INTERNATIONAL BUSINESS TRANSACTIONS EXAM QUESTION
ANSWERS
*CH. c1*: cCommerce cor cIsolation: cThe cDecision cto cTrade, cTransfer cTechnology cand cInvest cAb
cModern cinternational cbusiness claw ctook cshape cprincipally cin cthe cfew cdecades cfollowing cthe cd
• cBretton cWoods cConferences ccreated cthe cGATT.
• cConvention con cContracts cfor cthe cInternational cSale cof cGoods c(CISG)
1. cThe cWorld cBank
2. cInternational cMonetary cFund
3. cGeneral cAgreement con cTariffs cand cTrade c(GATT) c- cCORRECT cANS✔✔*Three cmost cimpor
cinternational cfinancial csystems*:
c- cCORRECT cANS✔✔*CH. c4*: cAGREEMENTS cFOR cTHE cINTERNATIONAL cTRADING cOF cG
*The cBasic cTransaction: cToys cto cGreece c(documentary csales ctransaction)*
*Facts*: cSanta cClause cCo cof cEast cAurora, cNY cwill csell ctoys cto cAlpha cCo., cof cAthens, cGreece
Alpha c= cBuyer cin cAthens cGreece
*Sales cContract* c- cbetween cthe cbuyer cand cSeller
*Contract's cEssential cTerms*: cQuantity, cQuality, cPrice, cPayment c
*Payment cTerms*: cEx c- c"irrevocable cletter cof ccredit cconfirmed cby cU.S. cbank cand ccalling cfor cp
cNY, cUSA cin cU.S. cdollars." cThe cseller cwants cthese cterms cto celiminate cthe crisk cof cnonpaymen
Letter cof cCredit cContract: c- cCORRECT cANS✔✔Independent ccontract; cessentially ca cpromise cfr
cthe cseller c(beneficiary). c
Buyer cis cthe c"applicant" cor c"account cparty." c
,The cUCC: cArt. c2, c5, c7 cgovern c- cCORRECT cANS✔✔- cArt. c2 cgoverns cSales
- cArt. c5 cgoverns cLetters cof cCredit
- cArt. c7 cgoverns cDocuments cof cTitle
*Indorsement* c- cCORRECT cANS✔✔By cindorsing cthe cdraft cthe cshipper ctransfers cto cthat cbank
cissuing cbank; cand cby cindorsing cthe cbill cof clading cover cto cthe cconfirming cbank, cit ctransfers cto
cgoods cnow cin ctransit cwith cthe ccarrier c(because, cagain, cwith ca cnegotiable cbill cthe ccarrier cmay
cperson cin cpossession cof cthe cbill cof clading cand c*only cif cit cis cproperly cindorsed*.
*Part cA.* cHow cis can cInternational cCommercial cTransaction cDifferent cfrom ca cDomestic cOne? c-
conly ca cdifference cof cdegree
- cGreater cgeographic cdistances
- cIt's cunlikely cthat cthe cbuyer cand cthe cseller cwill cknow ceach cother c(requires creliable cintermedia
- cCurrency cand clocation cof cpayment cissues c(hard ccurrency cvs. csoft ccurrency)
- cRegulations
- cThe creach cof cthe clegal csystem cof cthe cother ccountry c(whose claw capplies) c(domestic claw cof c
cof cthe cseller)
- cPublic cinternational claw c(international claw) cmay calso capply cto ca ctransaction
- cPrivate cinternational claw c(generally cthe claws cbetween ctwo centities cfrom cdifferent cnations ctran
ctheir ccontract). c
- cWho/what claw capplies cto cthe ctransaction cis cone cof cthe cmost cimportant cquestions cto cask c(in
- cIntellectual cproperty claws cthat cdiffer c(try cto charmonize cthese claws cthrough ctreaties)
*Three cPrinciple cResponses cto cChallenges*: c- cCORRECT cANS✔✔1. cInternational ctreaties cfor c
cother) ctransactions. c(uniform crules)
2. cDefine crespective crights cand cobligations cclearly cthrough cuniform ccontract cpractices
3. cDevices cthat ctake crisk cand cbreak cthem cdown cinto csmaller cand cmeasurable crisk.
*Three cmost cimportant ccontracts cto ca cdocumentary csales ctransaction*: c- cCORRECT cANS✔✔1
2. cLetter cof ccredit
3. cBill cof clading
*Federal cBills cof cLading cAct* c(pg. c1003 cof cthe csupplement) c- cCORRECT cANS✔✔Also cknown
c(chapter c801 cof ctitle c49) cfederal claw cthat cmay capply cto can cinternational cbill cof clading. c
When cdoes cit capply c(application)? cFor cexample, ca cshipment cfrom ca cState cto ca cforeign ccountr
cOUTWARD c
Applies cINTERSTATE
Domestic cBills cof cLading care cgoverned cby c. c. c. c- cCORRECT cANS✔✔Governed cby cstate claw c
*A cBill cof cLading chas cthree cfunctions*: c- cCORRECT cANS✔✔1) cA creceipt c
2) cA ccontract
3) cA cdocument cof ctitle
Article cVII cof cthe cUCC: cGoverns cdocuments cof ctitle. cThe cbill cof clading cis ca cdocument cof ctitle.
*Carriage cof cGoods cby cSea cAct* c(COGSA) c- cCORRECT cANS✔✔- cA cfederal claw cthat cis cactu
cHauge cRules
- cThe ctreaty cwas cintended cto charmonize cnations claw cregarding ccontracts cinvolved cin cthe ccarri
, Stage c1: cThe cSales cContract c- cCORRECT cANS✔✔*Pro cForma cInvoice*: cShows cthe cprice coffe
cthus cthe camount cthe cbuyer cwould cowe cif cthe cparties cwere cto cconclude ca ccontract. c(A clist cof
cprice cand cquantity, cbut cit clist call cthe cpossible cINCOTERMS)
*FOB*(free con cboard): cThe cbuyer cwould cbe cresponsible cfor cthe ccost cand crisk cof ctransportation
*FAS* c(Free cAlong cSide) c: cThe ccost cof cinland ctransportation cfrom cSanta cClaus's cfactory.
*CFR* c(Cost cand cFreight): c
*CIF* c(Cost, cinsurance, cand cfreight)
What cneeds cto cbe cturned cover cto ccomplete cthe csales ctransaction? c- cCORRECT cANS✔✔*The
1. cThe cdraft
2. cThe cbill cof clading
3. cThe cconfirming cletter cof ccredit
4. cInsurance cpolicy c(buyer cwants cthis cincase, cfor cexample, cthe cship csinks)
5. cPacking clist
6. cCommercial cinvoice cin ctriplicate c
7. cCertificate cof corigin c(shows cthe cnationality cof cthe cgoods cof cbeing cshipped) c(need cto cknow c
*Sight cDraft* c- cCORRECT cANS✔✔The cletter cof ccredit cprovides cfor cpayment cimmediately cupon
cof cthe cdraft.
*Time cDraft* c- cCORRECT cANS✔✔Payment cmay cbe creceived cafter ca ccertain cduration cof ctime
Stage c2 c- cThe cLetter cof cCredit c- cCORRECT cANS✔✔Assures ca cparty cpayment cas clong cas cit c
cwith cappropriate cdocuments cthat cit chas cshipped cthe cgoods. cBuyer's cbank cpromises cto cthe csa
ccontract cbetween cthe cseller cand cthe cbuyer's cbank. c
a. cThe cdraft cis cwritten cby cthe cseller cstating c"pay cto cthe corder" cof cthe cseller cfrom cthe cbuyer.
*Confirmed cLetter cof cCredit* c- cCORRECT cANS✔✔The cseller chas ca cpromise cof cpayment cfrom
chome cnation) cif cthe cseller ccan cproduce cdocuments cevidencing cthe cshipment cof cthe cgoods. cE
cseller cto cinform cthem cthat cthe cCommercial cBank cof cGreece chas copened ca ccredit caccount con
cwhen cMidland cmakes ca cpromise cconfirming cand cundertaking cthe cdrafts, cthen cit cbecomes cthe
Stage c3 c- cSeller cShips cthe cGoods c- cCORRECT cANS✔✔*Freight cForwarder*: cA clogistic ccompa
cinternational cshipping.
*Bill cof cLading*: cServes cas ca creceipt cfor cthe cgood cand cthe ccontract cof ccarriage cbetween cthe c
cdefines cto cwhom cthe ccarrier cmay cand cmust cdeliver cthe cgoods cupon carrival. cContract cwith csh
clading cMUST cbe cnegotiable. c
*An cOn cBoard cBill cof cLading*: cThe cpackages cand cgoods care caboard cthe cship cand cnot cin ca cs
cboard cmeans cthe cgoods cor cpackages cappear cto cbe cundamaged.
Stage c4 c- cSeller cObtains cPayment cthrough cthe cLetter cof cCredit c- cCORRECT cANS✔✔
Stage c5 c- cBuyer cuses cthe cBill cof cLading cto cObtain cthe cGoods c- cCORRECT cANS✔✔
*INCOTERMS* c- cCORRECT cANS✔✔International ccommercial cterms. cMay cfind cdefinitions cin cA
*Notes*: c- cCORRECT cANS✔✔The cUUC cdoes cnot chave cto cbe cused, cit ccan cbe cmodified cwith c
ANSWERS
*CH. c1*: cCommerce cor cIsolation: cThe cDecision cto cTrade, cTransfer cTechnology cand cInvest cAb
cModern cinternational cbusiness claw ctook cshape cprincipally cin cthe cfew cdecades cfollowing cthe cd
• cBretton cWoods cConferences ccreated cthe cGATT.
• cConvention con cContracts cfor cthe cInternational cSale cof cGoods c(CISG)
1. cThe cWorld cBank
2. cInternational cMonetary cFund
3. cGeneral cAgreement con cTariffs cand cTrade c(GATT) c- cCORRECT cANS✔✔*Three cmost cimpor
cinternational cfinancial csystems*:
c- cCORRECT cANS✔✔*CH. c4*: cAGREEMENTS cFOR cTHE cINTERNATIONAL cTRADING cOF cG
*The cBasic cTransaction: cToys cto cGreece c(documentary csales ctransaction)*
*Facts*: cSanta cClause cCo cof cEast cAurora, cNY cwill csell ctoys cto cAlpha cCo., cof cAthens, cGreece
Alpha c= cBuyer cin cAthens cGreece
*Sales cContract* c- cbetween cthe cbuyer cand cSeller
*Contract's cEssential cTerms*: cQuantity, cQuality, cPrice, cPayment c
*Payment cTerms*: cEx c- c"irrevocable cletter cof ccredit cconfirmed cby cU.S. cbank cand ccalling cfor cp
cNY, cUSA cin cU.S. cdollars." cThe cseller cwants cthese cterms cto celiminate cthe crisk cof cnonpaymen
Letter cof cCredit cContract: c- cCORRECT cANS✔✔Independent ccontract; cessentially ca cpromise cfr
cthe cseller c(beneficiary). c
Buyer cis cthe c"applicant" cor c"account cparty." c
,The cUCC: cArt. c2, c5, c7 cgovern c- cCORRECT cANS✔✔- cArt. c2 cgoverns cSales
- cArt. c5 cgoverns cLetters cof cCredit
- cArt. c7 cgoverns cDocuments cof cTitle
*Indorsement* c- cCORRECT cANS✔✔By cindorsing cthe cdraft cthe cshipper ctransfers cto cthat cbank
cissuing cbank; cand cby cindorsing cthe cbill cof clading cover cto cthe cconfirming cbank, cit ctransfers cto
cgoods cnow cin ctransit cwith cthe ccarrier c(because, cagain, cwith ca cnegotiable cbill cthe ccarrier cmay
cperson cin cpossession cof cthe cbill cof clading cand c*only cif cit cis cproperly cindorsed*.
*Part cA.* cHow cis can cInternational cCommercial cTransaction cDifferent cfrom ca cDomestic cOne? c-
conly ca cdifference cof cdegree
- cGreater cgeographic cdistances
- cIt's cunlikely cthat cthe cbuyer cand cthe cseller cwill cknow ceach cother c(requires creliable cintermedia
- cCurrency cand clocation cof cpayment cissues c(hard ccurrency cvs. csoft ccurrency)
- cRegulations
- cThe creach cof cthe clegal csystem cof cthe cother ccountry c(whose claw capplies) c(domestic claw cof c
cof cthe cseller)
- cPublic cinternational claw c(international claw) cmay calso capply cto ca ctransaction
- cPrivate cinternational claw c(generally cthe claws cbetween ctwo centities cfrom cdifferent cnations ctran
ctheir ccontract). c
- cWho/what claw capplies cto cthe ctransaction cis cone cof cthe cmost cimportant cquestions cto cask c(in
- cIntellectual cproperty claws cthat cdiffer c(try cto charmonize cthese claws cthrough ctreaties)
*Three cPrinciple cResponses cto cChallenges*: c- cCORRECT cANS✔✔1. cInternational ctreaties cfor c
cother) ctransactions. c(uniform crules)
2. cDefine crespective crights cand cobligations cclearly cthrough cuniform ccontract cpractices
3. cDevices cthat ctake crisk cand cbreak cthem cdown cinto csmaller cand cmeasurable crisk.
*Three cmost cimportant ccontracts cto ca cdocumentary csales ctransaction*: c- cCORRECT cANS✔✔1
2. cLetter cof ccredit
3. cBill cof clading
*Federal cBills cof cLading cAct* c(pg. c1003 cof cthe csupplement) c- cCORRECT cANS✔✔Also cknown
c(chapter c801 cof ctitle c49) cfederal claw cthat cmay capply cto can cinternational cbill cof clading. c
When cdoes cit capply c(application)? cFor cexample, ca cshipment cfrom ca cState cto ca cforeign ccountr
cOUTWARD c
Applies cINTERSTATE
Domestic cBills cof cLading care cgoverned cby c. c. c. c- cCORRECT cANS✔✔Governed cby cstate claw c
*A cBill cof cLading chas cthree cfunctions*: c- cCORRECT cANS✔✔1) cA creceipt c
2) cA ccontract
3) cA cdocument cof ctitle
Article cVII cof cthe cUCC: cGoverns cdocuments cof ctitle. cThe cbill cof clading cis ca cdocument cof ctitle.
*Carriage cof cGoods cby cSea cAct* c(COGSA) c- cCORRECT cANS✔✔- cA cfederal claw cthat cis cactu
cHauge cRules
- cThe ctreaty cwas cintended cto charmonize cnations claw cregarding ccontracts cinvolved cin cthe ccarri
, Stage c1: cThe cSales cContract c- cCORRECT cANS✔✔*Pro cForma cInvoice*: cShows cthe cprice coffe
cthus cthe camount cthe cbuyer cwould cowe cif cthe cparties cwere cto cconclude ca ccontract. c(A clist cof
cprice cand cquantity, cbut cit clist call cthe cpossible cINCOTERMS)
*FOB*(free con cboard): cThe cbuyer cwould cbe cresponsible cfor cthe ccost cand crisk cof ctransportation
*FAS* c(Free cAlong cSide) c: cThe ccost cof cinland ctransportation cfrom cSanta cClaus's cfactory.
*CFR* c(Cost cand cFreight): c
*CIF* c(Cost, cinsurance, cand cfreight)
What cneeds cto cbe cturned cover cto ccomplete cthe csales ctransaction? c- cCORRECT cANS✔✔*The
1. cThe cdraft
2. cThe cbill cof clading
3. cThe cconfirming cletter cof ccredit
4. cInsurance cpolicy c(buyer cwants cthis cincase, cfor cexample, cthe cship csinks)
5. cPacking clist
6. cCommercial cinvoice cin ctriplicate c
7. cCertificate cof corigin c(shows cthe cnationality cof cthe cgoods cof cbeing cshipped) c(need cto cknow c
*Sight cDraft* c- cCORRECT cANS✔✔The cletter cof ccredit cprovides cfor cpayment cimmediately cupon
cof cthe cdraft.
*Time cDraft* c- cCORRECT cANS✔✔Payment cmay cbe creceived cafter ca ccertain cduration cof ctime
Stage c2 c- cThe cLetter cof cCredit c- cCORRECT cANS✔✔Assures ca cparty cpayment cas clong cas cit c
cwith cappropriate cdocuments cthat cit chas cshipped cthe cgoods. cBuyer's cbank cpromises cto cthe csa
ccontract cbetween cthe cseller cand cthe cbuyer's cbank. c
a. cThe cdraft cis cwritten cby cthe cseller cstating c"pay cto cthe corder" cof cthe cseller cfrom cthe cbuyer.
*Confirmed cLetter cof cCredit* c- cCORRECT cANS✔✔The cseller chas ca cpromise cof cpayment cfrom
chome cnation) cif cthe cseller ccan cproduce cdocuments cevidencing cthe cshipment cof cthe cgoods. cE
cseller cto cinform cthem cthat cthe cCommercial cBank cof cGreece chas copened ca ccredit caccount con
cwhen cMidland cmakes ca cpromise cconfirming cand cundertaking cthe cdrafts, cthen cit cbecomes cthe
Stage c3 c- cSeller cShips cthe cGoods c- cCORRECT cANS✔✔*Freight cForwarder*: cA clogistic ccompa
cinternational cshipping.
*Bill cof cLading*: cServes cas ca creceipt cfor cthe cgood cand cthe ccontract cof ccarriage cbetween cthe c
cdefines cto cwhom cthe ccarrier cmay cand cmust cdeliver cthe cgoods cupon carrival. cContract cwith csh
clading cMUST cbe cnegotiable. c
*An cOn cBoard cBill cof cLading*: cThe cpackages cand cgoods care caboard cthe cship cand cnot cin ca cs
cboard cmeans cthe cgoods cor cpackages cappear cto cbe cundamaged.
Stage c4 c- cSeller cObtains cPayment cthrough cthe cLetter cof cCredit c- cCORRECT cANS✔✔
Stage c5 c- cBuyer cuses cthe cBill cof cLading cto cObtain cthe cGoods c- cCORRECT cANS✔✔
*INCOTERMS* c- cCORRECT cANS✔✔International ccommercial cterms. cMay cfind cdefinitions cin cA
*Notes*: c- cCORRECT cANS✔✔The cUUC cdoes cnot chave cto cbe cused, cit ccan cbe cmodified cwith c
