Question

1. An importer always has the option to cancel an irrevocable letter of credit. True or False

2.Factoring involves the sale of accounts receivable to a third party, called a factor, for a discount. True or False

3.Under prepayment, the exporter will not ship the products until the exporter has received payment from the importer. True or False

4.When an exporter sells an account receivable to a factor, the factor will attempt to collect payment from the importer, but if the importer is unable to pay, the factor can collect the payment from the exporter. True or False

5.The commission earned by the bank for creating a banker's acceptance is reflected in the all-in rate. True or False

6.Most of the programs of the Export-Import Bank of the United States are designed to encourage private lenders to finance export trade by assuming some of the credit risk and providing financing to foreign importers when private lenders are unwilling to do so. True or False

Answer 1

1 False - The irrevocable letter of credit can not be revoked except under special pre specified circumstances with the acceptance of all the three parties involved.

2. True - Factoring is a process in which the business entity sells its receivables to a third party called Factor, at a discount.

3. True - Prepayment method means payment before export, i.e. the exporter will not export the goods untill he receive the pyment for these goods.

4. False Factoring (unless specified otherwise) is generally non recourse factoring. It means that if importer is unable to pay the price, the factor cannot collect the payment from the exporter.

5. True - The all in rate reflects all the expenses including the bankers commision.

6. True - The EXIM of US is designed basically to promote the exports and therefore most of the programs of the are designed to encourage private lenders to finance export trade by assuming some of the credit risk and providing financing to foreign importers when private lenders are unwilling to do so.