Reference no: EM133068830

USA Widgets Inc. is a company located in Anytown, U.S.A. and makes widgets. Foreign Importer Inc, located in the country Foreignsica, offers to import from USAWidgets Inc. 1 million widgets. USA Widgets is willing to sell 1 million widgets to them and, taking into account various expenses, is willing to sell at the price of one U.S. Dollar (USD1.00) per widget. The exchange value between US Dollars and the Foreignsica Floreign is such that one U.S. Dollar is worth 2 Foreignsica Floreigns (USD1.00 = 2 Fl.)

The two parties to this transaction have agreed to the following terms: This transaction will be financed by a letter of credit that the buyer will have issued by a U.S. bank in favor of the seller and drafts presented under this letter of credit will be drawn at 90 day sight. The seller specifically requested that that the letter of credit be issued by Big USA Bank in Anytown, U.S.A., and the buyer has agreed. The widgets are to be shipped to the buyer in one shipment and the exporter is expected to draw under the letter of credit by presenting its draft in the amount of USD1 million drawn at 90 days sight accompanied by the following documents: invoice, packing list, and on-board ocean bill of lading. If all documentation required under the L/C is in order, Big USA Bank will accept the draft under their letter of credit, which stipulated acceptance fee (1.5% per annum] and discount fee (4% per annum] are for account of the seller.

Q1 Who is the seller?

Q2 Who is the buyer?

Q3 Who is the exporter?

Q4 Who is the importer?

Q5 Who asks for the L/C to be issued (L/C account party)?

Q6 Who is the beneficiary of the L/C?

Q7 List advantages the letter of credit financing vehicle offers the buyer and seller over other methods of payment:

Q8 What will the purchase price for the widgets be equivalent to in Foreignsica Floreigns?

Q9 What amount will the seller net if seller decides to discount the draft? (based on 90 days)

Q10 Of what business value (benefit) is it to seller to discount the draft? (List benefits)

Q11 Of what business value (benefit) is it to seller not to discount the draft, but instead wait until maturity to receive payment? (List benefits)

Q12 How is the seller "financing" the buyer through this letter of credit, and of what business value (benefit) is this to the buyer? (List benefits)

Q13 List reasons why the seller requested the letter of credit be issued by a U.S. bank, when the buyer is located in a foreign country, Foreignsica:

USA Widgets Inc., 123 Vista Blvd., Anytown, U.S.A 77000

Foreign Importer Inc, 444 Flower Road, Capitol City, Foreignsica

Big USA Bank, 567 Commerce Street, Anytown, U.S.A 77001