Stacy Morgan Apparel Is New to Exporting and Is Worried

question 42

Multiple Choice

Stacy Morgan Apparel is new to exporting and is worried about not getting paid for its goods.Ally Jones,its CFO,is trying to convince the company CEO that by insisting on a letter of credit,Stacy Morgan Apparel is well covered financially.Which of the following aspects of a letter of credit in international trade should convince the company CEO?

• A)No cash deposit or collateral is required from the importer.
• B)The exporter pays the trusted third party (usually a bank)a fee for the service.
• C)It becomes a financial contract between the trusted third party (usually a bank)and the exporter.
• D)It is issued by the exporter at the request of the importer.
• E)The creditworthiness of the importer is irrelevant when issuing a letter of credit.

---

Definitions:

Marginal Returns

The additional output gained by adding one more unit of input, holding all other inputs constant.

Minimum Efficient Scale

The minimum efficient scale is the lowest point of production where a firm can achieve the economies of scale, reducing its cost per unit to the minimum.

Economic Profits

The surplus or profit gained by a firm after subtracting all its costs, including both explicit and implicit costs, from its total revenues.

Accounting Profits

The net income for a company calculated by subtracting total expenses from total revenues, according to standard accounting practices.