Trade Documentation & Payment Methods Flashcards

A U.S. exporter sells chemical intermediates to a German buyer. Which document certifies that the goods meet the importing country's standards or the buyer's regulatory requirements?

Answer: Certificate of conformity (or inspection certificate)

A certificate of conformity or inspection certificate, often issued by a third-party inspection agency, confirms the goods meet specified technical or regulatory standards.

Which payment method provides an exporter with the LEAST risk but may make the exporter LEAST competitive in markets where buyers prefer extended terms?

Answer: Cash in advance (prepayment)

Cash in advance eliminates credit risk for the exporter entirely, but places all risk on the buyer and can deter buyers who can obtain better terms from competitors.

An airway bill (AWB) differs from an ocean bill of lading in that the AWB is:

Answer: A non-negotiable receipt and contract of carriage that cannot transfer title

Unlike an ocean B/L, an airway bill is always non-negotiable — it names the consignee and cannot be used to transfer title to goods in transit.

Export credit insurance provided by EXIM Bank primarily helps U.S. exporters by:

Answer: Protecting against non-payment by foreign buyers due to commercial or political risk

EXIM Bank's export credit insurance covers the exporter against losses from buyer default (commercial risk) and events like war or currency inconvertibility (political risk).

On a commercial invoice for export, the 'terms of sale' field typically refers to:

Answer: The Incoterm agreed upon, defining delivery point and risk transfer

The terms of sale on a commercial invoice reference the agreed Incoterm (e.g., FOB Los Angeles, CIF Hamburg) that establishes where risk and cost responsibility transfer.

A 'red clause' letter of credit differs from a standard LC because it:

Answer: Allows the beneficiary to draw advance funds before shipment against a simple receipt

A red clause LC (historically typed in red ink) permits the beneficiary to receive pre-shipment advances from the advising/nominated bank against a receipt and undertaking to ship.

When a foreign buyer requests a 'transferable' letter of credit, what does this allow the first beneficiary (exporter) to do?

Answer: Transfer the credit in whole or in part to one or more second beneficiaries

A transferable LC allows the first beneficiary to transfer the credit (in whole or part) to one or more second beneficiaries, typically suppliers, so they can be paid directly.