CPM Global Sourcing and International Procurement 1 — Questions and Answers
Question 1: Which Incoterm places the maximum responsibility on the seller, requiring them to deliver goods to the buyer's named destination with all costs and risks covered?
- FOB (Free On Board)
- DDP (Delivered Duty Paid) (Correct answer)
- EXW (Ex Works)
- CIF (Cost, Insurance, and Freight)
Correct answer: DDP (Delivered Duty Paid)
DDP (Delivered Duty Paid) requires the seller to bear all costs and risks including import duties, taxes, and delivery to the final destination, making it the term most favorable to the buyer.
Question 2: When a U.S. company imports goods from a foreign supplier, which government agency is primarily responsible for assessing and collecting import duties?
- U.S. Department of Commerce
- U.S. Customs and Border Protection (CBP) (Correct answer)
- U.S. Trade Representative (USTR)
- Export-Import Bank of the United States
Correct answer: U.S. Customs and Border Protection (CBP)
U.S. Customs and Border Protection (CBP) is the federal agency responsible for assessing, collecting, and enforcing import duties and customs regulations at the border.
Question 3: A Harmonized Tariff Schedule (HTS) code is used in international trade primarily to:
- Identify the country of origin of imported goods
- Classify products for the purpose of assessing import duties (Correct answer)
- Certify that goods meet international quality standards
- Authorize the transfer of funds between international trading partners
Correct answer: Classify products for the purpose of assessing import duties
HTS codes are standardized numerical codes used to classify imported goods so that the correct tariff rate can be applied by customs authorities.
Question 4: Which of the following is the primary purpose of a Letter of Credit (L/C) in international purchasing transactions?
- To provide a discount for early payment to foreign suppliers
- To guarantee payment to the seller upon presentation of complying documents (Correct answer)
- To establish the legal jurisdiction for resolving trade disputes
- To certify that exported goods comply with the importing country's regulations
Correct answer: To guarantee payment to the seller upon presentation of complying documents
A Letter of Credit guarantees the seller payment from the buyer's bank once the seller presents documents proving compliance with the L/C terms, reducing payment risk in international trade.
Question 5: The total landed cost of an internationally sourced product includes which of the following components?
- Purchase price only
- Purchase price plus domestic transportation only
- Purchase price, freight, insurance, duties, taxes, and other import-related costs (Correct answer)
- Purchase price plus the supplier's profit margin
Correct answer: Purchase price, freight, insurance, duties, taxes, and other import-related costs
Total landed cost encompasses all costs incurred to bring goods to the buyer's location, including purchase price, international freight, insurance, customs duties, taxes, and handling fees.
Question 6: A country designated as a 'Most Favored Nation' (MFN) trading partner means that the U.S. will:
- Give that country preferential tariff rates below MFN rates
- Apply the lowest tariff rates it gives to any other MFN country (Correct answer)
- Eliminate all tariffs on goods from that country
- Provide foreign aid to support that country's export industry
Correct answer: Apply the lowest tariff rates it gives to any other MFN country
MFN status means the U.S. will apply the same (lowest normal) tariff rates to that country's goods as it applies to any other country with MFN status, ensuring non-discriminatory trade treatment.
Question 7: Which international trade agreement significantly reduced tariffs and trade barriers between the United States, Canada, and Mexico?
- General Agreement on Tariffs and Trade (GATT)
- Trans-Pacific Partnership (TPP)
- United States-Mexico-Canada Agreement (USMCA) (Correct answer)
- World Trade Organization (WTO) Agreement
Correct answer: United States-Mexico-Canada Agreement (USMCA)
The USMCA (which replaced NAFTA in 2020) is the trilateral trade agreement governing trade between the U.S., Canada, and Mexico, reducing tariffs and establishing rules of origin requirements.
CPM Global Sourcing and International Procurement 1
Which Incoterm places the maximum responsibility on the seller, requiring them to deliver goods to the buyer's named destination with all costs and risks covered?