CES CES Trade Finance & Payment Methods 1 — Questions and Answers
Question 1: Which payment method offers the greatest security for a US exporter receiving payment from an overseas buyer?
- Open Account
- Cash in Advance
- Documentary Letter of Credit (Correct answer)
- Documentary Collection
Correct answer: Documentary Letter of Credit
A Documentary Letter of Credit provides the highest security for exporters because a bank guarantees payment upon presentation of compliant documents.
Question 2: What does 'sight' mean in the context of a sight letter of credit?
- Payment is due 90 days after shipment
- Payment is made immediately upon presentation of compliant documents (Correct answer)
- Payment is contingent on buyer inspection
- Payment is released after customs clearance
Correct answer: Payment is made immediately upon presentation of compliant documents
A sight LC requires the issuing or nominated bank to pay the exporter immediately when conforming documents are presented.
Question 3: Which US government agency offers export credit insurance to protect exporters against foreign buyer default?
- SBA
- EXIM Bank (Correct answer)
- ITA
- CBP
Correct answer: EXIM Bank
The Export-Import Bank of the United States (EXIM Bank) provides export credit insurance that protects US exporters from commercial and political risks.
Question 4: A US exporter ships goods on open account terms. What is the primary risk?
- Goods may be seized at the foreign port
- The buyer may not pay after receiving the goods (Correct answer)
- The exporter must prepay all freight costs
- Currency conversion delays increase costs
Correct answer: The buyer may not pay after receiving the goods
Open account terms mean goods are shipped before payment, exposing the exporter to the risk of non-payment by the buyer.
Question 5: What is a 'usance' or 'time' draft in documentary collections?
- A draft payable immediately upon presentation
- A draft payable at a specified future date (Correct answer)
- A standby letter of credit
- A demand guarantee issued by the exporter's bank
Correct answer: A draft payable at a specified future date
A usance (time) draft is a bill of exchange that allows the buyer a set number of days (e.g., 30, 60, 90) to pay after acceptance or shipment.
Question 6: Which Incoterms rule requires the seller to bear all costs and risks, including import duties, until the goods are delivered at the named destination?
- DDP (Delivered Duty Paid) (Correct answer)
- DAP (Delivered at Place)
- CIF (Cost, Insurance and Freight)
- FCA (Free Carrier)
Correct answer: DDP (Delivered Duty Paid)
Under DDP, the seller assumes maximum responsibility, covering all transport costs, insurance, and import duties to the named destination.
CES CES Trade Finance & Payment Methods 1
Which payment method offers the greatest security for a US exporter receiving payment from an overseas buyer?