ch 1920

Consider an exporter that sells its accounts receivables to another firm that becomes responsible for obtaining payment from the various importers. This reflects:

• accounts receivable financing.

• consignment.

• factoring.

• a letter of credit.

Consider a bank that acknowledges that it will make payment on behalf of a computer importer after the bank receives documents showing that the computers have been shipped to the importer. This reflects:

• accounts receivable financing.

• forfaiting

• letters of credit

• factoring

When products are shipped under a ______, the exporter is paid once the shipment is made and the draft is presented to the importer for payment.

• consignment arrangement

• time draft

• prepayment arrangement

• sight draft

An exchange of products between two parties under two distinct contracts expressed in monetary terms is:

• compensation.

• a counterpurchase.

• factoring.

• accounts receivable financing.

The risk to the exporter is highest with the ____ payment method.

• prepayment

• letter of credit

• sight draft

• open account

Countries with a ____ rate of inflation tend to have a ____ interest rate.

• high; low

• low; high

• high; high

• high; low AND low; high

If Boston Co. has ____ in Canadian dollars, it could reduce its exposure to exchange rate risk by borrowing ____.

• payables; U.S. dollars

• receivables; U.S. dollars

• payables; Canadian dollars

• receivables; Canadian dollars

A negative effective financing rate for a U.S. firm indicates that the firm:

• will incur a loss on the project financed with the funds.

• paid more interest on the funds than what it would have paid if it had borrowed dollars.

• will be unable to repay the loan.

• None of these are correct.

The effective financing rate of financing in a foreign currency is directly determined by the ____ over the loan period and the ____ over the loan period.

• interest rate of the domestic currency; percentage change in the value of the foreign currency

• interest rate of the foreign currency; percentage change in the value of the foreign currency

• interest rate of the foreign currency; percentage change in inflation

• interest rate of the domestic currency; percentage change in inflation