A European vehicle manufacturer has agreed a $70 million export order to supply trucks to a road haulage company based in a country in Asia.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2015). The mark or mark type is shown in brackets.

1. [4] Any four points × 1 mark each and up to 2 marks for a well-developed point –
2. t-
3. • Enables the buyer and the seller to be in contact frequently using email
4. • So that queries could be answered
5. • So that prices (1) terms could be given (1)
6. • Enables tenders/quotations to be sent quickly
7. • Enables contracts to be sent
8. • May hold meetings using teleconferencing/videoconferencing (1) so saving the time / cost / need for travel (1)
9. • May have been other rival vehicle manufacturers trying to obtain the order (1) so it was important for the vehicle manufacturer to communicate effectively (1)
10. • A definition of communication such as exchange of information (1)
11. • Large sums of money require accuracy (1)
12. • Any change of circumstance must be communicated rapidly (1) plus example (1)
13. Any other relevant point
14. [2] Any one way × 2 marks
15. • May inspect the trucks on arrival in the Asian country (1) to make sure there is no smuggling (1)
16. • May assess the documents and trucks (1) in order to levy import duties (1)
17. • The trucks may need licences to be imported into the Asian country (1) and these would be checked by Customs (1)
18. • Customs would note the quantity and value of the trucks for statistical purposes in order to calculate the Balance of Trade (1)
19. Any other relevant point
20. [4] Any four points × 1 mark each or two well-developed point –
21. • Distance may cause difficulties when exporting
22. • The trucks are likely to be sent a considerable distance (1) and so there are greater dangers of theft of the trucks or damage to them (1)
23. • There may be difficulties over communication between buyers and sellers at a distance (1)
24. • Transport may be more complex (1) – the need for more than one method of transport because of distance (1)
25. • There may be additional charges for transport/insurance (1) because of long distances (1)
26. Any other relevant point
27. [1] One mark for costs/language problems/different currencies/different exchange rates / different specifications/increased paperwork/risk of non-payment/time/weight
28. Any other relevant point
29. [3] Any three points × 1 mark each – and up to 2 marks for a well-developed point
30. • The trucks are imported goods
31. • This order would reduce the Balance of Trade of the Asian country and so reduce its Balance of Payments by $70m
32. • It might not affect the Balance of Payments because it might be balanced by exported goods of the same value
33. Any other relevant point
34. [6] Level 2 (4-6 marks)
35. Candidate has discussed each method of payment and has given a reasoned recommendation.
36. (If a candidate has discussed only one method of payment with a reasoned recommendation, award 4 marks max. If a candidate has discussed each method of payment but given no recommendation, award 5 marks max).
37. Documentary credits are letters of undertaking issued by the road haulage company's bank and sent to the vehicle manufacturer to guarantee the payment. The manufacturer must produce various shipping documents to its bank in order to prove that the trucks have been sent. It will then present the documentary credit and receive payment. This bank will then be repaid by the buyer's bank who claims the money from the buyer.
38. Electronic transfer is computerised transfer of funds between two banks in two different countries. It is a very quick way of transferring large value sums such as the $70m owed. It is safe as it is between banks but the buyer must have the funds available to do this.
39. The road haulage company is unlikely to use a credit card in payment. This is used more for personal transactions and the amount owed is too large to be paid by credit card.
40. If the buyer wants a period of credit and wants to safeguard the payment and know that the trucks have been despatched before payment is made, documentary credits are to be recommended. If the money is available, then electronic transfer would be suitable but there is a risk that the payment would be made and the trucks would not have been despatched.
41. Level 1 (1-3 marks)
42. Candidate has commented on one or more methods of payment with/without a recommendation.
43. The road haulage might use documentary credits. Documents have to be produced to show that the goods have been sent. It will not use a credit card. I recommend using documentary credits. Payment is guaranteed.