INPA LU4 THEME 1

Who are the principal parties in an international sale?

• The buyer, seller, and transport company

• The buyer, seller, and financier

• The buyer, seller, and government

• The buyer, seller, and insurance agent

Answer explanation

In an international sale, the principal parties are the buyer, seller, and financier. The financier provides the necessary funding for the transaction, making them essential to the process.

What is a key risk in international sales compared to domestic sales?

• More reliable delivery times

• Less access to information about the other party

• Higher transportation costs

• Lower quality of goods

Answer explanation

In international sales, there is often less access to information about the other party due to language barriers, cultural differences, and varying regulations, making it a key risk compared to domestic sales.

What type of document is crucial in an international sale?

• Purchase order

• Transport document

• Warranty certificate

• Sales contract

Answer explanation

In an international sale, a transport document is crucial as it serves as proof of shipment and ownership, facilitating customs clearance and ensuring the buyer receives the goods. Other documents are important but not as critical.

What does CIF stand for in international sales?

• Cost, Interest, and Fees

• Cost, Insurance, and Freight

• Credit, Invoice, and Freight

• Credit, Insurance, and Freight

Answer explanation

CIF stands for Cost, Insurance, and Freight, which refers to the total cost of goods including insurance and freight charges in international sales. This distinguishes it from other options that do not accurately represent CIF.

Which payment method allows the buyer to pay after receiving goods?

• Documentary collection

• Open-account payment

• Payment in advance

• Documentary credit

Answer explanation

Open-account payment allows buyers to receive goods before making payment, providing them with the opportunity to inspect the products first. This contrasts with other methods like payment in advance, where payment is required upfront.

What is factoring in the context of international trade?

• A legal document

• A financing method where a third party discounts invoices

• A type of insurance

• A method of payment

Answer explanation

Factoring in international trade refers to a financing method where a third party, known as a factor, purchases and discounts invoices from exporters, providing immediate cash flow and reducing credit risk.

What is a documentary credit?

• A transport document

• A sales contract

• A bank's assurance of payment against specified documents

• A type of insurance policy

Answer explanation

A documentary credit is a financial instrument issued by a bank, guaranteeing payment to a seller upon presentation of specified documents. This makes 'A bank's assurance of payment against specified documents' the correct choice.

What does the term 'documents against payment' mean?

• The buyer pays after receiving documents

• The seller ships goods without documents

• The seller releases documents only after payment

• The buyer pays before receiving documents

Answer explanation

The term 'documents against payment' means that the seller will only release the shipping documents to the buyer after receiving payment. This ensures that the seller is compensated before the buyer can claim the goods.

Which of the following is NOT a method of payment in international sales?

• Payment by documentary collection

• Open-account payment

• Payment by cash on delivery

• Payment in advance

Answer explanation

Payment by cash on delivery is not a common method in international sales, as it requires the buyer to pay upon receipt, which can be impractical across borders. The other options are standard methods used in international transactions.

What is the role of the advising bank in a documentary credit transaction?

• To issue the credit

• To collect payment from the buyer

• To advise the seller about the credit

• To guarantee payment to the seller

Answer explanation

The advising bank's role is to inform the seller about the documentary credit issued by the buyer's bank, ensuring the seller understands the terms and conditions. Thus, the correct answer is to advise the seller about the credit.