Lecture 2

Question 1

Define C2C.

Answer 1

Cash to cash, or Cash conversion circle (CCC). How much time between when a customer pay and when the cash are brought in.

Question 2

ROE =

Answer 2

Net Margin x Asset Turnover x Financial Leverage

Question 3

Return on Assets (ROA) =

Answer 3

Net margin x Asset turnover

Question 4

3 components of Return on Equity (ROE) =

Answer 4

*Margin: Net Income/Sales
*Asset Turnover (utilization): Sales/Assets
*Financial Leverage: Assets/Equity

Question 5

What are the three categories of relationships between exporter and importer?

Answer 5

1.Unaffiliated unknown
2.Unaffiliated known
3.Affiliated (sometimes referred to as intra-firm trade)

Question 6

Trade dilemma is in essence a question about…

Answer 6

trusting a stranger in a foreign land.

Question 7

How can the trade dilemma be solved?

Answer 7

This is solved by using a respected bank as an intermediary. It protect both the importer and exporter from: 1. The risk of noncompletion, 2. Foreign exchange risk and 3. Credit risk.

Question 8

Three instruments to resolve trade dilemma:

Answer 8

Letter of credit (L/C), Draft or bill of exchange (B/E), and Bill of lading (B/L).

Question 9

A letter of credit (L/C) is a…

Answer 9

bank’s conditional promise to pay issued by a bank at the request of an importer, in which the bank promises to pay an exporter upon presentation of documents specified in the L/C. The primary advantage of an L/C is that it reduces risk for the importer.

Question 10

payment netting…

Answer 10

consolidates multiple payments into a single net amount owed or receivable. A way of reduce the costs of cross border payments.