Short answered questions

1. Main functions of central bank

 Implementing monetary policy
 Controlling the nation's entire money supply
 The Government's banker and the bankers' bank (lender of
last resort)
 Managing the country's foreign exchange and gold reserves
and the Government's stock register
 Regulating and supervising the banking industry
 Setting the official interest rate – used to manage both
inflation and the country's exchange rate – and ensuring that
this rate takes effect via a variety of policy mechanisms

2. Compare time LC & deferred payment LC

Time L/C: If payment is to be made after the lapse of a particular
time period as stated in the time draft.
Deferred payment L/C: A letter of credit under which the
documents are forwarded to the importer’s bank, while sight draft
is presented at a later future date.

5. When is a foreign project said to be viable/ non - viable?

 A foreign project is said to be viable when reliable access to
outside financing is available.
 Non-viable project is one where the expected rate of return
or profits realized on assets employed is likely to be lower
than from a comparable investment in the host country.

6. Describe the importance of the gold standard?

 A monetary system used in the 19th and early 20th centuries
whereby the value of currencies could, on request of the owner,
be converted into gold at a country’s central bank. As all
currencies had a gold value, they also had a certain value in
relation to each other.
 The importance of the Gold Standard is that this system helps
determine the value of all currencies based on gold, therefore the
values of different currencies could be compared in terms of one
another.
7. Difference between L/C and bill for collection
 In documentary collection, banks act as an agent. They do not
provide financing or substitute its credit for that of the
buyer as in an L/C. All the banks have to do is to follow the
instructions of the buyer and the seller and get the collection
fees in return. They are not responsible for paying the
exporter in case the importer fails to do so.
 Documentary L/C is a document issued by a bank, whereby
the bank replaces the buyer as the paying party. The exporter
is basing his risk of getting paid on the bank rather than on
the importer, and the importer will reimburse the bank.

8. Why do most governments impose tariffs/ quotas?

(Same as Q20???)

9. Ways the government intervenes in trade?

 Tariffs: Government tax levied on a product as it enters or
leaves a country
 Quotas: Restriction on the amount (measured in units or weight) of
a good that can enter or leave a country during a certain period of
time.
 Embargoes: Complete ban on trade in one or more products with a
particular country
 Local content requirements: Laws stipulating that a specified
amount of a good or service be supplied by producers in the
domestic market
 Administrative delays: Regulatory control designed to impair the
rapid flow of imports into a country
 Foreign exchange controls: Restrictions on the convertibility of a
currency into other currencies

10. How do central banks intervene in the foreign exchange

markets?
Central bank is the country’s chief bank, which is government
owned. It regulates the commercial banks and holds gold and
foreign currency reserves. It actively intervenes by buying and
selling its own currency in the foreign exchange markets so that the
currency will keep a certain value

11. What makes some countries more attractive to FDI than others?
Eclectic theory (OLI paradigm) gives explanations about why some
countries attract more FDI than other countries. This theory
states that firms undertake FDI when the features of a particular
location combine with ownership and internalization advantages to
make a location appealing for investment. The typical MNC pools
all its resources to achieve the highest possible efficiency and
obtain the maximum return on investments. Therefore, the greater
the O and I advantages possessed by firms and the more the L
advantages of creating, acquiring and exploiting these advantages
from a location outside its home country, the more FDI will be
undertaken.

12. What is the foreign exchange market?

Foreign exchange market is the market in which currencies are
bought and sold and in which currency prices are determined.
Foreign exchange market is also the mechanism through which
foreign currencies are traded. It is not an actual market place but
a system of telephones of telex communications between banks,
customers, and middlemen.

13. What are investment incentives?

Benefits such as cash grants, tax credits, accelerated depreciation,
and low interest-bearing loans, which are sponsored by national or
local authorities to attract foreign investment.

14. What are the risks faced by exporters/sellers in the 4 payment

methods?
 In open account payment method, the exporter loses all
control of the goods, trusting that payment will be made by
the importer in accordance with the original sales contract
 In the LC payment method, very few risks arise for the
exporter because the potential problem areas of the buyer
 risk and country risk can be eliminated. However, the
exporter must present the correct documents and comply
fully with the terms and conditions of the credit. Failure to
do so could result in the exporter losing the protection of the
credit
 In bills for collection, the risks that the exporter has to face
are that the importer fails to accept the bill of exchange or
dishonors an accepted bill upon maturity. This means that the
exporter may have to consider shipping the goods back to the
home country, finding another buyer or even abandoning the
consignment, all of which arise high costs
 In advance payment, the exporter has no risks associated with
non payment.

15. Briefly describe spot and forward transactions. Give an example

of each.
 Spot transaction: currency bought or sold today with delivery
two business days later (A French father transfers money to
his son in New York)
 Forward transaction: to buy or sell a currency in the future
with payment and delivery at that future date (Japanese
exporters sell dollars forward six months to their bank in
Japan in return for yen. Payment and delivery are not
required until six months later. The rate of exchange is fixed
on the date of the contract)

16. What are some financial considerations in making a foreign

direct investment?
Some financial considerations in making FDI are interest rates, cash
flow projection, the expected return on an investment and the
sources of working capital.

17. Why would an exporter ask for a confirmed letter of credit?

Because the exporters want to make sure that they would be paid at
maturity. When a LC is confirmed, all the risks of the issuing bank are
then borne by the confirming bank for a fee. If the issuing bank goes out
of business, the confirming bank is still obligated to honor the draft.

18. Roles of banks in international trade

 Active role: When the Banks get involved directly in the
payment process, supporting both the exporter and the
importer to complete their obligations so that the contract is
carried out as agreed. For example, in the documentary credit
method of payment
 Passive role: When the banks only do things as requested. For
example, just transferring money to the account of the
seller/exporter

19. What is the difference between the balance of trade and

balance of payment?
 A country’s balance of trade is the difference in value
between imports and exports of goods over a particular
period.
 Its balance of payments considers all business transactions
with other countries, including imports and exports of goods
and money earned from or paid for services and investments
such as tourism or shares in companies.

20. Why would the government impede free trade?

Cultural motives
 The cultures of countries are slowly altered by exposure to
the people and products of other cultures, which threatens
the traditional values of the host culture
Political motives
 To protect jobs
 To preserve national security
 To respond to ‘unfair’ trade
 To gain influence
Economic motives
 To protect infant industries
 To pursue strategic trade policy
21. Why is L/C the popular method of payment in international
trade?
Letter of credit is the popular method of payment, because it
protects both the importers and the exporters.
 It is safer for the exporter because it makes sure that he will
get his money for the goods sold provided that he presents
the correct documents. The bank must pay even if the
importer defaults on payment.
 It ensures the importer that he will get the goods bought as
long as he pays or agrees to pay on a fixed date in the future.
 There is greatly supportive involvement of the bank in the
transaction process

22. What is the difference between D/A and D/P?

D/P - Documents Against Payment: Documents are released to the
importer only when the payment has been done.
D/A - Documents Against Acceptance: Documents are released to
the importer only against acceptance of a draft, which means
control of the goods is lost and the accepted bill of exchange may
be dishonored at maturity.

23. Ways of making money in foreign exchange market?

There are three ways to create money through foreign exchange
market
 Arbitrage: The transfer of funds from one currency to
another to benefit from currency differentials or disparities
in interest rates
 Hedging: an investment position intended to offset potential
losses/gains that may be incurred by a companion investment.
 Speculation: the act of trading in an asset, or conducting a
financial transaction, that has a significant risk of losing most
or all of the initial outlay, in expectation of a substantial gain.

24. Compare clean collection and documentary collection

  Clean collection: a negotiable instrument for collection with
no documents attached
=> More risky because the importer can use the documents of
title to receive the goods only by agreeing to pay on a fixed
date in the future
 Documentary collection: a collection item with title
documents accompanying the draft. The documents are
released to the drawee upon payment of the draft
=> Safer because the importer has to pay in return of the
documents of title to receive the goods after all

PART 2: ANSWER THE QUESTIONS – TACN 3

 What do insurance contracts by land and by air follow?

Why?
Insurance contracts for transport by land and air follow
marine insurance practices because: Insurance for goods
carried by sea (marine cargo insurance) has been largely
standardized. For goods carried by air (air cargo insurance) or
going by land this is not yet the case.

 What are the reasons behind a horizontal merger?

- To reduce competition
- To increase market share
- To acquire additional plants and equipment
- To achieve synergy and economies of scales

4. Why do poor and developing countries sometimes criticize

multinational companies?
- Because multinational have mostly used capital provided by
local banks and investors and have not brought in capital.
Because of this, there is a shortage of money to finance local
business. Foreign firms have taken the lion’s share of the
available capital.
- Technology applied to production is unsuitable for
developing countries. The imported technology is too
expensive and complicated. It has been developed for
industrial societies, not for poor countries. In agriculture, for
instance, most country do not need tractors, which are
expensive to buy and operate. They need better hoes and ox-
ploughs.
- Another disadvantage of the new technology is that it will
probably reduce jobs. It especially makes workers unemployed
or employing fewer and fewer workers.

5. How do central banks intervene in the foreign exchange

markets?
Central bank is a country’s chief bank, which is government
owned. It regulates the commercial banks and holds gold and
foreign currency reserves. It actively intervenes by buying and
selling its own currency in the foreign exchange markets so
that the currency will keep a certain value.

6. What makes some countries more attractive to FDI than

others?
Eclectic theory gives explanation about why some countries
attract more FDI than other countries. Theory stating that
firms undertake FDI when the features of a particular
location combine with ownership and internalization
advantages to make a location appealing for investment.
The typical MNC pools all its resources to achieve the highest
possible efficiency and obtain the maximum return on
investments. Research and development, raw materials,
investment capital, and managerial skills are utilized for the
benefit of many world markets.

7. What is the difference between selling concept and

marketing concept?
- The “selling concept” assumes that resisting consumers have
to be persuaded by vigorous hard-selling techniques to buy
non-essential goods or services. Products are sold rather than
bought.
- The “marketing concept” assumes that the producer’s task is
to find wants and fill them. In other words, you don’t sell what
you make, you make what will be bought.
Tham khảo:
- Selling concept is an approach to business that emphasizes
persuading customers to buy products that you already have,
rather than producing new ones that customers may want
- Marketing concept is a theory that a company should
concentrate on finding out what kind of products customers
want and then produce them rather than produce something
and then try to persuade the customers to buy it.

8. What does insurance premium depend on?

Amount of premium depends on factors like nature of cargo,
scope of cover, packing, mode of conveyance, distance and
past claims experience

9. What is the foreign exchange market?

Foreign exchange market is the market in which currencies are
bought and sold and in which currency prices are determined.
Foreign exchange market is also the mechanism through which
foreign currencies are traded. It is not an actual market place
but a system of telephones of telex communications between
banks, customers, and middlemen (foreign exchange brokers,
acting for a client vis-à-vis the bank).

10. What are investment incentives?

Investment incentives are benefits such as cash grants, tax
credits, accelerated depreciation, and low interest-bearing
loans, which are sponsored by national or local authorities to
attract foreign investment.

11. What are the risks faced by exporters in the 4 common

payment methods?
- In open account payment method, the exporter loses all
control of the goods, trusting that payment will be made by
the importer in accordance with the original sales contract;
- In LC payment method, very few risks arise for the exporter
because the potential problem areas of the buyer risk and
country risk can be eliminated. However, the exporter must
present the correct documents and comply fully with the
terms and conditions of the credit. Failure to do so could
result in the exporter losing the protection of the credit;
- In bills for collection, the risks that the exporter has to face
are that the importer fails to accept the bill of exchange or
dishonors an accepted bill upon maturity. This means that the
exporter may have to consider shipping the goods back to the
home country, finding another buyer or even abandoning the
consignment, all of which could be expensive;
- In advance payment, the exporter has no risks associated
with non payment.

12. Name five activities that any State Bank or Central Bank of
any country in the world always does.
 implementing monetary policy
 controlling the nation's entire money supply
 the Government's banker and the bankers' bank ("lender

of last resort")
 managing the country's foreign exchange and gold
reserves and the Government's stock register
 regulating and supervising the banking industry
 setting the official interest rate – used to manage both

inflation and the country's exchange rate – and ensuring

 that this rate takes effect via a variety of policy
mechanisms

13. Briefly describe spot and forward transactions. Give an

example of each.
- Spot transaction is a transaction when currency is bought or
sold today with delivery two business days later.
E.g: a French father transfers money to his son in New York.
The French father buys the dollars spot – for immediate
delivery – although business practice allows two days for
actual delivery.
- Forwarding transaction means buying or selling a currency in
the future with payment and delivery at that future date.
E.g: Japanese exports on Toyota cars to the US from the SC
that they will receive a specified US dollar amount in 6
months.

14. What are the key reasons for the failure of M&A?
- Differences in culture: cultural barriers, clash of cultures.
- Over-optimism: managers are just too optimistic about
prospects for the enlarged group; they have unrealistic
expectations about the future success of the new company.
- The way the two companies are combined.

15. At which stage in the product lifecycle would

manufacturers differentiate their products? Why?
In the Maturity stage, manufacturers can differentiate their
products by attractive packaging, competitive pricing,
incentive offers (free coffee mugs with 10 labels returned) or
creative advertising.
Reasons:
 Sales growth slows and then stabilizes
 Price wars and competition occur as the the market

reaches saturation.
16. What is the best way of advertising? Why?
The best form of advertising has always been word- of- mouth
advertising: people telling their friends about good products
and services. It is cheap, effective and trust-worthy.

17. What are three main business areas which have traditionally
been resovled by arbitration?
They are: construction, shipping and commodities.

18. What are the main functions of a central bank?

Functions of a central bank may include:
 implementing monetary policy
 controlling the nation's entire money supply
 the Government's banker and the bankers' bank ("lender
of last resort")
 managing the country's foreign exchange and gold

reserves and the Government's stock register

 regulating and supervising the banking industry
 setting the official interest rate – used to manage both

inflation and the country's exchange rate – and ensuring

that this rate takes effect via a variety of policy
mechanisms

19. What is the difference between documents against

payment and document against acceptance?
- Documents Against Payment (D/P): In this case documents
are released to the importer only when the payment has been
done.
- Documents Against Acceptance (D/A): In this case
documents are released to the importer only against
acceptance of a draft.

20. What are the reasons behind a horizontal merger?

- To reduce competition
- To increase market share
- To acquire additional plants and equipment
- To achieve synergy and economies of scales

21. Why would government impede free trade?

Government would impede free trade because of:
 Cultural motives
 The cultures of countries are slowly altered by exposure

to the people and products of other cultures.

 Cultural influence of the United States: the United

States, more than any other nations, is seen as a threat to

national cultures around the world.
 Political motives
 To protect jobs
 To preserve national security
 To respond to ‘unfair’ trade
 To gain influence
 Economic motives
 To protect infant industries
 To pursue strategic trade policy

22. How does a documentary collection differ from a letter of

credit as a means of financing international trade?
In documentary collection, banks act as an agent. They do not
provide financing or substitute its credit for that of the buyer
as in a LC. All the banks have to do is to follow the
instructions of the buyer and the seller and get the collection
fees in return. They are not responsible for paying the
exporter in case the importer fails to do so.

23. What are some financial considerations in making a foreign

direct investment?
Some financial considerations in making FDI are interest rates,
cash flow projection, the expected return on an investment
and the sources of working capital.

25. Why is letter of credit the popular method of payment in

international trade?
- Letter of credit is the commonest/ popular method of
payment. Because it is more secure. The bank must pay even if
the importer defaults on payment.
- L/C because it protects both sides:
+ Safer for the exporter as it makes sure he will get his money
for the goods sold provided that he presents the correct
documents
+ Ensure the importer that he will get the goods bought as
long as he pays for them or agreed to pay in a fixed date in the
future.

26. What are the advantages of arbitration over litigation?

- Arbitration is much less formal than litigation and
requires much less time and money.
+ Speed: quick, take less time
+ Cost effectiveness: cheap
- Reliability of the arbitrators: The arbitrators are usually more
sophisticated and knowledgeable a than juries. They are more
justice because arbitrators are chosen by both parties.
- Keep the disputes away from the public eye, because
arbitration takes place in private, unlike litigation in the court
à Confidentiality à protect the reputation

 27. What are the reasons for companies look for foreign
market? / Why do the companies go internationally?
 Their national markets become saturated.
  Some countries set up trade barriers – usually tariffs or
quotas – against a company’s products.
 Cheap labour and natural resources abroad, especially in

developing countries.
 Expand sales
 Diversify sales
 Gain experience
28. What factors are needed considering when choosing the
mode of transportation?
 Nature of the goods
-Dimensions
-Weight
-Value
-Fragility
-Perishability
-Pilferability
 The time factor: Fast transport

-Reduce distribution cost

-Reduce cost of finance tied up in transit
-Require less insurance cover
-Means earlier use/ resale of goods
 Freight rates

-Sea freight rates

-Air freight rates

29. What benefits do multinational companies bring to poor

and developing countries?
- Provide the capital which poor countries need for their
economic growth, together with local savings, finances their
industries.
- Share technology with local business, introduce scientific
and technical methods to production increaseing the
productivity of their workers.
- Produce a wide variety of goods, emply thousands of people
all over the world, pay good wages and multinational companies
are responsible for raising living standards.

30. Which market is bigger, the producer market or consumer

market? Why?
è The producer market is actually larger than the consumer
market, since it contains all the raw materials, manufactured
parts ad components that go into consumer goods, plus capital
equipment such as buildings and machines, supplies as energy
and pens and paper, and service ranging from cleaning to
management consulting, all of which have to be marketed.

31. When is foreign project said to be viable? What is nonviable

project?
The project is viable only when reliable access to outside
financing is available. Non-viable project is one where the
expected rate of return, or profits realized on assets
employed, is likely to be lower than from a comparable
investment in the host country.

32. Briefly describe the importance of gold standard?

The importance of Gold Standard is that this is the system
helping determine the value of all currencies based on gold,
therefore it could be make the values of different currencies
could be compared in terms of one another.

33. Distinguish need, want, demand

- Needs are basic human requirements. People need air, food,
water, clothing, shelter to survive. People also have strong
needs for recreation, education, entertainment.
- Wants are needs directed to specific objects that might
satisfy the need.
- Demands are wants for specific products backed by an ability
to pay.

34. What do clients look for from an arbitration service?

What clients look for from an arbitration service is speed, cost
effectiveness, confidentality and reliability of the arbitrators
and hence their decisions.

35. Why is there a high percentage of failure of megers and

acquisitions?
- Differences in culture: cultural barriers, clash of cultures.
- Over-optimism: managers are just too optimistic about
prospects for the enlarged group; they have unrealistic
expectations about the future success of the new company.
- The way the two companies are combined.

36. What should companies do to lengthen the product’s

lifecycle?
- Find new customer by innovating product
- Find new taget market/expand market to continue selling the
goods
- Change packaging
- Change the way of advertising, add more functions

37. Why would an exporter ask for a confirmed letter of

credit?
Because the exporters want to make sure that they would be
paid at maturity. When a LC is confirmed, all the risks of the
issuing bank are then borne by the confirming bank for a fee.
If the issuing bank goes out of business, the confirming bank is
still obligated to honor the draft.

38. What are the harmful effects of a large trade deficit?

- Employment: Affect economic growth and stability. If
imports are more in demand than exports, domestic jobs may
be lost to those abroad.
- Currency Value: The demand for a country's exports impacts
the value of its currency. As the demand for exports falls
compared to imports, the value of a currency should decline.
- Interest Rates: A downward pressure on a country’s currency
devalues it, making the prices of goods denominated in that
currency more expensive - it can lead to inflation.
- Foreign Direct Investment: a trade deficit must be offset by
a surplus in the country, capital account and financial
account.
- Large trade deficit largely affects the consumer preferences
which is mitigated in the long run.

39. What are the reasons behind a vertical merger?

- To guarantee the supply and cost of raw material and
components.
- To be closer to the customers, by cutting out the wholesaler
for example and dealing directly with the retail trade.

40. Why do exchange rate fluctuate?

Because the value of currencies was meant to be regulated by
supply and demand (the market mechanism), buy speculators
often interfered with this mechanism.

41. Who can change the marketing mix? How?

Marketers can change the marketing mix – the product’s
features, its distribution, the way it is promoted, and its price
– in order to increase sales.

42. What is the role of the banks in international trade?

 Active role: When the Banks get involved in the payment

process, supporting both the exporter and the importer

 to complete their obligations so that the contract is
carried out as agreed. For example, in the documentary
credit method of payment.
 Passive role: When the bank only do things as requested.
For example, just transferring money to the account of
the seller/exporter.

43. What payment methods do you know that are used when
exporting or importing goods?
 Open account
 Document credit
 Bills for collection
 Advance payment

44. When do people use the 4 payment methods?

Open account is only used for the most trusted customers;
LC is typically used when an importer’s credit rating is
questionable. When the exporter needs a LC to obtain
financing, and when the market’s regulations require it;
Advance payment is common when 2 parties are unfamiliar
with each other; Bill for collection is commonly used when
there is an ongoing business relationship between the 2
parties.

45. Ways government intervenes trade

- Tariffs: Government tax levied on a product as it enters or
leaves a country
 Quotas: Restriction on the amount of goods that can
enter or leave a country
 Embargoes: complete ban on trade in one or more
products with a particular country
  Local content requirements: laws stipulating that a
specified amount of a good be supplied in domestic
market.
 Administrative delays: regulatory control designed to
impair the rapid flow of imports
 Currency controls: restrictions on the convertibility of a
currency into another.

46. .Why might the Vietnamese government urge the

Vietnamese consumers to “Buy Vietnamese”?
Because it wants to protect jobs in Vietnamese industries and
improve the Balance of Payments on current account.

47. Three ways in which businesses benefit from international

trade
- obtain a number of raw material requirements form
abroad(visible imports)
- sell a large proportion of finished products abroad(visible
exports
- hire specialist services from abroad. One way in which it
could achieve this is by a consultancy arrangement with a
foreign firm (invisible imports).

48. What is the differeance between the balance of trade and

balance of payment?
A country’s balance of trade include imports and exports only.
Its balance of paymnets considers all business transactions
with other countries, including imports and exports of goods
and money earned from or paid for services and investments
such as tourism or shares in companies.
49. Why do we have to buy Marine Insurance on Goods?
The insurer shall be liable for all risks or some risks of loss to
the insured goods under Marine Insurance on Goods. In
another way, the insured will be compensated under Marine
Insurance on Goods when risk of loss to the insured goods
happens.

50. Give some examples of loss which are within scope of

insurance for each condition A, B or C.
Some examples of loss:
 Condition A: Ship sinks resulting in damage to goods,
explosion of ship causes to loss of good,…
 Condition B: Good are on fire, total loss of any package

is lost overboard,…
 Condition C: Loss of insured goods is caused by general

average sacrifice, loss of insured goods in consequence

of the carrying vessel being missing,…

51. What does “exclusion” mean?

The insurer shall not be liable for loss to the insured goods by
risk on exclusion. In another way, the insured will not be
compensated when loss to the insured goods happens by risk
on exclusion.

52. The insured amount is 90,000 USD and goods are covered
with three companies. If total loss happens, how much will
each insurance company be liable for?
Article 20 of Marine Insurance on Goods provides as follows:
“the liability of all the insurers shall be limited to the insurable
value with each insurer liable for such proportion part as the
respective insured amount bears to the aggregate of the
insured amount”. Each insurance company will indemnify
300,000 USD.
53. Why do buyers and sellers insure their cargoes?/ Why do
people insure their good?
Because the handling and transportation of goods always
involves the risk of loss or damage. Owners of the goods
protect themselves against these risks by insuring their goods
in transit. Who will be responsible for insuring the goods and
for what part of their journey will be written into the
agreement made between seller and buyer.

54. What agreement is usually made in an insurance contract?

In an insurance agreement one party, usually an insurance
company, undertakes to imdemnify the other party (the
assured) if loss or damage is suffered due to a specified event
(the risk). In turn, the insurer pays an agreed amount of money
(the premium). The terms of the agreement define what risks
have been insured against (the cover).

Essay
1. Advantages and disadvantages of open account method of
payment
Pros:
 Simple to administer and involves minimal banking fees or
other costs (reduce cost, save time)
 Boosts competitiveness in the global market
 Helps establish and maintain a successful trade relationship
Cons:
 Significant exposure to the risk of non-payment
 Additional costs associated with risk mitigation measures
The rapid globalization of world economies has contributed to
the increased competition between nations in the marketplace.
To thrive on the international market and outsell foreigners
competitors, exporters must offer their customers enticing
sales terms with the appropriate payment methods. Open
account method of payment is most preferred by the importers
since they only have to remit payments of the invoice after they
have received the goods and relevant documents from their
exporters. Nevertheless, this payment method brings both
advantages and disadvantages for the parties involved in the
sales contract.
On the one hand, open account trading offers several
advantages - particularly that it is simple to administer and
involves minimal banking fees or other costs. In the first place,
this technique is appealing to the importers in that it provides
them the opportunity to thoroughly inspect the goods before
payment, thus minimizing the risks of non - delivery, short
delivery, damaged goods, etc. Moreover, this method does not
require the documentation to the same extent as bills for
collection or documentary letter of credit. Without much
involvement of banks, both parties might incur lower costs and
save relatively more time of transactions. Open account terms
may also give sellers an edge to win customers in the
competitive markets, boosting increased transactions and sales.
However, open account is not a common method of payment
and only appropriate for negotiating between exporters and
importers who have already developed a reliable and long-
lasting commercial connection. Though open account is the
most secure payment option for importers, it causes a high
level of risk to the exporters. The exporters obtain no security
for payments, and have to rely entirely on the creditworthiness
and good faith of the buyer. If the corresponding party
defaults, the exporter might incur extra costs for debt
collection or even litigation and arbitration, which is more
challenging to resolve with the absence of documents and
banking channels.
In conclusion, open account settlement offers least risk to the
buyers, but a high level of risk to the sellers. Despite the fact
that this trade term might enhance export competitiveness,
exporters should carefully assess the political, economic, and
commercial risks as well as cultural influences to make sure
that payments will be made in whole and on time
2. Advantages and disadvantages of FDI for host/ developing
countries?
Adv:
External capital: Samsung, employment, foreign currency
Tax revenue: improve infrastructure: road, communication,
educational, subsidize
Business practices, management, techno
Disadv:
Competitive lower capital, exp, tech
Massive flow overheat inflation
Exploitation labor, raw materials
Foreign Direct Investment is an integral component of a
prosperous international economic system and a significant
catalyst for development. Although the emerging nations reap
numerous benefits from FDI, they also get exposure to various
challenges. This essay will elaborate on the advantages and
disadvantages that FDI places on the developing countries.
On the one hand, FDI can undoubtedly make a positive
contribution to the advancement of its host economy. It can be a
tremendous source of external capital for a developing nation,
which can improve the efficiency of its operation and economic
development. Furthermore, FDI is also an important engine for job
creation, generating new employment opportunities for the host
country. Employees of a host nation where there is foreign direct
investment have the opportunity to gain globally-value skills, which
greatly contributes to the enhancement of the human resources
level of the host country. For example, when Samsung constructed
a large factory in Bac Ninh, a significant amount of employment was
created and foreign currency was pumped into our economy.
Additionally, tax revenue is also generated from the products and
activities of the factory. Developing governments can use this
revenue to create and improve its physical and economic
infrastructure such as building roads, communication systems,
educational institutions and subsidizing the creation of new
domestic industries as well as attract more MNCs.
 On the other hand, FDI poses certain challenges to the host
nation. FDI may result in a form of modern day economic
colonialism, exposing host countries and leaving them and their
resources vulnerable to the exploitations of the foreign company.
The competitive ability of local companies is lower than FDI
companies with high levels of capital, experience, and technology.
As a consequence, local companies that fail to compete might end
up being purchased or bankrupt. For example, the joint-venture
between Da Lan toothpaste and Colgate led to the disappearance
of this brand after only 3 years of cooperation. The inflow of
massive FDI can also overheat the economy, as shown by the
inflation that occurred in Vietnam over a period of time. Lastly, the
exploitation of cheap labor and raw materials by FDI companies
might create troublesome issues.
In conclusion, although FDI possesses certain disadvantages,
its advantages are much more considerable. It is the responsibility
of the host nations to adapt and protect themselves in preparation
for the cooperation with foreign companies in the long run.
3. Why is L/C the most popular method of payment?
The rapid globalization of world economies has contributed to
the increased competition between nations in the marketplace. To
thrive on the international market and win over other competitors,
both parties in the sales contract should make an effort to
negotiate for a favorable method of payment in their interests.
Letter of credit is the most common payment option in
international trade because it can meet the concerns of both the
exporters and importers when making a transaction.
On the one hand, this method protects the sellers.
Documentary L/C is a document issued by a bank, whereby the
bank replaces the buyer as the paying party. One principle of
L/C is autonomy, which means that the bank is obliged to pay,
whatever the dispute between the buyer and the exporter.
Therefore, in the L/C payment method, very few risks arise for
the exporter because the potential problem areas of the buyer
risk and country risk can be eliminated. However, the exporters
also have to follow the Strict compliance principle of L/C,
 which means they have to present the correct documents and
fully comply with the terms and conditions of the credit.
Failure to do so could result in refusal by the bank to pay. L/C
is also useful when the exporter is unsure about their partner’s
credit worthiness or the foreign buyer’s credit is unacceptable.
With the involvement of the importer’s bank, the exporter can
be assured to receive payments for their goods.
On the other hand, this method of payment also protects the
importer from the risk of wrong goods, inferior goods, etc. The
bank will comply strictly according to the terms and conditions
written in the L/C. Therefore, if the goods are damaged and
the exporter fails to get a clean bill of lading, he will not
receive payments from the bank.
In conclusion, Letter of credit is the most common choice of
all importers and exporters around the world. When the trust
has been built in both parties, they may switch to other less
cost-consuming methods of payment.
4. “While a country as a whole will gain from trading with other
nations, this does not mean that all sections of the community
within the country will benefit.”
A country as a whole will gain from trading with other nations
 Specialization: Foreign trade leads to specialization and
encourages production of different goods in different
countries. Goods can be produced at a comparatively low
cost due to advantages of division of labor.
 Large scale production: Due to international trade, goods are
produced not only for home consumption but for export to
other countries also. Nations of the world can dispose of
goods which they have in surplus in the international markets.
This leads to production at large scale and the advantages of
large scale production can be obtained by all the countries of
the world.
 International cooperation and understanding: The people of
different countries come in contact with each other.
Commercial intercourse amongst nations of the world
encourages exchange of ideas and culture. It creates co-
 operation, understanding, cordial relations amongst various
nations.
This does not mean that all sections of the community within the
country will benefit
The clear losers of globalization are workers in traditional
economic sectors. For example, in the United States, according to
a study by economists David Autor, David Dorn, the increase in
imports from China alone has resulted in the loss of 1.5 million
manufacturing jobs since the early 1990s. In total, some 6.9 million
industry jobs were lost in the US between the early 1990s and 2011.
Economists often point to the advantages such developments bring
to a nation's economy as a whole - lower prices for goods and new
foreign markets for products manufactured domestically, for
example - but that doesn't help those who have lost their jobs. They
feel as though their political representatives have forgotten them.