Test Bank for International Logistics, 3rd Edition: Pierre A.

David

Test Bank for International Logistics, 3rd Edition:

Pierre A. David

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Chapter 6: Terms of Trade or Incoterms

TRUE/FALSE

1. Under the Free Carrier Incoterm, the exporter is responsible for clearing the merchandise for
export.

ANS: T DIF: Easy REF: 6-5b

2. An advantage of the Free Alongside Ship Incoterm is the thorough documentation of the receipt
of goods at a port holding area or to the quay alongside the ship.

ANS: F DIF: Hard REF: 6-6a

3. Under the FOB Incoterm, in countries where export authorities require a pre-shipment inspection,
the importer must pay for it.

ANS: F DIF: Moderate REF: 6-7b

4. The CFR Incoterm means “Cost and Freight.”

ANS: T DIF: Easy REF: 6-8

5. The Cost, Insurance, and Freight Incoterm is specifically designed for land transportation.

ANS: F DIF: Moderate REF: 6-9

6. Under the Cost, Insurance, and Freight Incoterm, the importer takes responsibility for the goods
when they are placed upon the importer’s loading dock.

ANS: F DIF: Moderate REF: 6-9b

7. Conceptually, the CPT Incoterm is the same as the CFR Incoterm, except it applies to goods
shipped by means other than ocean transport, or shipped by sea without being handed over the
ship’s rail (roll-on-roll-off cargo or intermodal containers).

ANS: T DIF: Moderate REF: 6-10

8. The Incoterm CPT means “Cargo Placed at Terminal.”

ANS: F DIF: Easy REF: 6-10

9. An Incoterm expressed as “CIP Sofia, Bulgaria, Incoterms 2000” means that under Incoterms as
of 2000, the goods are “Carriage and Insurance Paid” to Sofia, Bulgaria, where the importer will
take control of them.

ANS: T DIF: Easy REF: 6-11

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 Chapter 6: Terms of Trade or Incoterms

10. A bill of lading or equivalent document (air waybill, sea waybill, multi-modal bill of lading) acts
as proof of delivery under the CIP Incoterm.

ANS: T DIF: Moderate REF: 6-11a

11. The DES Incoterm is mostly used for bulk shipments of commodities where the parties wish to
have the exporter pay for the unloading of the ship.

ANS: F DIF: Moderate REF: 6-12

12. Under Incoterms EXW, FCA, and FAS, the importer is the party responsible for loading the
goods onto the carrier.

ANS: T DIF: Hard REF: 6-4, 6-5, 6-6

13. Under Incoterm DEQ, transfer of responsibility for cargo from importer to exporter is at the
ship’s rail as the cargo is loaded onto the ship

ANS: F DIF: Hard REF: 6-13a

14. The DAF Incoterm means “Deliver All Freight.”

ANS: F DIF: Easy REF: 6-14

15. Under the DAF Incoterm, the exporter is responsible for the costs of transportation from the
border city to the final destination and for the costs of clearing customs.

ANS: F DIF: Moderate REF: 6-14b

16. Under the DDU Incoterm, it is the responsibility of the importer to arrange and pay for the
unloading of the goods.

ANS: T DIF: Hard REF: 6-15a

17. Under the DDP Incoterm, the importer usually takes control of the goods at the city where the
exporter is located.

ANS: F DIF: Hard REF: 6-16

18. Use of Electronic Data Interchange (EDI) is still fairly new and limited to developed countries.

ANS: T DIF: Easy REF: 6-17

19. In planning their export strategy, companies generally determine which Incoterm they will use on
a case-by-case basis.

ANS: F DIF: Moderate REF: 6-3

20. Under the CIF Incoterm, the proof of delivery is an ocean bill of lading or a sea waybill.

ANS: T DIF: Moderate REF: 6-9a

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 Testbank

21. It is always best to use only one term of trade in a quote to a potential customer so that there is no
possible confusion.

ANS: F DIF: Moderate REF: 6-19

22. The least customer-friendly of the Incoterms in the EXW (Ex-Works) Incoterm.

ANS: T DIF: Moderate REF: 6-19

MULTIPLE CHOICE

1. Incoterms stands for

a. terminal incorporation procedures. d. intercontinental term standards.
b. in-country termination. e. None of the above
c. international company terminology.

ANS: E

Incoterms is the acronym for International Commerce Terms.

DIF: Moderate REF: 6-1

2. While on the surface Incoterms determine who pays what when, ultimately the _____ directly or
indirectly pay(s) the costs of transportation and international shipping.
a. importer d. All of the above
b. exporter e. None of the above
c. customs office

ANS: A

The importer ultimately pays since any costs the exporter pays will be built into the price.

DIF: Hard REF: 6-3

3. The choice of the Incoterm is almost always the decision of the

a. importer. d. distributor.
b. agent. e. None of the above
c. exporter.

ANS: C

Agents and distributors are importers, so in this case, these terms are essentially synonymous and
they do not select the choice of Incoterm.

DIF: Moderate REF: 6-3

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 Chapter 6: Terms of Trade or Incoterms

4. The choice of a proper Incoterm is a critical decision because

a. it can be an integral part of export d. All of the above
strategy.
b. it is linked to the level of customer service e. None of the above
the firm is attempting to provide.
c. it can be a competitive advantage.

ANS: D

Choosing the proper Incoterm is crucial because it can be an integral part of an export strategy,
and it is linked to the level of customer service the firm is attempting to provide, while the
competitive advantage is implied.

DIF: Hard REF: 6-3

5. In terms of cost and responsibility, the easiest Incoterm for the exporter which is, in turn, the most
difficult for the importer is
a. Delivered Duty Unpaid (DDU). d. Delivered at Frontier (DAF).
b. Ex-Works (EXW). e. None of the above
c. Delivered Duty Paid (DDP).

ANS: B

Delivered Duty Unpaid (DDU) and Delivered Duty Paid (DDP) require the most responsibility
for the exporter rather than the importer. Delivered at Frontier (DAF) basically splits the
responsibility for the shipment between the exporter and the importer. Ex-Works (EXW) is
correct as it is the easiest for the exporter.

DIF: Moderate REF: 6-4

6. The Incoterm FCA means

a. Free Carrier. d. Free Customs Administration.
b. From California. e. None of the above.
c. For Countries Abroad.

ANS: A

FCA stands for Free Carrier.

DIF: Easy REF: 6-5

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 Testbank

7. FOB is
a. Free On Board. d. All of the above
b. an Incoterm that can be used for any e. None of the above
merchandise.
c. an Incoterm specifically designed for
ocean transportation.

ANS: D

All of these options are relevant to FOB.

DIF: Moderate REF: 6-7

8. Under the Incoterm FOB, responsibility for the cargo

a. shifts from exporter to importer at the d. shifts from exporter to importer when the
ship’s rail. importer pays the exporter.
b. shifts from exporter to importer when the e. None of the above
goods are placed on the exporter’s loading
dock.
c. shifts from exporter to importer when the
goods are unloaded from the ship in the
country to which the goods are going.

ANS: A

In FOB, the responsibility shifts from the exporter to the importer at the ship’s rail.

DIF: Moderate REF: 6-7a

9. Electronic Data Interchange (EDI) has changed what issue in Incoterms?

a. who pays for insurance d. All of the above.
b. who pays for import clearance e. None of the above.
c. documentation of delivery

ANS: C

Exporters can send an Electronic Data Interchange (EDI) notice that acts as a document for both
parties.

DIF: Moderate REF: 6-17

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 Chapter 6: Terms of Trade or Incoterms

10. Incoterms determine

a. how much the agents commission will be. d. All of the above
b. which tasks will be performed by the e. None of the above
exporter.
c. how much duty will be charged by the
importing country.

ANS: B

Incoterms define several aspects of an international sale, one being which tasks will be performed
by the exporter.

DIF: Easy REF: 6-2

11. The Incoterm EXW specifies what regarding delivery?

a. the mode of transportation for delivery d. All of the above
b. who pays for delivery e. None of the above
c. who buys insurance for delivery

ANS: E

EXW says nothing about delivery.

DIF: Hard REF: 6-4a

12. The document that corresponds clearly to the transfer of responsibility for a Free Carrier shipment
is the receipt given by the carrier to the exporter. This receipt can be
a. a sea waybill. d. All of the above
b. an air waybill. e. None of the above
c. a multi-modal bill of lading.

ANS: D

Each of these can function as a receipt indicating responsibility transfer.

DIF: Moderate REF: 6-5a

13. As of the revision in 2000, the only Incoterm which requires the importer to clear the
merchandise for export from the country from which it is coming is
a. Free Alongside Ship. d. Delivered Ex Quay.
b. Ex-Works. e. None of the above
c. Cost and Freight.

ANS: B

Free Alongside Ship, Cost and Freight, and Delivered Ex Quay all require the exporter to clear
the merchandise for export.

DIF: Hard REF: 6-4

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 Testbank

14. Under the ancient maritime custom regarding Free On Board, if a piece of cargo breaks loose
while crossing the ship’s rail and lands on the ship, it becomes the responsibility of
a. the exporter. d. All of the above
b. the importer. e. None of the above
c. the harbor master.

ANS: B

If the cargo lands on the ship, it is the responsibility of the importer. If it falls back on the quay, it
remains the responsibility of the exporter. The ship’s rail is the dividing point.

DIF: Easy REF: 6-7a

15. Under the Cost, Insurance, and Freight Incoterm,

a. the exporter must pre-pay the insurance. d. All of the above
b. the insurance must total at least 110 e. None of the above
percent of the value of the goods.
c. the exporter pays all shipping costs,
except for inland freight.

ANS: D

Under CIF, the exporter must pre-pay the insurance, which must total at least 110 percent of the
value of the goods. Also, the exporter pays all shipping costs, except for inland freight.

DIF: Moderate REF: 6-9, 6-8b

16. The only difference between the Delivered Ex Ship Incoterm and the Delivered Ex Quay
Incoterm is
a. the unloading costs of the ship at the port d. unloading costs are borne by the ship
of destination are borne by the exporter in owner in the Delivered Ex Quay
the Delivered Ex Quay transaction. transaction.
b. the unloading costs of the ship at the port e. None of the above
of destination are borne by the importer in
the Delivered Ex Quay transaction.
c. both importer and exporter share
unloading costs of the ship at the port of
destination in the Delivered Ex Quay
transaction.

ANS: A

The DES and DEQ Incoterms are identical, except that the unloading costs of the ship at the port
of destination are borne by the exporter in the Delivered Ex Quay transaction.

DIF: Moderate REF: 6-13

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 Chapter 6: Terms of Trade or Incoterms

17. Delivered at Frontier is an Incoterm designed specifically for

a. ocean transportation. d. barge transportation.
b. land transportation. e. None of the above
c. air transportation.

ANS: B

Delivered at Frontier is for any merchandise, but only for land transportation.

DIF: Easy REF: 6-14

18. The FOB term not only means “Free On Board,” it is also sometimes referred to as
a. Freight On Bow. d. Freight Over Ballast.
b. Free Over Bow. e. None of the above
c. Freight On Board.

ANS: C

The Free On Board term is sometimes called Freight On Board, and is one of the oldest maritime
terms of trade.

DIF: Easy REF: 6-7

19. Under the Delivered Duty Unpaid Incoterm, unloading costs are borne by the
a. railroad. d. harbor.
b. ship line. e. None of the above
c. exporter.

ANS: E

Unloading costs are borne by the importer.

DIF: Moderate. REF: 6-15

20. The Incoterm(s) requiring the exporter to pay import duty is/are
a. FCA. d. All of the above
b. CIP. e. None of the above
c. DDP.

ANS: C

Only DDP (Delivered Duty Paid) requires the exporter to pay duty.

DIF: Hard REF: 6-16

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 Testbank

21. In a quote which includes multiple Incoterms, so that the customer can choose, the Incoterm that
has the highest invoiced amount is
a. EXW. d. CIP.
b. FCA. e. None of the above
c. DDP.

ANS: C

DDP (Delivered Duty Paid) requires the greatest effort on the part of the exporter and the greatest
costs, which are then invoiced to the importer.

DIF: Moderate REF: 6-19

22. Among the following, the most customer-friendly Incoterm is

a. FCA. d. DES.
b. CIP. e. None of the above
c. DDU.

ANS: C

Under a DDU transaction, the exporter is providing more services to the importer than for FCA,
CIP, or DES.

DIF: Hard REF: 6-19

COMPLETION

1. Under the FAS Incoterm, in countries where export authorities require a pre-shipment inspection,
the ____________________ has to pay for it.

ANS: exporter

DIF: Hard REF: 6-6b

2. Under the CFR Incoterm, until the merchandise has cleared the ship’s ____________________, it
is the responsibility of the exporter, after that, of the importer.

ANS: rail

DIF: Easy REF: 6-8a

3. Under the CFR Incoterm, if the pre-paid contract of carriage does not include the unloading of the
ship, then the ____________________ must pay for it.

ANS: importer

DIF: Hard REF: 6-8b

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 Chapter 6: Terms of Trade or Incoterms

4. Under the CPT Incoterm, the bill of ____________________ can act as a proof of delivery from
the carrier.

ANS: lading

DIF: Easy REF: 6-10a

5. Under the CPT Incoterm, the ____________________ is responsible for unloading the goods
from the carrier’s truck, clearing customs, and paying for any inland transportation beyond the
city of destination.

ANS: importer

DIF: Moderate REF: 6-10b

6. Under the DES Incoterm, the exporter is responsible for the goods until they are placed at the
disposal of the importer at the ____________________ of destination.

ANS: port

DIF: Moderate REF: 6-12

7. As far as the importer is concerned, under the DDP Incoterm, receiving an international shipment
is no different that receiving a(n) _____________________ shipment.

ANS: domestic

DIF: Moderate REF: 6-16

8. Variants to the CFR Incoterm were created to reflect which of the trade partners was responsible
for unloading costs. When the exporter bears the costs, the term “CFR ____________________”
is used.

ANS: Landed

DIF: Hard REF: 6-8

9. The Incoterm CPT means “____________________ Paid To.”

ANS: Carriage

DIF: Easy REF: 6-10

10. The Incoterm DDU means “Delivered _____________________ Unpaid.”

ANS: Duty

DIF: Easy REF: 6-15

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Test Bank for International Logistics, 3rd Edition: Pierre A. David

Testbank

11. The customer-focused exporter gives the importer a quote in which the importer can determine
which ____________________ should govern the transaction.

ANS: Incoterm

DIF: Easy REF: 6-19

12. The choice of an Incoterm, as well as the choice of the method of payment and of other related
transaction alternatives, constitute an exporter’s ____________________ service strategy.

ANS: customer

DIF: Hard REF: 6-19

6-11

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