VI - True or False and Simple Choice
A. FINANCING FOREIGN TRADE
1. International Trade Documents
1.
Which of the following are financial documents used in international trade?
a. Bills of exchange.
b. Letters of credit.
c. Promissory notes.
d. All of the above.
e. Both a. and c. above.
B. BILLS OF LADING
1. The Essential Document for All International Sales
2.
A bill of lading is a document of title.
C. BILLS OF EXCHANGE
3.
A bill of exchange (or draft) is a “two party” instrument; that is, it is an unconditional
order from a drawer promising to pay a payee a definite sum of money.
4.
Because bills of exchange are negotiable instruments they are more readily salable
and, therefore, useful financial tools for raising money.
1. The Laws Governing Bills of Exchange
5.
The Lex Mercantoria (the old medieval fair law) did not recognize bills of exchange
because to have done so would have violated the medieval Christian Church’s
prohibition against interest on loans.
6.
The English Bills of Exchange Act (BEA) of 1882 was based on the medieval Lex
Mercantoria.
7.
The Uniform Law on Bills of Exchange and Promissory Notes (ULB) is actually
three separate conventions.
8.
Because the English Bills of Exchange Act (BEA), the American Uniform
Commercial Code (UCC), and the Uniform Law on Bills of Exchange and
Promissory Notes (ULB) are all based on the medieval Lex Mercantoria, they are
remarkably similar both in arrangement and content.
9.
In continental Europe, the Uniform Law for Checks (ULC) governs the making of
checks.
10. The International Chamber of Commerce’s Uniform Rules for Collections (ICC
Rules) regulate the collection and/or enforcement of:
a. bills of exchange.
b. checks.
c. promissory notes.
d. All of the above.
e. Both a. and c. above.
11. In common law countries, a bill of exchange or draft must contain the term “bill of
exchange” both in the heading and the language of the instrument.
12. According to the Bills of Exchange Act (BEA) and the Uniform Commercial Code
(UCC), a bill of exchange must:
a. be in writing.
b. be payable “to order” or “to bearer.”
c. contain the term “bill of exchange” in the heading and the language of the
instrument.
d. All of the above.
e. Both a. and b. above.
13. Which of the following require(s) that the words “bill of exchange” be in both the
heading and the language of a bill of exchange?
a. Bills of Exchange Act (BEA).
b. Uniform Law on Bills of Exchange and Promissory Notes (ULB).
c. All of the above.
d. None of the above.
14. According to the Uniform Law on Bills of Exchange and Promissory Notes (ULB), a
bill of exchange or promissory note must:
a. be in writing.
b. be payable either “to order” or “to bearer.”
c. contain the term “bill of exchange” in both the heading and the language of the
instrument.
d. All of the above.
e. Both a. and b. above.
15. According to the Uniform Law on Bills of Exchange and Promissory Notes (ULB), a
bill of exchange or promissory note must:
a. be dated.
b. state the place where payment is to be made.
c. state the place where the bill is drawn.
d. All of the above.
e. Both b. and c.
2. Types of Bills of Exchange
a.
Time and Sight Bills
16. A “time bill of exchange” is one that the drawee must pay at a definite future time.
17. The drawee must pay a sight (or demand) bill:
a. at a definite future time.
b. at a stated time after the holder presents the bill for payment.
c. when the holder presents the bill for payment.
d. Either b. or c. above.
e. None of the above.
b. Trade Acceptances
18. A “trade acceptance” involves:
a. a drawee who buys goods from a drawer and owes the sale price to the drawer.
b. a drawer who buys goods from a drawee and owes the sale price to the drawee.
c. a maker who buys goods from a payee and owes the sale price to the payee.
d. a payee who buys goods from a maker and owes the sale price to the maker.
e. None of the above.
c.
Checks
19. Checks are always payable on demand.
D. PROMISSORY NOTES
20. A promissory note is a three party instrument whose parties are the “drawer,” the
“drawee” and the “payee.”
21. Unlike a bill of exchange which is a three party instrument, there are only two parties
to a promissory note: a maker and a payee.
22. Which of the following promissory notes is secured by personal property?
a. Certificate of Deposit.
b. Collateral note.
c.
d.
e.
Installment note.
Mortgage note.
None of the above.
23. Which of the following is a promissory note?
a. Certificate of Deposit.
b. Check.
c. Sight draft.
d. Time bill of exchange.
e. Trade acceptance.
1. Types of Notes
24. The maker of a Certificate of Deposit (CD) is a bank..
E. NEGOTIABILITY OF BILLS AND NOTES
1. Requirements of Negotiability:
25. In order for a bill of exchange or a promissory note to be negotiable, it must:
a. be payable on demand or at a time specified by the payee.
b. state an unconditional promise or order to pay.
c. state a definite sum of money or a commodity (such as gold) readily convertible
into money.
d. All of the above.
e. Both a. and b. above.
2. Unconditional Promise or Order to Pay
26. A statement in a bill of exchange that the bill is not payable until after the payee
delivers goods to the drawer will not affect the bill’s negotiability.
27. A statement in a promissory note that the maker’s performance is secured by a
mortgage will not affect the note’s negotiability.
28. A statement in a bill of exchange that the bill is drawn under a letter of credit will not
affect the bill’s negotiability.
3. Definite Sum of Money or Monetary Unit of Account
29. The requirement that a bill of exchange contain a promise to pay a definite sum of
money is satisfied if the money is a monetary unit of account which is established by
an intergovernmental institution.
30. Because the sum of money that the drawee of a bill of exchange must pay has to be
ascertainable from the face of the bill itself, a bill cannot be drawn in one currency
and payable in another since this would require the drawee to refer to exchange rates
that are not embodied in the bill or note.
31. Which of the following allows the interest due on a bill of exchange or promissory
note to be based on a variable interest rate?
a. Bills of Exchange Act (BEA).
b. Uniform Law on Bills of Exchange and Promissory Notes (ULB).
c. Both of the above.
d. None of the above.
4. Payable on Demand or at a Definite Time
32. The reason why the time when a bill of exchange or promissory note is payable has
to be ascertainable from its face is because this:
a. allows secondary parties to determine the date when their obligations arise.
b. defines the period for calculating the present value of interest bearing bills and
notes.
c. establishes when the statute of limitations will run.
d. All of the above.
e. Both b. and c. above.
33. Which of the following allow(s) a bill of exchange or promissory note to contain an
acceleration clause (i.e., a clause that pushes forward the date when instruments are
payable if an installment payment is missed)?
a. Bills of Exchange Act (BEA).
b. Uniform Law on Bills of Exchange and Promissory Notes (ULB).
c. Both of the above.
d. None of the above.
34. Which of the following allow(s) a bill of exchange or promissory note to contain an
extension clause (i.e., a clause that lets the maker or drawer postpone a payment for a
fixed time period)?
a. Bills of Exchange Act (BEA).
b. Uniform Law on Bills of Exchange and Promissory Notes (ULB).
c. Both of the above.
d. None of the above.
5. Signed by the Maker or Drawer
35. Which of the following can be used by a maker or drawer as a “signature” on a bill of
exchange or a promissory note?
a. A handwritten “happy face” symbol.
b. The maker’s or drawer’s handwritten name.
c. The maker’s or drawer’s initials.
d. Any of the above.
e. Either b. or c. above.
36. The payee of a bill of exchange or promissory note cannot collect on the instrument
unless the drawer or maker’s signature was placed on the instrument prior to it being
delivered to the payee.
F. THE NEGOTIATION AND TRANSFER OF BILLS AND NOTES
1. Assignment
37. If a bill of exchange or promissory note is assigned,
a. an assignee can acquire more rights from the assignment than the assignor
possessed.
b. an assignee acquires only those rights that the assignor possessed.
c. any objections to honoring the assigned obligations that could be raised against
the assignor can be raised against the assignee.
d. both b. and c. above.
e. None of the above.
2. Negotiation
38. When a bill of exchange or promissory note is properly negotiated, the recipient
becomes a holder.
a.
Negotiating Order Paper
39. “Order paper” is a bill of exchange or a promissory note that is payable to a named
payee.
40. A bill of exchange or a promissory note that is “order paper” may be negotiated
merely by making delivery.
b. Negotiating Bearer Paper
41. “Bearer paper” is a bill of exchange or a promissory note that is payable to the bearer
or to cash.
42. A bill of exchange or a promissory note that is “bearer paper” is negotiated by
endorsement and delivery.
c.
Converting Order to Bearer Paper and Bearer to Order Paper
43. “Order paper” may be converted to “bearer paper” by:
a. a special endorsement.
b. an endorsement in blank.
c. an endorsement to pay to the bearer.
d. Either a. or c. above.
e. Either b. or c. above.
44. The endorsement “Pay to John Adams (signed) Jane Smith” on a negotiable
instrument is called an endorsement in blank.
d. Endorsement
45. The following endorsement on the back of a bill of exchange or promissory note
pay to
Bill Smith
John Doe
is a/an:
a.
b.
c.
d.
e.
agency endorsement.
blank endorsement.
qualified endorsement.
restrictive endorsement.
special endorsement.
46. The following endorsement on the back of a bill of exchange or promissory note
without recourse
John Doe
is a/an:
a.
b.
c.
d.
e.
agency endorsement.
blank endorsement.
qualified endorsement.
restrictive endorsement.
special endorsement.
47. The following endorsement on the back of a bill of exchange or promissory note
pay to Adam Farmer on his
delivery of 400 bu. Gala apples to
my Warehouse No. 7
Jane Doe
is a/an:
a. agency endorsement.
b. blank endorsement.
c.
d.
e.
qualified endorsement.
restrictive endorsement.
special endorsement.
3. Forged Endorsements
48. According to which of the following is a forged endorsement of a negotiable
instrument fully effective (i.e. both the person taking a forged instrument and all
subsequent holders are entitled to payment)?
a. Bills of Exchange Act (BEA).
b. Uniform Commercial Code (UCC).
c. Uniform Law on Bills of Exchange and Promissory Notes (ULB).
d. All of the above.
e. Both a. and b. above.
49. In the United States, if a maker draws a check to someone who is really an imposter
(that is, someone who is pretending to be someone else), then any endorsement the
imposter adds to the check will be ineffective, and the person taking the check from
him will have no rights against the maker.
50. In the United States, if a maker draws a check to a payee who does not exist (a
“fictitious payee”), then any endorsement added by the persons who has caused the
check to be drawn will be ineffective, and the person taking the check from him will
have no rights against the maker.
4. Limitations on the Excuses that Drawers and Makers Can Use to Avoid
Paying Off a Bill or Note
51. According to the Uniform Law on Bills of Exchange and Promissory Notes (the
ULB), which of the following possessors of a bill or note are NOT entitled to payment
from the maker or drawer?
a. A holder who did not acquire title through an uninterrupted series of
endorsements.
b. A holder who acquired the instrument in bad faith.
c. A holder who acquired the instrument through gross negligence.
d. All of the above.
e. Both a. and b. above.
52. A “holder in due course” is one who has acquired a bill of exchange or promissory
note:
a. by negotiation.
b. by paying value for it.
c. in good faith.
d. All of the above.
e. Both b. and c. above.
53. According to the Bills of Exchange Act (BEA) and the Uniform Commercial Code
(UCC), the drawer of a bill of exchange and the maker of a promissory note may not
assert “real defenses” against a holder in due course.
54. According to the Bills of Exchange Act (BEA) and the Uniform Commercial Code
(UCC), which of the following is a “personal defense”?
a. Discharge in bankruptcy.
b. Fraud in the execution.
c. Material alteration.
d. Unauthorized completion of an incomplete instrument.
e. None of the above.
55. According to the Bills of Exchange Act (BEA) and the Uniform Commercial Code
(UCC), which of the following is a “real defense”?
a. Breach of contract.
b. Forgery.
c. Fraud in the inducement.
d. Lack or failure of consideration.
e. None of the above.
56 A “protected holder” is one who has acquired a bill of exchange or promissory note:
a. by negotiation.
b. by paying value for it.
c. in good faith.
d. All of the above.
e. Both a. and c. above.
5. Liabilities of Makers, Drawers, Drawees, Endorsers, and
Accommodation Parties
a.
Liability on the Instrument
57. Which of the following have “primary” liability to make payment on presentment of
a bill of exchange or a promissory note?
a. Drawees and makers.
b. Drawers and makers.
c. Drawees and endorsers.
d. Drawers and endorsers.
e. None of the above.
58. Which of the following have “secondary” liability to make payment following the
presentment of a bill of exchange or a promissory note?
a. Drawees and makers.
b. Drawers and makers.
c. Drawees and endorsers.
d. Drawers and endorsers.
e. One of the above.
59. Before a drawer of a bill of exchange will have liability to pay the instrument,
a.
b.
c.
d.
e.
the drawer must have been notified.
the instrument must have been protested.
the instrument must have been timely presented at the place required with all
necessary endorsements.
All of the above.
Both a. and c. above.
60. Before an endorser of a promissory note will have liability to pay the instrument,
a. the endorser must have been notified.
b. the instrument must have been protested.
c. the instrument must have been timely presented at the place required with all
necessary endorsements.
d. All of the above.
e. Both a. and c. above.
b. Warranty Liability
61. Which of the following provides for warranty liability on a negotiable instrument?
a. Bills of Exchange Act (BEA).
b. Uniform Commercial Code (UCC).
c. Uniform Law on Bills of Exchange and Promissory Notes (ULB).
d. All of the above.
e. Both a. and b. above.
62. According to the Uniform Commercial Code, a transferor of a negotiable instrument
makes which of the following warranties to a transferee?
a. That all signatures are genuine or authorized.
b. That no defense of any party is good against the transferor.
c. That the instrument has not been materially altered.
d. All of the above.
e. None of the above.
6. The Role of Banks in Collecting and Paying Negotiable Instruments
63. Which of the following functions do banks perform in connection with negotiation of
bills of exchange and promissory notes?
a. They act as the collecting agent for holders and transferees.
b. They assume primary liability (both as drawees and acceptors).
c. They take instruments as endorsees, paying the endorser, and presenting the
instrument for payment in their own right.
d. All of the above.
e. Both a. and c. above.
G. LETTERS OF CREDIT
64. Buyers enter into letter of credit transactions because they like to make sure that the
goods they are buying are actually shipped and that the goods shipped meet the
contractual specifications.
65. A “documents against payment” term in an international sales contract is used when
the buyer wants to confirm that the goods have been shipped before making payment.
66. A “documents against acceptance” term in an international sales contract is used
when the buyer insists upon taking delivery before making payment.
67. A letter of credit is a conditional agreement between an issuer and an account party
that is intended to benefit a third party.
68. An issuer of a letter of credit is required to pay a bill of exchange drawn by the
account party, up to a certain sum of money,
a. only after the account party has had the opportunity to examine the goods
involved in the transaction.
b. only during a stated time period.
c. only upon presentation by the beneficiary of documents designated by the
account party.
d. All of the above.
e. Both b. and c. above.
69. Which of the following letters of credit cannot be altered without the beneficiary’s
express consent?
a. Clean.
b. Confirmed.
c. Irrevocable.
d. Red Clause.
e. None of the above.
70. An irrevocable letter of credit is a credit on which a second bank has added its
endorsement, indicating that it, too, will make payment against the specified
documents.
71. Which of the following letters of credit allows the beneficiary to obtain payment
without presenting any documentation?
a. Clean.
b. Confirmed.
c. Irrevocable.
d. Red Clause.
e. None of the above.
72. A standby letter of credit is a letter of credit wherein the buyer is named as the
beneficiary.
73. Which of the following letters of credit allows the seller to obtain advances before he
presents all of the required documents?
a. Clean.
b. Confirmed.
c. Irrevocable.
d. Red Clause.
e. None of the above.
1. Governing Law
74. The International Chamber of Commerce’s Uniform Customs and Practices for
Documentary Credits (UCP) governs virtually all international letter of credit
transactions.
2. Applying for a Letter of Credit
75. Mr. X agrees that if he can obtain a letter of credit, he will purchase widgets from
Mr. Y. Mr. X does not do so.
a. The contract is breached.
b. The contract is not breached because the obligation to secure the letter of credit
was a condition concurrent to the performance of the contract.
c. The contract is not breached because the obligation to secure the letter of credit
was a condition of performance of the contract.
d. The contract is not breached because the obligation to secure the letter of credit
was a condition precedent to the formation of the contract.
e. The contract is not breached because the obligation to secure the letter of credit
was a condition subsequent to the formation of the contract.
3. The Consequences of Not Obtaining a Letter of Credit
76. If the procurement of a letter of credit is a condition precedent to the formation of a
contract, then a party’s failure to obtain the letter will result in a breach of the
contract.
77. If the procurement of a letter of credit is a condition subsequent to the formation of a
contract, then a party’s failure to obtain the letter will not result in a breach of the
contract.
4. Documentary Formalities
78. A letter of credit must:
a. be in writing.
b. be signed by the issuer.
c. name the bank or banks which is/are authorized to accept bills of exchange
drawn in accordance with the letter.
d. All of the above.
e. Both b. and c. above.
5. Advising and Confirming Letters of Credit
79. An advising bank:
a. assumes responsibility for paying the letter of credit.
b. is a corresponding bank in the beneficiary’s county which delivers the credit to
the beneficiary.
c. is liable to the beneficiary if it fails to take “reasonable care to check the
apparent authenticity of the credit.”
d. All of the above.
e. None of the above.
80. A confirming bank:
a. assumes responsibility for paying the letter of credit.
b. is a corresponding bank in the beneficiary’s county which delivers the credit to
the beneficiary.
c. is liable to the account party if it fails to take “reasonable care to check the
apparent authenticity of the credit.”
d. All of the above.
e. Both a. and b. above.
6. The Obligations of Banks
81. Issuing banks and confirming banks only have to examine the documents described
in a letter of credit with reasonable care to determine that they appear on their face to
be in accordance with the terms and conditions of the letter of credit.
82. A paying, accepting, or negotiating bank which believes that the documents required
by a letter of credit are irregular must not pay on the letter of credit, but must pass the
documents along to the issuing bank for it to determine whether to honor or refuse
them.
83. Even if the documents required by a letter of credit appear to be regular on their face,
an issuing or confirming bank must not pay on the letter of credit if its account party
notifies the bank that the goods involved in the transaction do not meet contractual
requirements.
84. If the documents required by a letter of credit appear to be regular on their face, an
issuing or confirming bank should not pay on the letter of credit if its account party
notifies the bank that:
a. the goods are defective.
b. the goods are not packaged as required by the contract.
c. the goods were not delivered.
d. All of the above.
e. None of the above.
85. A letter of credit authorized the issuing bank to pay the beneficiary upon his delivery
of a bill of lading made out to “Mr. Doe.” The beneficiary produced a bill of lading
made out to “Mr. Dow.” The bank will be in breach of its letter of credit obligation
if it does not pay the beneficiary.
86. A letter of credit contains a typographical error of some significance. In order to
amend the letter of credit, approval has to be obtained from:
a. the account party.
b. the beneficiary.
c. the issuing bank.
d. All of the above.
e. Both a. and c. above.
87. If the seller delivered mislabeled goods to a carrier to obtain the documents it needed
to collect against a letter of credit, the issuing bank may nevertheless pay the seller
even if it knows of this.
88. An issuing bank does not have to reimburse a collecting bank when the collecting
bank knows of, and will benefit from, a fraud in a letter of credit transaction.
7. Rights and Responsibilities of the Account Party
89. An account party may hold an advising or confirming bank liable for failing to carry
out its obligations in a letter of credit transaction.
8. Rights and Responsibilities of Beneficiaries
90. The right of a beneficiary to enforce a letter of credit is not a contractual right, but is
a right based on commercial practice.
H. FINANCING FOREIGN OPERATIONS
1. Private Sources of Capital
91. Debt and equity funding are available from the private sector to finance the
operations of multinational ventures.
2. Governmental Sources of Capital
92. Host country development banks and government agencies often provide low-interest
rate, long-term loans to foreign investors.
3. Regional and International Development Agencies
93. Which of the following agencies provide development funds to private companies?
a. International Bank for Reconstruction and Development (IRBD).
b. International Development Association (IDA).
c. International Finance Corporation (IFC).
d. All of the above.
e. None of the above.
I. COUNTERTRADE
94. Which of the following transactions would be a form of countertrade?
a. X exchanges 1,000 pairs of shoes for 10,000 pairs of socks from Y.
b. X provides Y with equipment for manufacturing CDs. Y uses the equipment to
earn income to pay X for the equipment.
c. To secure a large sale of aircraft to the government of State X, aircraft seller Y
agrees to purchase 20 percent of State X’s wheat crop for the next 3 years,
d. All of the above.
e. Both a. and c. above.