
Answer: d
6. The result of the Uruguay Round was:
a. Trade liberalization
b. Trade rules
c. Institutional reforms
d. All of the above
Answer: d

7
7. The Uruguay Round allowed for the reduction of trade barriers in the areas of and ,
which had been resistant to reform.
a. International property rights and investment
b. Agriculture and textiles
c. Textiles and apparel
d. International property rights and services
Answer: b
8. From 2004 to 2005, approximately RIAs were notified to the WTO.
a. 44
b. 51
c. 42
d. None of the above
Answer: d
9. Less than percent of agreements provide for high levels of integration as well as the
harmonization of trade policies.
a. 10
b. 11
c. 12
d. 13
Answer: a
10. Smaller nations enter into the RIA for which two reasons:
a. Market access and creation of joint ventures with other developing nations
b. Market access and establishing trade and FDI relations with transition economies
c. Market access and to deal more effectively with larger economies in multilateral trade
talks and other areas
d. None of the above
Answer: c
11. Which of the following is a major vehicle for RIAs?
a. Consolidation of peace and regional security
b. Promotion of deeper levels of economic integration
c. Sluggish progress in multilateral trade talks
d. All of the above
Answer: d
12. NAFTA has facilitated substantial increases of foreign direct investment in which country?
a. United States
b. Canada
c. Mexico
d. All of the above
Answer: c
13. According to NAFTA, the qualification for preferential market access is that goods must be
within member countries.
a. Sold
b. Made
c. a and b
d. None of the above
Answer: b

8
14. Under NAFTA, disputes between member states are settled through:
a. Consultations
b. Conciliation
c. Panel of nongovernment experts
d. All of the above
Answer: d
15. Since the establishment of NAFTA, the U.S. merchandise trade deficit with Canada and
Mexico has and by 2005 had grown to $ .
a. Doubled; $330 billion
b. Tripled; $330 billion
c. Quadrupled; $ 330 billion
d. None of the above
Answer: c
16. The European Free Trade Area, formed in 1960, has the following countries as members:
a. Austria, Denmark, Norway, Portugal
b. Austria, Spain, Czech Republic, Portugal
c. Austria, Denmark, Norway, Spain
d. Austria, Norway, Portugal, Spain
Answer: a
17. Which of the following is not an objective of the European Union?
a. Establishment of free trade among nonmembers and member nations
b. Abolition of restrictions on the free movement of all factors of production
c. a and b
d. None of the above
Answer: a
18. The European Union has the following policy:
a. Uniform customs duties on goods imported from outside of the EU
b. The Common Agricultural Policy
c. Uniform common transport, agricultural and competition policy
d. All of the above
Answer: d
19. Which of the following is not an objective of the Single European Act?
a. Encouragement of monetary cooperation
b. Establishment of cooperation on research and development
c. Harmonization of working conditions across member nations
d. All of the above
Answer: d
20. The Euro has allowed for:
a. Higher transaction costs
b. Lower transaction costs
c. Nontransparent prices
d. a and c
Answer: b

9
21. The Andean Pact includes which countries?
a. Bolivia, Colombia, Ecuador, Peru
b. El Salvador, Costa Rica, Guatemala, Honduras
c. Bolivia, Colombia, Ecuador, Honduras
d. Argentina, Bolivia, Nicaragua, Venezuela
Answer: a
22. The Southern African Customs Union has the following as its objective:
a. Common currency and common external tariff
b. Common currency and free movement of goods
c. Common currency, common external tariff, and free movement of goods
d. Common external tariff and free movement of goods
Answer: d
23. Which of the following countries is not a member of the Economic Community of West
African States?
a. Benin
b. Ghana
c. Kenya
d. Togo
Answer: c
24. Which of the following countries is a member of Asia Pacific Economic Cooperation?
a. Benin
b. Singapore
c. Venezuela
d. All of the above
Answer: b
25. is a common objective among all regional trade agreements.
a. Common external tariff
b. Single currency
c. Free trade
d. None of the above
Answer: c

10
 Chapter 4

Test Questions
TRUE/FALSE
1. Factors that firms must consider before exporting their products overseas include the success
of the product in the domestic market, participation in overseas trade shows, and advertising and
market data.
Answer: True.
2. The reactive approach involves the selection of a product or service based on overall market
demand.
Answer: False. The systematic approach involves this.
3. International market assessment is a form of environment scanning that permits a firm to
select a large number of desirable markets on the basis of broad variables.
Answer: False. International market assessment is a form of environment scanning that
permits a firm to select a small number of desirable markets on the basis of broad variables.
4. Secondary screening involves financial, but not economical conditions.
Answer: False. Secondary screening involves both financial and economical conditions.
5. Major programs offered by the Department of Commerce include trade development, market
access and compliance, and the Gold Key Service.
Answer: True.
6. The Gold Key Service provides services to non–U.S. and U.S. exporters by prescreening
potential suppliers, professional associations, and so on.
Answer: False. The service provides services only to U.S. exporters.
7. Commercial banks provide market research and promotion, financing exports, collections,
credit information, and assistance.
Answer: False. Market research and promotion is a characteristic of trading companies.
8. Foreign media, commercial publications, and personal selling are ways that exporters can
advertise their product or service overseas.
Answer: True.

11
9. Important factors to consider in selecting the export product include shifting spending patterns
and emphasis on niche marketing.
Answer: True.
10. Trade missions are another import sales promotion tool.
Answer: False. They are only an export sales promotion tool.

MULTIPLE CHOICE
1. Uncontrollable environmental forces include:
a. Exchange controls
b. Taxation
c. Inflation
d. All of the above
Answer: d
2. provide a preliminary indication of markets for a particular product in most
countries.
a. Trade statistics
b. Foreign investment data
c. Statistical data
d. Data measurements
Answer: a
3. The difference between a systematic approach and a reactive approach is:
a. The systematic approach involves the selection of a product based on immediate market
need, whereas the reactive approach is based on overall market demand.
b. A systematic approach involves the selection of a service based only on immediate
market need, whereas a reactive approach is based on the selection based on overall
market demand.
c. A systematic approach involves the selection of a product and service based on overall
market demand, whereas a reactive approach is based on the selection on the basis of
immediate market demand.
d. None of the above
Answer: c
4. In both cases (systematic or reactive), selection of the manufacturer (supplier) depends on a
number of factors including:
a. Price
b. Quality and reliability
c. Proximity to home or office
d. All of the above
Answer: d

12
5. Lack of focus on a given product or market and absence of a long-term relationship with an
importer are disadvantages of using:
a. Systematic approach
b. Reactive approach
c. a and b
d. None of the above
Answer: b
6. Which of the following are important factors to consider in selecting the export product?
a. Shifting spending patterns
b. Products to be included from the list
c. Emphasis on quantity and niche marketing
d. All of the above
Answer: a
7. International market research is needed because:
a. Export/investment decisions are often made with careful assessment of foreign markets
and with a wide appreciation for different environments abroad.
b. Export/investment decisions are often made without careful and subjective assessment of
foreign markets and with a wide appreciation for different environments abroad.
c. Export/investment decisions are often made without careful and objective assessment of
foreign markets and with a limited appreciation for different environments abroad.
d. Export/investment decisions are often made without careful and objective assessment of
foreign markets and with a wide appreciation for different environments abroad.
Answer: c
8. The purpose of international marketing research is to:
a. Identify and compare the size and potential of various markets and select the most
desirable market for a given product or service
b. Reassess market changes that may require changes in a company’s strategy
c. a and b
d. None of the above
Answer: c
9. Some of the limitations to using secondary sources are that:
a. Information often meets and exceeds one’s specific needs
b. Similarities in the definition of terms or units of measure that make it difficult to
categorize or compare the research data
c. Difficulties associated with the assessment of the accuracy of the information because
little is known about research design or techniques used to gather the data.
d. Difficulties associated with data collection
Answer: c
10. In the early stages of assessment, secondary data are used to establish market size, level of
trade, and .
a. Banking
b. Investment
c. Preferences
d. Tastes
Answer: b

13
11. Basic need potential is often determined by environmental conditions such as:
a. Climate
b. Topography
c. Natural resources
d. All of the above
Answer: d
12. Countries with high inflation rates should be carefully considered because they may limit:
a. The volume of imports by restricting the availability of foreign exchange
b. The volume of exports by restricting the availability of foreign exchange
c. The volume of money supply by restricting the availability of foreign exchange
d. The volume of exports, imports, and money supply by restricting the availability of
foreign exchange
Answer: a
13. Exporting and importing of goods to and from politically unstable countries can be affected
by:
a. Entry barriers
b. Limits on foreign remittances and/or ownership
c. Taxes and price controls
d. All of the above
Answer: d
14. The structure of an international business plan includes:
a. Executive summary
b. Financial plan
c. Target market
d. All of the above
Answer: d
15. World trade clubs provide:
a. Education programs on international trade and organization of promotional events
b. Advice on all aspects of exporting ranging from domestic to foreign regulations
c. Market research and promotion, shipping and documentation, financing sales, and
appointment of overseas distributors
d. All of the above
Answer: a
16. The business contact programs provided by the Department of Commerce include:
a. ADS
b. NCUSA
c. CPI
d. OPT
Answer: a
17. Which of the following is not a tool used by exporters for overseas promotions?
a. Indirect mail
b. Trade missions
c. Advertising
d. All of the above
Answer: a

14
18. In Southeast Asia, what is the most effective way of promoting the sale of industrial goods?
a. Advertising
b. Trade missions
c. Direct mail
d. Personal selling
Answer: c
19. Which of the following techniques can an exporter use to advertise a product or service?
a. National media
b. Noncommercial publications
c. Nongovernment sponsored advertising
d. Foreign media
Answer: d
20. Trade fairs can be organized by:
a. Certain industries
b. Trade associations
c. Chamber of Commerce
d. All of the above
Answer: d
21. In the United States, which organization organizes various export promotion events?
a. Department of Commerce
b. American Exporters Association
c. Ex-Im Bank
d. Chamber of Commerce
Answer: a
22. is communicating with an audience by personal or nonpersonal media that are not
explicitly paid for delivering messages.
a. Personal selling
b. Sales promotion
c. Publicity
d. The Internet
Answer: c
23. Which of the following is not a source of export counseling to U.S. exporters?
a. U.S. Department of Commerce
b. U.S. Export Assistance Centers
c. The Small Business Administration
d. U.S. Ex-Im Bank
Answer: d
24. Which of the following is not a common mistake made by potential exporters?
a. Failure to obtain qualified export counseling
b. Failure to print service, sale, and warranty messages in locally understood languages
c. Failure to provide readily available servicing for the product
d. Neglecting import business when the U.S. market booms
Answer: d

15
25. Which of the following is not a factor in the export decision?
a. Experience
b. Human resource and personnel
c. Production capacity
d. Financial capacity
Answer: b

16
 Chapter 5

Test Questions
TRUE/FALSE
1. Williamson states that assets specificity, uncertainty, and frequency determine the efficient
transaction governance form.
Answer: True.
2. Export firms can be involved in two principal channels of distribution when marketing abroad:
indirect channels and independent local middlemen.
Answer: False. They can be involved in indirect channels and direct channels. An
independent local middleman is one form of an indirect channel.
3. A firm’s channel structure is defined in terms of the percentage of equity held in the
distribution organization whereby majority ownership (greater than 60 percent) is treated as an
indirect or integrated channel, whereas less than majority ownership is considered a direct
channel.
Answer: False. A firm’s channel structure is defined in terms of the percentage of equity held
in the distribution organization whereby majority ownership (greater than 50 percent) is
treated as a direct or integrated channel, whereas less than majority ownership is considered
as an indirect channel.
4. The export commission agent represents foreign buyers such as export firms and large
industrial users.
Answer: False. The export commission agent represents foreign buyers such as import firms
and large industrial users.
5. Export cartels are organizations of firms in the same industry for the sole purpose of
marketing their products overseas.
Answer: True.
6. One of the advantages of an indirect channel structure is that it is a good way to test-market
products, develop goodwill, and allow clients to be familiar with a firm’s trade name or
trademark before making substantial commitment.
Answer: True.
7. Sellers reserve the right to change prices at any time usually upon 60 to 90 days.
Answer: False. Usually upon 30 to 60 days.
8. Termination of a contract is allowed by either party with a defined prerequisite of action or
omission by the other party upon giving advance notice.
Answer: False. The termination of a contract does not need a defined prerequisite of action or
omission by the other party.
9. Bankruptcy, liquidation, and litigation are factors that may cause contracts to be terminated by
either party.

17
 Answer: True.
10. All contracts must state the applicable law of the manufacturer’s home state, should a dispute
occur.
Answer: False. Most contracts state the applicable law for a dispute settlement, but it is not
required.

MULTIPLE CHOICE
1. Which of the following is not a disadvantage of using an indirect channel?
a. The supplier loses control over the marketing of its product overseas
b. The manufacturer loses control over the marketing of its product overseas
c. The distributor loses control over the marketing of its product overseas
d. a and b
Answer: d
2. Direct sales can be made through located in a foreign country.
a. Suppliers
b. Manufacturers
c. Agents
d. Investors
Answer: c
3. Direct exporting is likely to provide opportunities for even though it requires
a high degree of financial commitment.
a. High profit margins
b. Low profit margins
c. Medium profit margins
d. None of the above
Answer: a
4. The choice of channel structure is primarily dictated by .
a. Marketing objectives of the firm
b. Market supply
c. Manufacturer’s talent and overall ability
d. Demand consideration
Answer: a

18
5. In a study on export channels of distribution in the United States, percent of the
respondents indicated that the distribution of goods in a foreign country was primarily dictated
by the market, while percent stated the choice was dictated by the nature of the exported
product.
a. 52.7; 15.5
b. 52.7; 15.4
c. 51.3; 15.5
d. 51.3; 15.4
Answer: a
6. U.S. sales to Canada are characterized by:
a. Long (direct) channels
b. Long (indirect) channels
c. Short (direct) channels
d. Short (indirect) channels
Answer: c
7. Which two types of controls are available for the manufacturer and exporter?
a. Process controls and input controls b.
Process controls and output controls c.
Servicing controls and input controls
d. Servicing controls and output controls
Answer: b
8. Disadvantages of using EMCs include:
a. Manufacturer may lose control over foreign sales.
b. EMCs that work on commission may lose interest if sales do not come immediately.
c. Exporters may not learn international business since the EMC does most of the work
related to exports.
d. All of the above are disadvantages of using EMCs.
Answer: d
9. Which of the following are the most traditional and dominant intermediary in many countries?
a. Investment companies
b. Servicing companies
c. Distribution companies
d. Trading companies
Answer: d
10. Which of the following describes the difference between trading companies and EMCs?
a. Trading companies offer more diverse product lines than EMCs, which offer more
services.
b. Trading companies offer more services and have more diverse product lines than EMCs.
c. Trading companies are largely restricted to export-import activities.
d. EMCs are not restricted to export-import activities.
Answer: b

19
11. Export commission reside and conduct business in the country and are paid a
commission by their clients.
a. Distributors; importer’s; foreign
b. Distributors; exporter’s; foreign
c. Agents; exporter’s; foreign
d. Agents; importer’s; foreign
Answer: c
12. Most export merchants purchase products from?
a. Manufacturers
b. Suppliers
c. Distributors
d. None of the above
Answer: a
13. Which of the following are foreign end users?
a. Schools
b. Hospitals
c. Banks
d. All of the above
Answer: d
14. Which of the following is not a major disadvantage of using an agent?
a. Legal and financial problems in the event of termination
b. The agent assumes the attendant risks and responsibilities, including pricing and delivery
to sales service
c. Agents have limited training and knowledge about the product
d. All of the above
Answer: b (the firm assumes the attendant risks and responsibilities)
15. take possession of goods and provide the necessary pre- and postsale services.
a. Agents
b. Suppliers
c. Manufacturers
d. Distributors
Answer: d
16. Some of the disadvantages (for manufacturers) of using distributors are:
a. Limited access to feedback from customers
b. Loss of control over marketing and pricing
c. Limited opportunity to learn international business know-how
d. All of the above
Answer: d
17. In which country are distribution channels inefficient and complex, where the system is
characterized by multiple layers of wholesalers who have close relations with other wholesalers,
manufacturers, and so on?
a. China
b. India
c. Japan
d. Brazil
Answer: c

25
18. It is estimated that about percent of global trade is handled through overseas agents and
distributors.
a. 48
b. 49
c. 50
d. 51
Answer: c
19. In which countries are representation agreements required to be formally registered with and
their contents approved by the appropriate authority?
a. Egypt, Indonesia, Japan, and South Korea
b. Egypt, Indonesia, China, and South Korea
c. Saudi Arabia, Indonesia, Japan, and South Korea
d. Saudi Arabia, Indonesia, China, and South Korea
Answer: a
20. What are parallel (gray) market goods?
a. Goods that enter a country outside of regular, authorized distribution channels
b. Goods that enter a country within the regular, authorized distribution channels
c. Goods that enter a country outside of regular, unauthorized distribution channels
d. Goods that enter a country outside of regular distribution channels
Answer: a
21. In agreements, all sales of products are made in accordance with the price list and
discount structure agreed between the parties.
a. Distribution
b. Suppliers’
c. Agency
d. Manufacturing
Answer: c
22. In many countries, issues relating to appointment, renewal, or termination of representatives
are largely determined by .
a. Regional laws
b. Local laws
c. International laws
d. Local/regional agreements
Answer: b
23. When are representative agreements terminated?
a. In cases in which one of the parties is guilty of nonperformance
b. In cases in which both parties are guilty of nonperformance
c. In cases of action or omission by one party by the other party
d. None of the above
Answer: a
24. Which of the following does not give rise to the termination of a contract?
a. Bankruptcy
b. Force majeure
c. Change of ownership
d. Change of business name and management
Answer: d

26
25. Many representative contracts provide that any dispute between the parties shall be submitted
to arbitration for final settlement in accordance with the rules of the .
a. International chamber of commerce
b. National chamber of commerce
c. Local chamber of commerce
d. State chamber of commerce
Answer: a

27
 Chapter 6

Test Questions
TRUE/FALSE
1. The two categories of business logistics are materials management and physical distribution.
Answer: True.
2. The interdependence of functional activities has been articulated through various new
approaches or concepts, including the systems approach, total cost approach, and the trade
approach.
Answer: False. It has not been articulated through the total cost approach, but instead through
the opportunity cost approach.
3. A major political risk in foreign trade includes nonpayment or delays in payment for imports.
Answer: False. Nonpayment and delays are not political risks but are foreign credit risks.
4. A letter of credit transaction avoids risks arising from late payments or bad debts because it
ensures that payments are made before the goods are shipped to the importer.
Answer: False. A confirmed letter of credit does this.
5. Many export firms do insure trade receivables, including fire or car insurance.
Answer: False. Many export firms do not insure trade receivables.
6. The primary purpose of insurance in the context of foreign trade is to reduce the financial
burden of losses arising from the movement of goods over long distances.
Answer: True.
7. An all-risks policy covers total loss and partial loss from certain specified risks insured
against.
Answer: False. FPA (free of particular average)
8. The Inchmaree clause relieves the insurer of liability for partial cargo losses, except for those
caused by the stranding, sinking, burning, or collision of the vessel with another.
Answer: False. The free of particular average clause protects against these events.
9. The typical steps in claim procedures include the preliminary notice of claim, formal notice of
claim, and the settlement of claim.
Answer: True.
10. Most developing countries provide insurance programs for their import firms to cover losses
due to political upheaval in their countries.
Answer: False. Most industrialized nations provide insurance programs for their export firms
to cover losses due to political risk.

28
 MULTIPLE CHOICE
1. The total cost approach:
a. Considers a trade-off in undertaking certain logistics decisions
b. Is a logistics concept based on evaluation of the total cost implications of various
activities
c. Is a logistics concept based on the premise that the flow of materials within and outside
the firm should be considered only in the context of their interaction.
d. Is all of the above
Answer: b
2. applies to the timely movement of materials from the sources of supply to
the point of manufacture, assembly, or distribution.
a. Physical distribution
b. Materials management
c. Supply clusters
d. Logistical procedures
Answer: b
3. The development of advanced logistics systems and capabilities has also increased efficient
, , and of products.
a. Production; transportation; distribution
b. Production; handling; supplying
c. Production; transportation; supplying
d. Production; handling; distribution
Answer: a
4. The reduction of shipping costs and increased productivity has been a result of which two
processes?
a. Privatization and regulation
b. Privatization and deregulation
c. Regulation and national standards
d. Nationalization of existing means of production to reduce transportation cost
Answer: b

29
5. The pressures on firms to reexamine their logistics systems has been largely due to:
a. The proliferation of new products and services
b. The changes in the local and state laws
c. The changes in the international laws
d. All of the above
Answer: a
6. A reexamination of logistics system helps firms:
a. Reduce inventory costs
b. Reduce transportation cost and delivery time
c. Reduce advertising expenditures
d. a and b
Answer: d
7. What factors influence the need for adequate packing of goods?
a. Breakage of goods, moisture, and theft
b. Faster transportation
c. Easier supervision
d. Easier containerization
Answer: a
8. and of cargo has the added advantage of synchronizing promotions and long-
term inventory decisions for customers.
a. Tracking; tracing
b. Tracking; servicing
c. Tracing; servicing
d. None of the above
Answer: a
9. Which of the following describes the difference between domestic logistics and international
logistics?
a. Domestic logistics requires products to be transported by truck or rail; international
logistics requires products to be transported by air or sea.
b. Domestic logistics has different national regulations and many intermediaries
participating in the distribution channel; international logistics requires the national
regulation on packaging and labeling.
c. a and b
d. None of the above
Answer: a
10. In a typical international logistics process, a pro-forma invoice prepared by the seller:
a. May serve as a service contract
b. May serve as a sales contract
c. May be used to collect merchandise
d. May be used as a contract of shipment
Answer: b

30
11. Preshipment inspection
a. Is the responsibility of the buyer
b. Is the responsibility of the seller
c. Is used to control illegal flights of capital but delays movement of merchandise
d. a and c
Answer: d
12. In a typical logistics process, after the merchandise is transported, the forwarder sends the
necessary documents to:
a. The buyer
b. The customs broker
c. The shipper
d. The inspector in the buyer’s country
Answer: b
13. Denmark held the world’s top spot in logistics. Its excellence in logistics is attributed to
which of the following sectors?
a. Investment in infrastructure
b. Human resources
c. Business environment
d. All of the above
Answer: d
14. “Do not roll,” “keep frozen,” or “live animals” are examples of appropriate:
a. Packing for certain products
b. Labeling for certain products
c. Inventory for certain products
d. Packing and labeling for certain products
Answer: b
15. The U.S. Clean Air Act requires which types of products to be labeled?
a. Ozone depleting substances
b. Nuclear depleting substances
c. Oil and gas depleting substances
d. a and b
Answer: a
16. The rigors of long-distance transportation of goods require protection of merchandise from
possible breakage, moisture, pilferage, and theft by using appropriate:
a. Packing
b. Labeling
c. Inventory
d. Packing and labeling only
Answer: a

31
17. Which country requires that approximately 70 percent of packaging material used must be
recycled or reused?
a. Norway
b. Finland
c. Britain
d. None of the above
Answer: d (Germany requires this)
18. Which logistics function includes the consolidation of small cargo, documentation, and filing
of loss and damage claims?
a. Inventory and storage
b. Traffic management
c. Packing
d. All of the above
Answer: b
19. In international logistics, the most expensive mode of transportation is:
a. Airfreight
b. Sea freight
c. Rail
d. Truck
Answer: a
20. Risks in foreign trade include:
a. War, terrorism, actions of legitimate government authorities to confiscate cargo
b. Nonpayments or delays in payment for imports
c. Loss or damage to shipment during transit
d. All of the above
Answer: d
21. In many developed countries, less than percent of trade debts are insured.
a. 10
b. 15
c. 20
d. 25
Answer: c
22. The different methods used to protect against foreign exchange risks include:
a. Shifting the risk to third parties
b. Shifting the risk to the other party in an export contract
c. a and b
d. None of the above
Answer: c
23. The two types of marine cargo insurance policies are:
a. Perils-only policy and all-risks policy
b. Perils-only policy and marine-risk policy
c. Marine-risk policy and all-risks policy
d. Marine-risk policy and perils-only policy
Answer: a
24. Which form is required for the completion of such particulars as points of shipment and
destination, description of units, and amount of insurance?
a. Customs form

32
 b. Air waybill
c. Declarations form
d. Bill of lading
Answer: c
25. Which of the following are typical clauses in cargo insurance contracts?
a. The labels clause
b. Craft and lighter clause
c. Shore clause
d. All of the above
Answer: d
26. Insurance certificates are used because:
a. They are less expensive.
b. Exporters tend to use them frequently.
c. They save time.
d. They are required by government agencies.
Answer: c
27. A particular average loss is:
a. Part of general average loss
b. Loss for goods lost or damaged
c. Not covered by particular charges
d. All of the above
Answer: c
28. In a general average loss:
a. Goods are totally damaged
b. Goods are subject to constructive total loss
c. Goods are sacrificed as part of cargo owner’s contribution for the general loss of others
d. None of the above
Answer: c
29. In most cases, shippers claim from:
a. Carriers
b. Insurers and carriers
c. Insurers
d. All of the above
Answer: c
30. Once an insurance company settles the insured’s claim, it exercises:
a. Residual rights
b. Subrogation rights
c. Indemnity rights
d. Claim rights
Answer: b

33
 Chapter 7

Test Questions
TRUE/FALSE
1. Export prices should be low enough to remain competitive in the market, yet high enough to
make reasonable profit.
Answer: True.
2. Parallel or gray markets are created when the product is purchased at a high price in one
market and sold in markets that enjoy higher prices.
Answer: False. Parallel or gray markets are created when the product is purchased at a low
price in one market and sold in markets that enjoy higher prices.
3. One of the external forces that influences export pricing is location and environment of the
foreign market.
Answer: True.
4. FCA, Ex-Works, DAF, and Ex-Store are all terms that are part of Group E terms.
Answer: False.
5. Under a CIF contract, when goods are lost or destroyed during transit the buyer is entitled to
claim the purchase price against presentation of proper shipping documents to the seller.
Answer: False. Under a CIF contract, when goods are lost or destroyed during transit the
seller is entitled to claim the purchase price against presentation of proper shipping
documents to the buyer.
6. Common features shared by D terms include the arrival/destination terms, seller’s requirement
to arrange for transportation, and that Incoterms do not require insurance during transportation.
Answer: True.
7. In arrival contracts, the buyer is under no obligation to pay the purchase price if the goods are
lost in transit. However, in CIF the buyer is required to pay against documents.
Answer: True.
8. The UCC states that where a second-party carrier is not involved, risk of loss passes not upon
mere tender of delivery but when the seller ships the goods.
Answer: False. The UCC states that where a third party carrier is not involved, risk of loss
passes not upon mere tender of delivery but when the buyer receives the goods.
9. In cost-based pricing, the export price is based on the variable cost of producing the product.
Answer: False. Not in cost-based pricing but in marginal pricing.
10. DDU stands for delivered duty unpaid.
Answer: True.

34
 MULTIPLE CHOICE
1. Mismanagement of export pricing could often lead to:
a. Competitive pressures
b. Development of parallel markets
c. Pressures for price reductions
d. b and c
Answer: d
2. Which of the following policies to pricing and markups apply to both domestic and export
markets?
a. High markups are common in industries with relatively large competitors.
b. High markups are common in industries with relatively few competitors.
c. Export prices tend to be relatively high in sectors where increased competition exists.
d. All of the above
Answer: b
3. Which factors help reduce incidences of gray markets?
a. Appropriate packing
b. Appropriate pricing, control systems of quality
c. Appropriate distribution system
d. b and c
Answer: d
4. Which of the following is an external force that influences export pricing?
a. Supply and demand
b. Location and environment of the domestic market
c. Government regulations in the home country
d. All of the above
Answer: a
5. Which definition best describes polycentric pricing?
a. Pricing that is sensitive to foreign conditions
b. Pricing in which a firm strikes an intermediate position
c. Pricing that is sensitive to local conditions
d. Pricing in which a firm strikes a leading position
Answer: c
6. Penetration pricing is based on which of the following?
a. Pricing policy based on charging higher prices for exports in order to stimulate market growth
b. Pricing policy based on charging lower prices for exports in order to stimulate market growth
c. Pricing policy used when businesses have unused capacity or to gain market share
d. Pricing policy used when businesses have used capacity or to gain market share
Answer: b
7. In 1997, Toyota launched a special sales campaign in Tokyo to give away money to some
customers of the competitor car it sells in Japan on behalf of General Motors. What type of
pricing policy describes Toyota’s actions?
a. Competitive pricing
b. Penetration pricing
c. The marginal approach to pricing

35
 d. Demand-based pricing
Answer: d
8. Which of the following organizations in the United States govern terms of sale?
a. Revised American Foreign Trade Definitions and the UCC
b. Revised American Foreign Trade Definitions and the CUC
c. American Trade Association and the UCC
d. American Trade Association and the CUC
Answer: a
9. How often are Incoterms revised to represent contemporary commercial practice?
a. Every 2 years
b. Every 5 years
c. Every 7 years
d. Every 10 years
Answer: d
10. Which of the following is not a Group F term?
a. FCA
b. FAS
c. FSA
d. FOB
Answer: c
11. Which of the following describes Group D terms?
a. The seller’s delivery obligation extends to the country of destination.
b. At the point of delivery, transfer of risk is from the seller to the buyer.
c. The seller is expected to bear the risk and expense of the delivery to a nominated carrier.
d. All of the above
Answer: a
12. Under which term does the buyer or agent have to collect the goods at the seller’s warehouse
or store?
a. Ex warehouse
b. Ex store
c. Ex works
d. All of the above
Answer: d
13. In the Group E terms:
a. Risk is not transferred to the seller if damage or loss is attributed to the failure of delivery
b. Risk is not transferred to the buyer if damage or loss is attributed to the failure of delivery
c. The seller bears all risks and charges pertaining to preshipment inspection, export/import
licenses, and customs duties needed for exportation
d. All of the above
Answer: b
14. Under Free Carrier, the buyer has which of the following obligations?
a. Contract at his or her own expense for carriage of goods from the named place of
delivery
b. Pay the costs of any preshipment inspection except when such inspection is mandated by
the exporting country
c. Obtain an import license and other official documents at his or her own risk

36
 d. All of the above
Answer: d
15. The central feature of contracts is the notion that the seller undertakes to place the goods
on board the ship designated by the buyer.
a. FAS
b. CIS
c. FOB
d. CIP
Answer: c
16. The contract places on the the obligation to arrange for shipment of the goods.
a. FOB; seller
b. CIF; seller
c. FOB; buyer
d. CIF; buyer
Answer: b
17. The CPT term is similar to the CIP term, except that:
a. The seller is not required to arrange or pay for insurance coverage of goods during
transportation.
b. The seller is required to arrange or pay for insurance coverage of goods during
transportation.
c. The buyer is not required to arrange or pay for the insurance coverage of goods during
transportation.
d. The buyer is required to arrange or pay for the insurance coverage of goods during
transportation.
Answer: a
18. Which Incoterm is commonly used among large buyers such as wholesalers and department
stores in order to ensure just-in-time deliveries?
a. CFR and Ex works
b. CFR and FCA
c. Ex works and FCA
d. a and b
Answer: c
19. Which of the following defines a seller’s obligations under DAF?
a. To contract his or her own expense for the carriage of goods to the named point at the
place of delivery
b. To place the goods at the disposal of the buyer on the arriving means of transport when
unloaded at the named place of delivery
c. To provide the seller (at the buyer’s expense) with the necessary documents to enable the
latter to take delivery of goods
d. All of the above
Answer: a
20. The major differences between arrival contracts and a CIF contract are:
a. In arrival contracts, delivery is effected upon loading the goods on board the vessel at the
port of departure; in the CIF contract, delivery is effected when the goods are placed at
the disposal of the buyer.

37
 b. In arrival contracts, delivery is effected when the goods are placed at the disposal of the
buyer; in the CIF contract, delivery is effected upon loading the goods on board the
vessel at the port of departure.
c. In arrival contracts, the seller is under no obligation to pay the transport charges if the
goods are lost in transit; in the CIF contract, the seller is required to pay against
documents.
d. None of the above
Answer: b
21. Under FAS, FOB, CFR, CIF, DES, and DEQ, who is responsible for trade documentation
and customs clearance?
a. Buyer
b. Seller
c. a and b
d. None of the above
Answer: b
22. In FAS, FOB terms, which party is responsible for import charges and local cartage/domestic
on carriage?
a. Buyer
b. Seller
c. a and b
d. None of the above
Answer: a
23. A buyer’s receipt is required in:
a. DES
b. Ex Works
c. FAS
d. CIF
Answer: a
24. Export charges and domestic precarriage are obtained by which of the following?
a. Distributor
b. Seller
c. Buyer
d. Marketer
Answer: b
25. The responsibility of the transshipment at terminal under falls on the ; and under
falls on the .
a. FOB; buyer; CIF; seller
b. FOB; seller; CIF; buyer
c. FAS; seller; CIF; buyer
d. FAS; buyer; CIF; buyer
Answer:a

38
 Chapter 10

Test Questions

TRUE/FALSE

1. An exchange rate is the number of units of a given currency that can be purchased for one unit
of another currency.
Answer: True.
2. It is common practice in world currency markets to use the direct quotation; that is, quoting all
exchange rates per U.S. dollar.
Answer: False. It is common practice in world currency markets to use the indirect quotation.
3. Hedging is not always the most appropriate technique to limit foreign exchange risks, but it
helps protect long-term cash flows.
Answer: False. Hedging is not always the most appropriate technique to limit foreign
exchange risks, and does not protect long-term cash flows.
4. A swap transaction is a simultaneous purchase and sale of a certain amount of foreign
currency for three different value dates.
Answer: False. A swap transaction is a simultaneous purchase and sale of a certain amount of
foreign currency for two different value dates.
5. One of the criteria that countries must meet in order to participate in the single European
currency is that inflation rates need to be below 2 to 3 percent.
Answer: True.
6. Public debt cannot be more than 50 percent GDP, and the budget deficit must be less than or
equal to 3 percent GDP for countries that wish to participate in the single European currency.
Answer: False. Public debt cannot be more than 60 percent GDP.
7. The United Kingdom and Austria are countries that declined to participate in the Euro.
Answer: False. Austria did not decline.
8. One reason for the existence of the foreign exchange market is foreign direct investment and
the purchase of foreign stocks and bonds.
Answer: True.

39
9. A swap transaction’s central feature is that the bank arranges to the swap as a double
transaction, usually between two partners.
Answer: False. A swap transaction’s central feature is that the bank arranges the swap as a
single transaction, usually between two partners.
10. Latin American countries are known to peg their currencies to the U.S. dollar.
Answer: True.

MULTIPLE CHOICE
1. quotation is the expression of the number of U.S. dollars required to buy one unit of
foreign currency.
a. Direct
b. Indirect
c. Common
d. None of the above
Answer: a
2. Which of the following is not a reason for individual companies or governments to enter into
the foreign exchange market as buyers or sellers of foreign currencies?
a. Foreign travel and purchase of foreign bonds and stocks
b. Central banks enter the foreign exchange market and buy only foreign currency to
stabilize the national currencies
c. Speculation
d. None of the above
Answer: b (central banks enter the foreign exchange market and buy and sell foreign
currency to stabilize the national currencies)
3. Which of the following defines speculation?
a. Sale of foreign currency at a low rate
b. Purchase of foreign currency at a low rate
c. Barter of foreign currency at high rate
d. Purchase of local currency at a high rate
Answer: b
4. In which of the following places can foreign exchange trading take place?
a. Private office
b. Home
c. Banks
d. All of the above
Answer: d
5. Foreign exchange rates are derivatives of the fundamental factors and conditions in
the market.
a. Economic; geographical
b. Economic; technical
c. Financial; political
d. Political; technical
Answer: b
6. During the 1970s the continuous deterioration in the U.S. trade deficit was mainly due to
which of the following?

40
 a. Increased sale of domestic goods to foreign markets
b. Oversupply of dollars in foreign central banks
c. Low supply of dollars in foreign central banks
d. a and c
Answer: b
7. Which of the following is not an important determinant of supply and demand for foreign
currencies?
a. Interest rates
b. Growth in money supply
c. Inflation
d. Country’s balance of power
Answer: d
8. Currency traders buy currencies of countries with interest rates in order to their
investment returns and sell those currencies with interest rates.
a. Low; minimize; low
b. Low; maximize; low
c. High; maximize; low
d. High; minimize; low
Answer: c
9. Since the end of what year has the dollar lost about half its value against the Euro?
a. 1990
b. 1991
c. 1992
d. 1993
Answer: c
10. The Mexican peso appreciated in 2006 due to:
a. A decrease in the inflow of funds resulting from the rise of international oil prices
b. An increase in the inflow of funds resulting from the rise of international oil prices
c. A decrease in foreign investment
d. All of the above
Answer: b
11. The rupiah has appreciated in value since 2004 due to what reasons?
a. Political stability
b. Economic growth
c. Increase in foreign investment
d. a and b
Answer: d
12. Which of the following is not a type of transaction that contributes to foreign exchange risks
in international trade?
a. Purchase of goods and services whose prices are stated in local currencies
b. Purchase of goods and services whose prices are stated in foreign currencies
c. Sale of goods and services whose prices are stated in local currencies
d. Debt payments are accepted only in local currencies
Answer: b
13. Which of the following countries do not impose restrictions on the use of foreign exchange
markets?

41
 a. France
b. China
c. Japan
d. a and c
Answer: d
14. Which of the following is the most extreme form of exchange restrictions?
a. The limitation of the availability of foreign currency to purchase imports
b. The limitation of the availability of domestic currency to purchase imports
c. The promotion of investment
d. The discharge of debt payments
Answer: a
15. To the extent that an exporter’s inputs are domestic, a strong domestic currency could lead to
of domestic and foreign markets.
a. Loss
b. Gain
c. Weakness
d. Strength
Answer: a
16. Who faces a loss of domestic markets due to the rise in the price of imports if the domestic
currency weakens?
a. Exporters
b. Importers
c. Both exporters and importers
d. None of the above
Answer: b
17. What allows firms to reduce the adverse impact of foreign currency fluctuations?
a. Spot prices
b. Hedging
c. Exchange rates
d. Premiums
Answer: b
18. The difference between hedging in the spot markets and forward markets is that:
a. Forward market hedging does not require borrowing or tying up a certain amount of
money for a period of time.
b. Spot market hedging does not require borrowing or tying up a certain amount of money
for a period of time.
c. Forward market hedging allows for a three day period, since the forward rates are quoted
on a monthly basis.
d. a and c
Answer: a

42
19. What are used to move out of one currency into another for a limited period of time without
the exchange risk of an open position?
a. Swaps
b. Hedges
c. Forwards
d. All of the above
Answer: a
20. If currency changes are likely to result in a 10 percent loss, the price change could be
increased by what percentage?
a. 10
b. 20
c. 30
d. 100
Answer: a
21. In what year did the Euro become the legal currency of the members of the EU?
a. 1996
b. 1997
c. 1998
d. None of the above
Answer: d (in 1999)
22. Which of the following is not a benefit of the Euro?
a. The Euro will reduce the cost of foreign exchange with regard to all intra-European
transactions
b. European businesses will incur low inflation rates and higher interest rates
c. Elimination of exchange rate uncertainty
d. Member states will achieve rapid economic and financial integration
Answer: b
23. The major costs associated with the Euro pertain to:
a. The inability of members to pursue independent policies
b. The ability of members to pursue unionized policies
c. The inability of members to pursue independent fiscal policies only
d. All of the above
Answer: a
24. An contract protects from losses due to depreciation of the currency.
a. Export; importer; importer’s
b. Export; exporter; importer’s
c. Import; importer; importer’s
d. Import; exporter; importer’s
Answer: b
25. Which of the following is a reason for the existence of the foreign exchange market?
a. Foreign travel
b. Foreign investment
c. Payments in foreign currency
d. All of the above
Answer: d

43
 Chapter 13

Test Questions

TRUE/FALSE
1. Many small and medium-sized businesses suffer from undercapitalization and/or poor
management of financial resources, often during the first few years of operation.
Answer: True.
2. In asset-based financing, banks and other commercial lenders provide loans secured by
nonfixed assets.
Answer: False. They are secured by fixed assets.
3. SICBs are private companies funded by the SBA that are established to provide loan
(sometimes equity) capital to small businesses.
Answer: False. SBICs are these companies.
4. Commercial finance companies grant short-term loans using accounts receivable, inventories,
or equipment as collateral. They can also factor (buy) accounts receivable at a discount and
provide the export-import firm the necessary capital for growth and expansion.
Answer: True.
5. Under consignment sales, an exporter will transfer possession or ownership of the
merchandise on a deferred-payment basis (payment deferred for an agreed period of time).
Answer: False. This occurs under an open account, not under consignment sales.
6. Factoring is a continuous arrangement between a factoring concern and the exporter, whereby
the factor purchases export receivables for a somewhat discounted price.
Answer: True.
7. Factoring is not available for shipments with a value of less than $500,000. It is appropriate
for continuous or repetitive transactions (not a one-shot deal). Factors often require access to a
certain volume of the exporter’s yearly sales.
Answer: False. Factoring is unavailable for values less than $100,000.
8. Forms of external financing includes debt or equity financing, short-term/intermediate/long-
term financing, and investment, inventory, or working capital financing.
Answer: True.
9. A long-term financing method includes trade/banker’s acceptance: A draft accepted by the
importer is used as collateral to obtain financing.
Answer: False. A short-term financing method includes this acceptance.
10. Financing by the importer includes advance or progress payments.
Answer: True.

44
 MULTIPLE CHOICE
1. The capital needs and financing alternatives of an export-import business are determined by
which of the following options?
a. Stage of evolution
b. Ownership structure
c. Distribution channel choice
d. All of the above
Answer: d
2. What type of financing occurs when an export-import firm borrows money from a lender with
a promise to repay (principal and interest) at some predetermined future date?
a. Debt
b. Intermediate
c. Short-term
d. a and c
Answer: a
3. It is the best source of financing for initial capital needs or expansion because no interest must
be paid back or equity in the business must be surrendered.
a. Internal
b. External
c. Intermediate
d. Long-term
Answer: a
4. Which type of institution remains the cheapest source of borrowed capital for export-import
firms as well as other small businesses?
a. Family and friends
b. Private lenders
c. Public lenders
d. Banks
Answer: d
5. Commercial lenders usually provide loans up to percent of accounts receivable and
percent of inventory.
a. 50; 60
b. 50; 70
c. 50; 75
d. 50; 80
Answer: d
6. What types of capital sources are generally not required for new or existing export-import
businesses because they are one of the costliest forms of business financing?
a. Personal loans
b. Commercial loans
c. Credit cards
d. SBCs
Answer: c
7. This type of guarantee by the SBA permits a lending institution to provide long-term loans to
start-up or existing small businesses.

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 a. 7(a) Loan Guarantee Program
b. 7(b) Loan Guarantee Program
c. 7(c) Loan Guarantee Program
d. All of the above
Answer: a
8. Identify the correct SBA funding program that best fits this description: designed to increase
the availability of funds under $100,000 and to expedite the loan review process.
a. International trade loan
b. Fast track
c. Low documentation
d. Export working capital
Answer: c
9. The loan ranges from $100 to $25,000, and funds are available to nonprofit intermediaries,
who in turn make loans to small business borrowers. Collateral and personal guarantee are
required. What type of loan is this?
a. Macroloan
b. Microloan
c. Working capital loan
d. International loan
Answer: b
10. Which of the following are different ways of raising capital from finance companies to start
or expand an export-import business?
a. Commercial finance companies
b. Loans from insurance companies
c. Loans from pension funds
d. All of the above
Answer: d
11. The source(s) of equity funding include
a. Business angles
b. Family and friends
c. Venture capitalists
d. All of the above
Answer: d

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12. Which of the following is a reason why venture capitalists may not be suitable for small
export-import firms?
a. Their minimum investment is $100,000–$300,000
b. They expect high returns (10 to 25 percent) on their investments over a relatively short
period of time
c. They seldom provide funding for start-up capital because they are interested in
companies with a proven track record and market position
d. None of the above
Answer: c
13. When extending credit to overseas customers, it is important to recognize the following:
a. Normal commercial terms range from 40 to 120 days for sales of consumer goods,
industrial materials, and agricultural commodities.
b. An allowance may have to be made for longer shipment periods than are found in
domestic trade because foreign buyers are often unwilling to have the credit period start
before receiving the goods.
c. Customers are usually charged interest on credit periods of a year or longer and seldom
on short-term credit of up to 200 days.
d. Overseas consumers must understand the provision of unfavorable financing terms,
where the importer should carefully assess such financing against considerations of cost
and risk of default.
Answer: b
14. International factoring has grown by about percent during the last ten years, amounting to
$ billion in 1994.
a. 110; 20
b. 110; 25
c. 500; 20
d. 500; 25
Answer: c
15. The export factoring business has been traditionally associated with the sale of:
a. Textiles and apparel
b. Carpets
c. Footwear
d. All of the above
Answer: d
16. Identify the step that best describes this statement: The export factor provides (cash in
advance) funds to the exporter against receivables until money is collected from the importer.
The exporter often receives up to 30 percent of the value of the receivables ahead of time and
pay the factor interest on the money received, or the factor pays the exporter, less a commission
charge, when receivables are due (or shortly thereafter). The commission often ranges between 1
and 3 percent. Under factoring, exporters offer terms of sale on:
a. Consignment
b. Documentary draft
c. Open account
d. Letter of credit
Answer: c

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17. Which of the following is not an advantage of export factoring?
a. Factoring allows immediate payment against receivables and increases working capital.
b. Factors conduct credit investigations, collect accounts receivable from importer, and
provide other bookkeeping services.
c. Factoring is not a good substitute for bank credit when the latter is too restrictive or
uneconomical.
d. Factors assume credit risk in the event of buyer's default or refusal to pay.
Answer: c
18. Which of the following statement(s) are not true?
a. Factoring is not available for shipments with value of less than $100,000. It is appropriate
for continuous or repetitive transactions.
b. Factors do not work for receivables with maturity of over 90 days.
c. Factors generally do not work with most developing countries because of their inadequate
legal and financial framework.
d. a and c
Answer: b
19. is the practice of purchasing deferred debts arising from international sales contracts
without recourse to the exporter.
a. Buyer credit
b. Forfeiting
c. Discrepancy
d. Discounting
Answer: b
20. Which of the following is a difference between factoring and forfeiting?
a. Forfeiting is often used to finance consumer goods, whereas factors usually work with
capital goods, commodities, and projects.
b. Factors work with receivables from developing countries whenever they obtain an
acceptable bank guarantor; forfeiters do not finance trade with most developing countries
because of unavailability of credit information, poor credit ratings, or inadequate legal
and financial frameworks.
c. Factors generally work with short-term receivables, whereas forfeiters finance
receivables with a maturity of more than 180 days.
d. Forfeiters are used for continuous transactions, but factors finance one-time deals.
Answer: c
21. Which of the following is not an advantage of forfeiting?
a. Forfeiters purchase receivables as a one-shot deal without requiring an ongoing volume
of business, as in the case of factoring
b. Financing can cover 100 percent of the sale
c. Forfeiter also assumes all of the payment risk
d. Transaction size is usually limited to $250,000 or more
Answer: d

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22. Which of the following is an example of forfeiting?
a. The Bankers Association for Foreign Trade (BAFT) arranged with a cotton machinery
company to sell over $500,000 worth of cotton lint removal machinery payable eleven
months from the date on the bill of lading.
b. Morgan Grenfell Trade Finance Limited purchased receivables from U.S. exporters to
Peru. The finance company required the guarantee of one of the large Peruvian banks and
accepted a repayment period of up to five years.
c. The Export Development Corporation (EDC) of Canada purchases accounts receivable
from Canadian exporters provided the promissory notes issued by the overseas customer
are guaranteed by a bank acceptable to the EDC, the transaction complies with the
Canadian content requirement, and the promissory note does not exceed 85 percent of the
contract price.
d. All of the above
Answer: d
23. Which of the following is not an advantage of leasing?
a. One can lease up-to-date equipment that may be too expensive to purchase.
b. The lessee can always trade in the old equipment in the event of obsolescence and obtain
new even before the end of the lease.
c. The cost of leasing is often lower than other financing methods.
d. All of the above
Answer: c
24. Major changes in small business financing include which of the following?
a. Technology
b. Nationalization
c. Regulation
d. Distribution channels
Answer: a
25. Determinants of capital needs and financing alternatives include which of the following?
a. Stage of evolution
b. Ownership structure
c. Distribution channels
d. All of the above
Answer: d

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 Chapter 17

Test Questions

TRUE/FALSE
1. Products are considered unique when they are imported from other countries.
Answer: True.
2. German machine tools, Japanese cars, and French perfumes are products that are produced
abroad and often of better quality than those produced domestically.
Answer: True.
3. Due to the large gap between the rich and poor in countries throughout the world, today’s
consumers tend not to be quality/brand name conscious, and are not willing to pay a higher price
for good quality products.
Answer: False. Today’s consumers are quality/brand name conscious, and are willing to pay a
higher price for good quality products.
4. Trade fairs are the only method of finding foreign products that are of good quality.
Answer: False. Trade fairs, trade shows, exhibitions, trade publications, and so on are other
ways of finding popular products.
5. In many Asian countries, consumers often base their purchasing decision on proof of
certification for the product or service.
Answer: False. In European, not Asian, countries this occurs.
6. Larger countries (in terms of population) import manufactured goods more frequently on a per
capita basis because they tend to have a less diversified industrial base.
Answer: False. Larger countries (in terms of population) import manufactured goods less
frequently on a per capita basis because they tend to have a more diversified industrial base.
7. Major factors in international supplier selection include financial conditions, trade restrictions,
and cultural and communication barriers.
Answer: True.
8. Selection of the supplier should also be based on the integrity of the product, which includes
the assumptions that the importer does not violate any intellectual property rights registered in
the country.
Answer: True.
9. The disadvantage of outsourcing includes political and labor problems and currency
fluctuations, but it also has the benefits of providing the opportunity to quickly respond to market
changes.
Answer: False. Outsourcing makes it harder to respond to market changes.
10. In this age of intense competition, firms that manufacture standardized products can no
longer rely on firm-specific advantages arising solely from technology.

50
 Answer: True.

MULTIPLE CHOICE

1. Keeping abreast of market trends often helps identify products that are in great demand.
Which of the following is an example of this statement?
a. Increases in the immigrant population from Asia and Latin America have encouraged
growth in the import of more and greater variety of spices.
b. Increases in the agricultural sectors from Mexico and Latin America have encouraged
growth in the import of more and greater variety of agricultural goods.
c. Increases in the textile and apparel industry in China has encouraged growth in the import
of more and greater variety of apparels.
d. Increases in the cotton industry in Africa has encouraged growth in the imports of cotton
to developed nations.
Answer: a
2. The major reason for global sourcing in the industry is the unavailability of needed
products in the U.S. market.
a. Steel
b. Textile
c. Chemical
d. Seafood
Answer: c
3. Trade shows provide importers with the following advantages:
a. A variety of products to buy
b. Opportunities for personal contact
c. Information on competitors
d. All of the above
Answer: d
4. Which of the following trade publications provide business and trade opportunities in various
countries?
a. Trade Channel
b. Asian Sources
c. General Merchandise
d. All of the above
Answer: d

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5. Approximately how many trade shows take place in more than 70 countries every year?
a. 2,000
b. 2,500
c. 3,000
d. 3,500
Answer: a
6. To which individual would a sample of a product be shown to obtain an estimate of the
shipping and insurance cost in order to calculate the price at which the merchandise will be sold?
a. Retailer
b. Importer
c. Exporter
d. Freight forwarder
Answer: d
7. Which of the following is a quality control program used to measure the quality of imports?
a. QS-1400
b. QS-1200
c. QS-9000
d. QS-1000
Answer: c
8. Which of the following companies jointly developed the quality control program for imports?
a. Chrysler, GM, and Ford
b. GE, Unilever, and HLL
c. HLL, GM, and Ford
d. AV, HLL, and Chrysler
Answer: a
9. Which two critical factors determine import levels?
a. Per capita incomes and population size
b. Economic and trade relations
c. Purchasing power parity
d. GDP and FDI
Answer: b
10. Economic theory also suggests that import levels are affected by other factors, including
which of the following?
a. Price of imports, exchange rate, and price of international goods relative to exports
b. Price of imports and exchange rate only
c. Price of imports and price international goods relative to exports
d. Price of imports, exchange rate, and price of domestic goods relative to imports
Answer: d
11. Whereas relative prices have a predictable and systematic impact on imports, price
elasticities tend to be , and in most instances well unity.
a. High; above
b. Low; below
c. High; below
d. Low; above
Answer: b

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12. The study by (1989) examining the factors influencing import demand in Pakistan from
1959 to 1986 found that a policy of devaluation or raising tariffs was not significant in reducing
imports expect in the case of imports of and transport .
a. Sarmad; machinery; equipment
b. Prahald; equipment; machinery
c. Hammond; machinery; equipment
d. Singh; equipment; machinery
Answer: a
13. Which policy led to more import dependence and was a popular economic strategy among
some developing nations, specifically for the purchases of raw materials, components, etc.?
a. Warner-Krenin import substitution policy
b. Import substitution policy
c. Foreign exchange substitution policy
d. FDI substitution policy
Answer: b
14. Which of the following is not a major factor in international supplier selection?
a. Quality assurance
b. Financial conditions
c. Buyer-supplier relationships
d. Exporter-freight forwarder relationships
Answer: d
15. Certification of potential suppliers for strict quality assurance, technical capability to prevent
quality failures, and overall commitment to quality assurance is important for:
a. Quality assurance
b. Financial conditions
c. Buyer-supplier relationships
d. Exporter-freight forwarder relationships
Answer: a
16. Which factors are considered to be important when selecting the right supplier?
a. Protection of IPRs
b. Delivery time
c. Import duty implications
d. All of the above
Answer: d
17. A study conducted in on the decision process of U.S. purchasing agents suggests timely
delivery, product brand name, and style as important factors that determine purchasing decisions.
a. 1981
b. 1982
c. 1983
d. 1984
Answer: c

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18. Which of the following elements are used to identify low cost suppliers?
a. Raw materials, labor costs, current exchange rates, and transportation costs
b. Raw materials, labor costs, and transportation costs only
c. Labor costs and transportation costs only
d. Raw materials and transportation costs only
Answer: a
19. Buyer-supplier relationships includes evaluating:
a. Financial stability of supplier
b. Negotiation flexibility of supplier
c. Supplier’s commitment to quality
d. a and b
Answer: d
20. Final selection of supplier is based on:
a. International knowledge and experience of supplier
b. Supplier’s willingness to devote sufficient time to develop the product
c. Supplier’s willingness to provide training
d. All of the above
Answer: d
21. Lower price, higher-quality products, and advanced technology available from external
sources are all advantages of which of the following systems?
a. Foreign direct investment
b. Outsourcing
c. Direct foreign investment
d. b and c
Answer: b
22. Which of the following is an example of an in-bond plant contractor or wholly owned
operation of the foreign firm?
a. Maquiladora
b. Foreign direct investment
c. Foreign subsidiary
d. Joint venture
Answer: a
23. Foreign producers are able to export through which of the following channels if a direct
channel is adopted?
a. Subsidiary
b. Joint venture
c. Importer
d. All of the above
Answer: d
24. Which of the following is a common mistake by potential importers?
a. Inability to develop an appropriate price structure
b. Insufficient knowledge of the market
c. Failure to invest sufficient time and effort to develop the business
d. All of the above
Answer: d

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25. Which of the following is not used as a tool to finance imports?
a. Closed account
b. Open account
c. Letter of credit
d. Documentary collection
Answer: a

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