Critical and Significant CITF (Certified International Trade and Finance) multiple-choice questions covering key exam topic (the most critical and significant Questions):
1. International Trade Risks
Q1: Which of the following is NOT a type of risk associated with
international trade?
A) Political risk
B) Market risk
C) Technological risk
D) Foreign exchange risk
✅
Answer: C) Technological risk
2. Trade Finance Products
Q2: In which payment method does the buyer pay only after
receiving and inspecting the goods?
A) Letter of credit
B) Open account
C) Documentary collection
D) Advance payment
✅
Answer: B) Open account
Q3: Which trade finance instrument guarantees payment to the
exporter if the buyer fails to pay?
A) Standby letter of credit
B) Bill of exchange
C) Documentary collection
D) Open account
✅
Answer: A) Standby letter of credit
3. Documentary Credits & UCP 600
Q4: Under UCP 600, a bank must honor a letter of credit if:
A) The documents comply with the credit terms
B) The buyer confirms receipt of goods
C) The exporter agrees to a discount
D) The bank receives an instruction from the applicant
✅
Answer: A) The documents comply with the credit terms
Q5: What is the principle of autonomy in a letter of credit?
A) The credit is separate from the underlying contract
B) The applicant has the right to reject documents
C) The seller must provide a performance bond
D) The letter of credit must be in the applicant’s name
✅
Answer: A) The credit is separate from the underlying contract
4. Incoterms 2020
Q6: Which of the following Incoterms places the least
responsibility on the seller?
A) CIF
B) EXW
C) DDP
D) FOB
✅
Answer: B) EXW
Q7: What is the key difference between CIF and FOB?
A) CIF includes insurance; FOB does not
B) FOB includes transportation cost; CIF does not
C) CIF is for air freight; FOB is for sea freight
D) CIF is buyer’s responsibility; FOB is seller’s responsibility
✅
Answer: A) CIF includes insurance; FOB does not
5. Supply Chain Finance & Guarantees
Q8: Supply Chain Finance (SCF) helps businesses by:
A) Increasing financial risk for exporters
B) Offering short-term funding to suppliers
C) Making buyers pay before goods are shipped
D) Eliminating the need for trade finance
✅
Answer: B) Offering short-term funding to suppliers
Q9: A performance guarantee is used to:
A) Ensure the supplier fulfills contractual obligations
B) Provide working capital finance
C) Replace a letter of credit
D) Pay customs duties on imports
✅
Answer: A) Ensure the supplier fulfills contractual obligations
6. Foreign Exchange & Trade-Based Money Laundering (TBML)
Q10: How can an exporter hedge against foreign exchange risk?
A) Using a forward contract
B) Holding payments in foreign currency
C) Avoiding international trade
D) Relying on market fluctuations
✅
Answer: A) Using a forward contract
Q11: Which of the following is a red flag for trade-based money
laundering?
A) Matching invoice and shipping details
B) Unusual trade routes and pricing discrepancies
C) Use of well-known banks
D) Standard payment terms
✅
Answer: B) Unusual trade routes and pricing discrepancies
7. Trade Documents & Compliance
Q12: What is the primary function of a Bill of Lading?
A) Acts as a payment instrument
B) Confirms the buyer’s creditworthiness
C) Serves as proof of shipment and ownership
D) Determines customs duty rates
✅
Answer: C) Serves as proof of shipment and ownership
Q13: Why is KYC (Know Your Customer) important in trade finance?
A) To identify potential money laundering risks
B) To negotiate better terms with suppliers
C) To reduce transportation costs
D) To comply with trade sanctions
✅
Answer: A) To identify potential money laundering risks
Here’s a CITF (Certified International Trade and Finance) mock exam
with multiple-choice questions and short answers:
1. International Trade and Risks
Q1: What is a key risk in international trade that can be
mitigated by using export credit insurance?
A) Foreign exchange risk
B) Political risk
C) Market risk
D) Operational risk
✅
Answer: B) Political risk – Export credit insurance protects
against government actions or instability affecting trade.
Q2: Which organization provides political risk insurance for
exporters?
A) World Bank
B) International Monetary Fund (IMF)
C) Export Credit Agencies (ECAs)
D) WTO
✅
Answer: C) Export Credit Agencies (ECAs) – ECAs such as ECGC,
EXIM Bank, and MIGA provide insurance against political risks.
2. Trade Finance Products
Q3: Which trade finance method provides the highest security for
an exporter?
A) Open account
B) Documentary collection
C) Advance payment
D) Letter of credit
✅
Answer: C) Advance payment – The exporter receives payment before
shipping the goods.
Q4: What is the primary difference between a letter of credit and
a documentary collection?
A) Letters of credit provide a payment guarantee, while documentary collections
do not.
B) Documentary collections are always confirmed.
C) Letters of credit require buyer financing.
D) Documentary collections do not involve banks.
✅
Answer: A) Letters of credit provide a payment guarantee, while
documentary collections do not.
3. Documentary Credits & UCP 600
Q5: Under UCP 600, what is required for a bank to honor a letter
of credit?
A) The buyer must confirm receipt of goods.
B) The exporter must submit compliant documents.
C) The buyer must accept the shipment.
D) The goods must arrive at the buyer’s warehouse.
✅
Answer: B) The exporter must submit compliant documents.
Q6: What does the "principle of autonomy" mean in a
letter of credit?
A) The LC is independent of the underlying contract.
B) The issuing bank must verify the physical goods.
C) The buyer can reject the documents.
D) The seller must disclose cost details.
✅
Answer: A) The LC is independent of the underlying contract.
Q7: What is the role of a confirming bank in a letter of credit?
A) It guarantees payment if the issuing bank fails to pay.
B) It verifies shipment details.
C) It issues the LC.
D) It ensures goods meet the buyer’s requirements.
✅
Answer: A) It guarantees payment if the issuing bank fails to pay.
4. Incoterms 2020
Q8: Which Incoterm places the highest risk on the buyer?
A) CIF
B) EXW
C) DDP
D) FOB
✅
Answer: B) EXW – The buyer assumes all costs and risks from the
seller’s premises.
Q9: What is a key difference between CIF and CIP?
A) CIP requires a higher level of insurance coverage.
B) CIF is used for air transport, while CIP is for sea transport.
C) CIF covers import duties.
D) CIP does not include insurance.
✅
Answer: A) CIP requires a higher level of insurance coverage.
Q10: Which Incoterm requires the seller to deliver the goods at
the buyer’s premises, clearing customs?
A) CIF
B) FOB
C) EXW
D) DDP
✅
Answer: D) DDP – The seller is responsible for all costs,
including customs duties.
5. Supply Chain Finance & Guarantees
Q11: How does Supply Chain Finance (SCF) benefit suppliers?
A) It provides access to early payment.
B) It eliminates trade risk.
C) It guarantees payment in advance.
D) It increases buyer obligations.
✅
Answer: A) It provides access to early payment.
Q12: What is the key difference between a demand guarantee and a
standby letter of credit?
A) A demand guarantee requires proof of default, while an SBLC does not.
B) A standby LC is used for short-term financing.
C) A demand guarantee is always irrevocable.
D) A standby LC can only be issued by an ECA.
✅
Answer: A) A demand guarantee requires proof of default, while an
SBLC does not.
6. Foreign Exchange & Trade-Based Money Laundering (TBML)
Q13: How can an exporter hedge against foreign exchange risk?
A) Use a forward contract.
B) Accept payments only in local currency.
C) Avoid trading with foreign buyers.
D) Rely on the spot market.
✅
Answer: A) Use a forward contract.
Q14: Which of the following is a red flag for trade-based money
laundering?
A) Matching invoice and shipping details
B) Frequent over- or under-invoicing
C) Consistent use of standard trade routes
D) Transparent trade finance arrangements
✅
Answer: B) Frequent over- or under-invoicing.
7. Trade Documents & Compliance
Q15: Which document serves as proof of ownership and receipt of
goods?
A) Bill of Lading
B) Invoice
C) Packing List
D) Certificate of Origin
✅
Answer: A) Bill of Lading.
Q16: Why is AML (Anti-Money Laundering) compliance critical in
trade finance?
A) To prevent illegal trade financing activities.
B) To avoid delays in customs clearance.
C) To improve supplier relationships.
D) To increase profits.
✅
Answer: A) To prevent illegal trade financing activities.
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