Here are two examples:
1. Who takes the foreign exchange risk, buyer or seller? Frequently someone will answer, "The buyer."
After a few seconds, another will counter with, "The seller."
A few seconds later, another will come up with, "Both."
Then, after a short period of silence, someone will say, "It depends." And that is the two-word answer I was looking for.
I'll then ask, "On what does it depend? How do we find out who takes the risk?"
A participant will say, "By reading the contract?"
"Yes," I'll reply, "That is correct. Where do we look in the contract?" No one is quite sure how to answer this one. So I'll continue, "It's as simple as looking at the currency stated in the contract."
The answer to the question, "Who takes the foreign exchange risk?" The party willing to deal in the other party's currency. For example, when U.S. exporters requests payment in USD, they are forcing the foreign buyer to deal in USD and the buyer is at risk of any movements between his own currency and USD. On the other hand, if U.S. exporters requests payment in Euros (or any other currency), they are at risk.
2. Who arranges for the main carriage of a shipment, buyer or seller?
Again, some participants will reply, "seller," and others, "buyer." Finally someone will correctly say, "It depends."
"It depends on what?" I'll ask.
Someone usually knows, "The contract."
"What do we look for in the contract?" I'll ask.
The answer is, "The Incoterm®."
If the buyer and seller have agreed to one of the E or F Incoterms®, the buyer is responsible for arranging the main carriage. If they agree to a C or D Incoterm®, the seller is responsible.
While the two words, "it depends," correctly answer many questions, I caution my students that I will not accept it as a correct answer for any questions on the mid-term exam.