Free Online Course in International Business

Knowledge Statement

Knowledge of Related Financial and Legal Costs ( Bank Charges, Insurance Premiums, Legal Fees)

Activity

Based on the available methods of payment for international transactions, identify the costs associated with each.  Using the following scenarios, identify which methods of payment make sense to use and which do not make sense from cost perspective only:

Scenario A

Order Value -  2,000,000

Profit Margin – 40%

Currency - USDollars

Your role – Exporter

Scenario B

Order Value – 15,000

Profit Margin – 60%

Currency – Euro

Your role - Exporter

Scenario C

Order Value – 250,000

Profit Margin – 30%

Currency – Japanese Yen

Your role – Importer

Scenario D

Order Value – 75,000

Profit Margin – 50%

Currency – US Dollars

Your role - Importer

Assessment

1.                     Letter of credit fees are

a.      negotiable, but extensive.

b.      not negotiable and extensive.

c.       too high to pay no matter what the risk.

d.      very reasonable and easy to absorb.

2.                     The cost for a documentary collection is less expensive than a letter of credit because the bank

a.      does not transfer the funds.

b.      does not transfer the documents.

c.       does not exchange the currency.

d.      does not assume any risk.

3.                     Export credit insurance rates are based on

a.      the country of origin and company bankruptcy rates.

b.      the country of destination, company risk and value of credit.

c.       the laws of the countries involved in the transaction.

d.      the contract written and signed by the buyer and seller.

4.                     Letter of credit fees are generally

a.      paid for by the applicant.

b.      paid for by customs.

c.       shared by the applicant & beneficiary.

d.      paid by the freight forwarder.

(Correct answers: 1=a, 2=d, 3=b, 4=c)