International Purchasing — 2021

KNEC Diploma in Supply Chain Management, Module III. Original examination questions with explained answers for revision. Answers are independently prepared for study and are not an official KNEC marking scheme.

July 2021

Paper codes: 2903/304; 3305
Time: Not shown in supplied scan
Instructions: Cover instructions not included in supplied scan.

Question 1(a) — 10 marks

Explain five methods that an importer may adopt to settle payments to suppliers in a foreign market.

Answer

  1. Advance payment: the importer pays before shipment, giving the supplier funds but exposing the buyer to non-performance.
  2. Letter of credit: the issuing bank undertakes payment against a complying presentation of stipulated documents.
  3. Documentary collection: banks transmit shipping documents for release against payment or acceptance, without an independent bank payment guarantee.
  4. Open account: the supplier ships first and the buyer pays on an agreed later date.
  5. Countertrade: agreed goods or services settle some or all of the purchase value rather than ordinary cash payment.

Question 1(b) — 10 marks

International purchase contracts often require both parties to negotiate on certain issues. Outline five such issues.

Answer

  1. Price, discounts and currency determine the financial value of the purchase.
  2. Specifications, quantities and quality acceptance criteria define the required goods.
  3. Delivery dates, named places and transport responsibilities define fulfilment.
  4. Payment method, due dates and security determine settlement and credit exposure.
  5. Warranties, claims and dispute procedures determine how defects and disagreements will be handled.

Question 2(a) — 10 marks

Dealers in commodity markets face certain challenges when buying goods in the international market. Explain five such challenges.

Answer

  1. Commodity price volatility makes budgets and resale margins uncertain.
  2. Exchange-rate movements change the local-currency cost of purchases.
  3. Seasonal shortages and concentrated production can make supply unreliable.
  4. Differences in grades and testing methods can cause quality disputes.
  5. Long-distance transport, port congestion and border procedures can delay delivery and increase costs.

Question 2(b) — 10 marks

Macho limited intends to use the reciprocal trading strategy in dealings with its international suppliers. Explain five benefits that the company may derive from adopting the strategy.

Answer

  1. Mutual purchase commitments can create additional sales for Macho’s own products.
  2. Recurring two-way trade can strengthen supplier relationships and cooperation.
  3. Reciprocal demand may improve utilisation of production capacity.
  4. Agreed exchanges may reduce the need for scarce foreign currency.
  5. Predictable mutual business may improve planning and bargaining over delivery or commercial terms.

Question 3(a) — 10 marks

Outline five documents that an importer may require from the exporter to facilitate clearance of the goods at the port of destination.

Answer

  1. Commercial invoice identifies the goods, transaction value and trading parties.
  2. Packing list identifies packages, contents, weights and shipping marks.
  3. Bill of lading or air waybill identifies the shipment and carrier.
  4. Certificate of origin establishes the stated country of origin for relevant customs treatment.
  5. Applicable inspection or conformity certificate supports compliance with required product standards.

Question 3(b) — 10 marks

Explain the role that the international chamber of commerce (ICC) is expected to play to enhance efficiency in international purchasing operations.

Answer

  1. Develops widely used commercial rules, including Incoterms, that clarify delivery responsibilities when incorporated into contracts.
  2. Publishes documentary-credit and collection rules that provide common procedures when adopted by transaction parties.
  3. Provides arbitration and other dispute-resolution services for commercial disagreements.
  4. Represents business views in international policy discussions affecting trade facilitation.
  5. Supplies guidance and training that help traders understand international commercial practice.

Question 4(a) — 10 marks

A buyer should analyse the supply market environment when sourcing for goods from international markets. Explain five economic factors that should be analysed in this respect.

Answer

  1. Exchange-rate trends affect the expected local-currency purchase and payment cost.
  2. Inflation affects supplier costs and the likely stability of quoted prices.
  3. Interest rates and credit conditions affect financing and inventory carrying costs.
  4. Demand and production capacity influence availability, competition and bargaining power.
  5. Tariffs, taxes and the general economic outlook affect landed cost and continuity of supply.

Question 4(b) — 10 marks

Explain five measures that the Kenya government should take to promote trade between domestic entrepreneurs and their international counterparts.

Answer

  1. Improve transport and communications infrastructure to lower trade logistics costs.
  2. Simplify and clarify customs and licensing procedures for legitimate trade.
  3. Negotiate predictable trade cooperation and market-access arrangements.
  4. Organise trade missions and information services to connect credible business partners.
  5. Promote economic stability and access to appropriate trade-finance support so viable transactions can proceed.

Question 5(a) — 10 marks

Explain five purposes that a commercial invoice is expected to serve in international purchasing transactions.

Answer

  1. Requests payment by stating the seller’s amount due and agreed terms.
  2. Provides transaction-value information used in customs assessment.
  3. Describes goods and quantities so the buyer can match the invoice to the order and receipt.
  4. Supports documentary banking procedures where an invoice is a stipulated document.
  5. Provides an accounting and audit record for reconciliation, cost allocation and later claims.

Question 5(b) — 10 marks

Explain five ways in which the operational requirements of economic blocs may adversely affect international purchasing activities of the member states.

Answer

  1. Rules of origin can add evidence requirements before preferential treatment is granted.
  2. Common external tariffs may make purchases from non-member suppliers more expensive.
  3. Regional sourcing restrictions can limit access to the most efficient global suppliers.
  4. Different interpretations of regional procedures may cause border delays despite common agreements.
  5. Compliance with common standards and administrative requirements can increase adaptation and documentation costs.

Question 6(a) — 10 marks

The air mode of cargo transport is considered the safest channel in international logistics operations. Outline five reasons that may justify this statement.

Answer

  1. Short transit time reduces the period during which theft or deterioration can occur.
  2. Controlled airport cargo facilities restrict unauthorised access to consignments.
  3. Security screening and identity controls strengthen checks on cargo and personnel.
  4. Close tracking and scheduled handling make shipment progress easier to monitor.
  5. Less prolonged transit handling can reduce damage; actual safety still depends on the goods, route and carrier.

Question 6(b) — 10 marks

The government of country Q recently banned importation of certain goods. Explain five factors that may have influenced the government to take this action.

Answer

  1. Protecting health or safety where goods are hazardous or fail required standards.
  2. Protecting the environment from harmful substances, waste or destructive products.
  3. Protecting national security where goods create a material security threat.
  4. Responding to an emergency or severe economic pressure affecting essential national interests.
  5. Protecting domestic production under the country’s applicable trade framework, although restrictions may have wider costs and obligations.

Question 7(a) — 10 marks

The port of Mombasa was recently upgraded to accommodate the largest sea transport vessels. Explain five ways in which the move may enhance international purchasing operations in the East African Region.

Answer

  1. Larger vessels can move more cargo per voyage and may reduce unit shipping costs.
  2. Direct calls can reduce transshipment stages and associated delay or damage exposure.
  3. Increased capacity can reduce congestion and improve delivery predictability.
  4. Greater carrier access can widen route choices for regional importers.
  5. More efficient gateway services can improve onward supply to landlocked regional markets.

Question 7(b) — 10 marks

Beza Transport company has undertaken to transport a high value consignment by rail across several East African countries. Explain the security measures that the organization should take to enhance security of the goods.

Answer

  1. Use secure containers with tamper-evident seals and record seal numbers at each handover.
  2. Track the consignment and agree prompt alerts for route deviations or unexplained stops.
  3. Use vetted staff, carriers and authorised custody-transfer procedures with signed records.
  4. Coordinate secure yards, guarded stops and relevant cross-border security contacts along the route.
  5. Restrict disclosure of cargo details and maintain adequate insurance and a documented incident-response procedure.

November 2021

Paper codes: 2903/304; 3305
Time: Not shown in supplied scan
Instructions: Cover instructions not included in supplied scan.

Question 1(a) — 10 marks

A disagreement on conditions of sale has arisen between an importer of cars in Kenya and his supplier in Japan. Explain five ways in which the conflict may be resolved.

Answer

  1. Negotiation: the parties exchange evidence and seek an agreed settlement directly, preserving the commercial relationship.
  2. Mediation: an impartial facilitator helps the parties find a voluntary solution without imposing a decision.
  3. Conciliation: a neutral third party may investigate and propose settlement terms for the parties to accept.
  4. Arbitration: an agreed tribunal considers the dispute and issues an award under the applicable arbitration arrangement.
  5. Litigation: the competent court determines the dispute where agreement or other dispute procedures do not resolve it.

Question 1(b) — 10 marks

Explain five ways in which the application of the International Commercial Terms (INCOTERMS) 2020 may facilitate international purchasing operations in an organization.

Answer

  1. Delivery clarity: a named rule and place identify the seller’s delivery obligation and the point of risk transfer.
  2. Cost allocation: the rule divides relevant carriage, handling and other delivery costs between buyer and seller.
  3. Customs responsibilities: the parties can identify who undertakes export or import formalities under the chosen rule.
  4. Logistics planning: the allocation of carriage and, for applicable rules, insurance obligations helps arrange shipment.
  5. Fewer disputes: internationally understood terminology reduces ambiguous delivery promises; payment and ownership still need separate contract clauses.

Question 2(a) — 10 marks

The Covid – 19 global pandemic has negatively affected international purchasing operations in many countries. Explain five measures that a government may take to minimize the negative effects of the pandemic to the economy.

Answer

  1. Keep essential trade corridors operating with proportionate health controls to maintain critical supplies.
  2. Simplify or digitise border and licensing procedures to reduce physical contact and clearance delays.
  3. Provide targeted temporary support to viable firms and vulnerable households to limit severe income disruption.
  4. Support public-health services and workplace protection so productive activity can resume safely.
  5. Coordinate with trading partners and share reliable information to avoid unnecessary restrictions and panic-driven supply disruption.

Question 2(b) — 10 marks

It is usually necessary for an importer to involve a clearing and forwarding agent in the purchasing process. Explain five challenges that the exporter may experience when using the agents.

Answer

  1. Agent errors in classification or documents can cause delays, penalties and disputes.
  2. Additional commissions and poorly disclosed charges can increase transaction costs.
  3. Weak communication can prevent the exporter from knowing the actual cargo status.
  4. Dishonest or careless agents may mishandle goods, funds or confidential documents.
  5. Dependence on an agent’s capacity and reliability can disrupt shipment when that agent fails to perform.

Question 3(a) — 10 marks

Outline five types of regulations that an importer is expected to comply with in the process of purchasing goods from foreign markets.

Answer

  1. Customs and tax requirements govern declarations, valuation and applicable duties.
  2. Import licensing and restricted-goods controls determine whether the goods may enter.
  3. Product quality and safety requirements govern conformity and inspection.
  4. Health, sanitary and phytosanitary requirements control relevant food, plant and animal products.
  5. Foreign-exchange, payment and other applicable trade controls govern lawful settlement and cross-border transactions.

Question 3(b) — 10 marks

You have been appointed to head the import section of the purchasing department at Pawa Limited. Explain five tasks you will be expected to perform in this position.

Answer

  1. Plan import requirements and coordinate delivery schedules with user departments.
  2. Identify, evaluate and negotiate with qualified overseas suppliers.
  3. Arrange approved contracts, payment terms and relevant trade-finance documentation.
  4. Coordinate freight, insurance, clearing and the required import documents.
  5. Monitor supplier performance, resolve shipment discrepancies and report total import costs and risks.

Question 4(a) — 10 marks

Explain five methods that an importer should use to specify materials requirements when sourcing for the goods.

Answer

  1. Performance specification states the results or functions the material must achieve.
  2. Technical specification gives measurable dimensions, composition, tolerances and other detailed requirements.
  3. Recognised standard specification refers to an identified standard and its required edition or grade.
  4. Sample specification uses an agreed sample as the reference for relevant characteristics.
  5. Brand or trade-name specification identifies a known product, with equivalence rules where appropriate to preserve fair competition.

Question 4(b) — 10 marks

A certain local company has been contracted for the construction of a strategic infrastructural facility in a foreign country. Explain five challenges that the company may experience when managing the contract.

Answer

  1. Unfamiliar legal, permit and employment requirements can delay lawful mobilisation.
  2. Currency movements and payment-transfer difficulties can affect project cash flow.
  3. Distance and transport constraints can delay imported equipment and materials.
  4. Language and cultural differences can complicate coordination with clients, workers and local suppliers.
  5. Political instability, security threats or changing government priorities may interrupt work and contract performance.

Question 5(a) — 10 marks

Currency fluctuations pose certain challenges to importers of goods. Explain five measures that an importer may take to address the challenges.

Answer

  1. Agree a forward exchange contract to fix the exchange rate for a known future foreign-currency payment.
  2. Use a currency option, where available, to limit adverse movements while retaining favourable exchange opportunities.
  3. Match foreign-currency receipts against payments so only the net exposure needs conversion.
  4. Negotiate a home-currency price or a clearly defined exchange-adjustment clause, agreeing who bears the risk.
  5. Monitor exposures and arrange payment timing or partial hedges within an approved treasury policy rather than speculate.

Question 5(b) — 10 marks

The World Trade Organization (WTO) is expected to promote free trade in various ways. Explain five such ways.

Answer

  1. Provides negotiations through which members agree reductions in trade barriers.
  2. Promotes predictable, published trade commitments and nondiscrimination within its agreements.
  3. Administers agreed rules governing areas such as goods, services and trade-related procedures.
  4. Provides a framework for resolving disputes between member governments.
  5. Supports transparency and developing-country participation through policy reviews, information and technical assistance.

Question 6(a) — 10 marks

Outline five ethical practices that a buyer should observe when sourcing materials from foreign markets.

Answer

  1. Reject bribes and improper inducements when selecting suppliers or approving payments.
  2. Disclose conflicts of interest and withdraw from decisions where impartiality cannot be maintained.
  3. Treat qualified suppliers fairly using the agreed evaluation criteria.
  4. Protect confidential commercial information and use it only for authorised purchasing purposes.
  5. Verify lawful sourcing and consider labour, environmental and product-safety responsibilities in supplier decisions.

Question 6(b) — 10 marks

A certain importer intends to process a payment for a purchase contract executed by a foreign supplier. Outline five documents that the importer may use when processing the payment.

Answer

  1. The approved contract or purchase order establishes authorised goods, prices and payment terms.
  2. The commercial invoice states the supplier’s claim and amount due.
  3. The transport document provides evidence of the agreed shipment.
  4. The goods-received or acceptance record supports verification that the relevant delivery condition was met.
  5. The inspection or conformity certificate supports the required quality condition before payment is released.

Question 7(a) — 10 marks

Explain five positive effects of globalization on international purchasing operations.

Answer

  1. Wider supplier access gives buyers more alternatives for quality, price and capacity.
  2. Greater competition can improve value and service from suppliers.
  3. Faster international information flows improve market comparison and supplier communication.
  4. International logistics networks can increase access to distant specialist materials.
  5. Technology and knowledge transfer can improve purchasing processes and product development.

Question 7(b) — 10 marks

Many organizations are increasingly adopting the use of the Electronic Technology (E- Tech) when sourcing for their materials requirements in the international market. Explain five measures that such organizations may take to ensure effective use of the technology.

Answer

  1. Select systems that fit procurement requirements and integrate with finance and inventory records.
  2. Train users and suppliers in the agreed electronic sourcing and document procedures.
  3. Provide reliable connectivity, suitable equipment and responsive technical support.
  4. Apply access controls, secure communications and backups to protect commercial information.
  5. Monitor data accuracy, adoption and transaction performance, then correct weaknesses through regular review.
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