Global Sourcing and International Procurement Flashcards

When managing currency risk in international procurement, a purchasing manager uses a forward contract primarily to:

Answer: Lock in an exchange rate today for a transaction that will occur in the future

A forward contract allows a buyer to fix the exchange rate for a future currency transaction, protecting against unfavorable fluctuations in exchange rates between contract signing and payment.

Which payment term is generally considered least risky for the U.S. buyer when purchasing from a new international supplier?

Answer: Open Account (Net 30)

Open Account terms are most favorable to the buyer because payment is made after goods are received and inspected, placing the credit risk on the supplier rather than the buyer.

A Certificate of Origin in international trade is used to:

Answer: Establish the country where goods were manufactured to determine applicable tariff rates

A Certificate of Origin documents the country in which goods were produced, which is used by customs authorities to determine the applicable tariff rate and whether preferential trade agreement rates apply.

When evaluating a foreign supplier's total cost, which factor related to lead time should a procurement manager consider beyond the quoted price?

Answer: Inventory carrying costs associated with longer international lead times

Longer international lead times require buyers to hold more safety stock, increasing inventory carrying costs, which must be factored into the true total cost of international sourcing.

Which organization sets the internationally recognized Incoterms rules used in global trade contracts?

Answer: International Chamber of Commerce (ICC)

The International Chamber of Commerce (ICC) publishes and updates Incoterms rules, which define the responsibilities of buyers and sellers for delivery, risk, and costs in international trade transactions.

A U.S. company importing goods from China receives a notice that an anti-dumping duty has been imposed. This means:

Answer: Chinese goods are being sold in the U.S. below fair market value, harming domestic producers

Anti-dumping duties are imposed when foreign goods are sold in the U.S. at prices below their home market value or cost of production, which can harm competing U.S. industries.

In international procurement, 'country risk' assessment evaluates:

Answer: Political, economic, legal, and operational risks associated with sourcing from a particular country

Country risk assessment examines the full range of risks associated with a source country, including political instability, economic conditions, regulatory environment, infrastructure, and legal system reliability.