CPM Global Sourcing and International Procurement 2 — Questions and Answers
Question 1: When managing currency risk in international procurement, a purchasing manager uses a forward contract primarily to:
- Speculate on favorable currency movements to reduce cost
- Lock in an exchange rate today for a transaction that will occur in the future (Correct answer)
- Convert foreign currency to U.S. dollars at the spot rate
- Eliminate the need for foreign currency transactions entirely
Correct 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.
Question 2: Which payment term is generally considered least risky for the U.S. buyer when purchasing from a new international supplier?
- Open Account (Net 30) (Correct answer)
- Advance Payment (Cash in Advance)
- Documentary Collection (Documents Against Payment)
- Confirmed Irrevocable Letter of Credit
Correct 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.
Question 3: A Certificate of Origin in international trade is used to:
- Certify that a product meets the quality standards of the exporting country
- Establish the country where goods were manufactured to determine applicable tariff rates (Correct answer)
- Authorize a foreign supplier to export goods to the United States
- Document the chain of custody of goods during international shipping
Correct 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.
Question 4: When evaluating a foreign supplier's total cost, which factor related to lead time should a procurement manager consider beyond the quoted price?
- The supplier's annual revenue and financial stability
- Inventory carrying costs associated with longer international lead times (Correct answer)
- The foreign government's tax rates on corporate profits
- The supplier's domestic market share in their home country
Correct 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.
Question 5: Which organization sets the internationally recognized Incoterms rules used in global trade contracts?
- World Trade Organization (WTO)
- International Chamber of Commerce (ICC) (Correct answer)
- United Nations Commission on International Trade Law (UNCITRAL)
- International Monetary Fund (IMF)
Correct 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.
Question 6: A U.S. company importing goods from China receives a notice that an anti-dumping duty has been imposed. This means:
- The goods were found to contain hazardous materials
- Chinese goods are being sold in the U.S. below fair market value, harming domestic producers (Correct answer)
- The importer failed to properly declare the value of goods at customs
- China has restricted exports of those goods, making them scarce in the U.S.
Correct 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.
Question 7: In international procurement, 'country risk' assessment evaluates:
- Only the supplier's financial ability to fulfill contracts
- Political, economic, legal, and operational risks associated with sourcing from a particular country (Correct answer)
- The risk that goods will be damaged during international transit
- The likelihood that exchange rates will move unfavorably
Correct 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.
CPM Global Sourcing and International Procurement 2
When managing currency risk in international procurement, a purchasing manager uses a forward contract primarily to: