1. Group Quiz: Rules: 1: Raise hand to answer question (I will select fastest team). 1: 1 mark for a correct answer. 2: -1 mark for an incorrect answer. 3: A team can only attempt a question once. 4: Teams cannot attempt a multiple choice type question when there is only one remaining answer.

2. Q1: In international construction contracts, what are the two (2) main factors that affect the purchasing power of your money? A: inflation and fluctuating exchange rates. Q2: The host country’s currency is H. You have been awarded a $65,000,000 lump-sum contract. The exchange rate, H:$, at the start of the contract is 1:2. The exchange rate is expected to change to 2:2 soon after the start of construction. Would you choose to be paid in H or $? A: be paid in $.

3. Q3: Generally, is risk reduced or increased, if you are paid in the currency in which you will be paying your suppliers? A: reduced. Q4: When it is decided that the owner pay the international contractor in a third country’s currency, which party carries the risk? A: It is SHARED between the parties. Q5: Explain what is meant by the currency clause: Unit of Account Clause? A: sets a proportion ratio between the two currencies (divides the risk) eg: US$5,000,000 and X$10,000,000.

4. Q6: Explain what is meant by the currency clause: Index Clause? A: uses a standard factor (say consumer price index) - payment then fluctuates with the economy. Q7: Explain what is meant by the currency clause: Pricing Clause? A: enable prices to change with actual cost of items Q8: Which party carries the risk if a Pricing Clause is adopted? A: the owner (no risk for contractor)

5. Q9: Explain what is meant by the term: Mobilization Payment Clause? A: sort of advanced payment. Q10: Why are Mobilization Payment Clauses sometimes included in international contracts? A: because initialization and start-up costs are generally very high on international projects. Q11: Name at least two types of insurance clause specific to international projects: A: Inconvertibility coverage; Confiscation coverage; War coverage; Disputes coverage.

6. Q12: Explain what is meant by the term: Physical Conditions Clause? A: it relieves you from extra costs resulting from unforeseen circumstances (eg: boulders when piling). Q13: What causes inflation? A: too much money chasing too few goods, that is, demand exceeds supply so prices increase to compensate.

7. Q14: Can depreciation/devaluation of a local currency be caused by local inflation? A: YES Q15: Can local inflation lead to import restrictions? A: YES Q16: Can local inflation lead to higher local borrowing costs? A: YES Q17: To mitigate inflation, should receivables be collected as early or as late as possible? A: As early as possible.

8. Q18: Can depreciation/devaluation of a local currency be caused by local inflation? A: YES Q19: Give an example of what could cause inflation specifically within the construction industry? A: Eg: a very large construction project. Others... Q20: Which one of the following problems is countertrade often used to manage: (a) payment default by the owner; (b) inflation risk, or (c) poor project manager negotiation skills? A: (b) inflation risk

9. Q21: Which of the following approaches to managing a project will be effective in counteracting inflation related problems?: (a) fast-tracking; (b) paying suppliers as early as possible; (c) offering large bribes to the host government permit issuing officers. A: (a) fast-tracking. Q22: Sketch a diagram showing why this is the case. DESIGN TIME CONSTRUCT Design then build (traditional approach): TIME Fast-track (where project can be phased): DESIGN CONSTRUCT 2 DESIGN CONSTRUCT 3 DESIGN CONSTRUCT 1 saving

10. Q23: Where there is a risk of inflation or exchange rate fluctuations, which companies would include the larger contingency in their bid: (a) large companies; (b) small companies? A: small companies. Q24: Why is this the case? (from Q22 above) small companies cannot carry a large loss on a project.

11. Q25: Escalation clauses are NOT applicable to ONE of the following cost increasing factors. Which one?: equipment; material; labor; construction services; changes in the type and quantity of work; taxes; import tariffs; A: changes in the type and quantity of work.

12. Q26: Explain the escalation clause term: Day-One- Dollar-One Clause: A: owner pays the difference in increase in cost between the date of the contract and the time of installation. Q27: Explain the escalation clause term: Delay Clause: A: owner reimburses the difference in cost (through inflation), but only increases incurred during a period of delay (the types of delay need to be stipulated, and often the contractor is responsible for the earlier part of any delay).

13. Q28: Explain the term Freely Fluctuating Exchange Rate: A: the exchange rate is allowed to follow free market forces. Q29: Most currencies in the world are freely fluctuating! True / False?: A: False! Most currencies are managed to some degree.

14. Q30: Which one of the following factors is NOT normally used by analysts to predict exchange rate fluctuations?: interest rate differentials; inflation differentials; government fiscal (expenditures) and monetary (growth in money supply) policies; trends in exchange rate movements; policy on government control of exchange rates; the price of steel; business cycles; changes in international monetary reserves. A: the price of steel.

15. Q31: Is: at risk accounts payable = at risk accounts receivable a safe hedging strategy against risk from exchange rate fluctuations? A: Yes, a safe strategy. Q32: Which one of the following terms is NOT a form of countertrade? barter; co-operation trade; haggling; compensation; counterpurchase; A: Haggling.

16. Q33: Define the term secondary boycott. A: country X refuses to do business with companies in country Z that do business with boycotted country Y. Q34: For public sector contracts in Japan, what is the method that circumvents the need for bonding? A: The designation of contractors for bidding.