All 180 questions from the 6 lessons in one place. Pick a mode, answer, and read the "why" after each one. Nobody sees your answers but you.
The bank's promise depends on documents that match the LC terms, presented within its dates. It does not depend on the buyer's opinion of the goods.
An advising bank checks the LC appears genuine and passes it on. It does not promise to pay unless it also confirms the LC.
The LC stands on its own and banks deal in documents, not goods. A quarrel about quality is between buyer and seller under their contract.
A confirming bank adds its own promise to pay. Sellers ask for it when the issuing bank or its country looks risky. It costs an extra fee.
The issuing bank (the buyer's bank) opens the LC and makes the promise. That is what makes an LC stronger than the buyer's word alone.
True. Under UCP 600 every LC is irrevocable, whether or not the word appears in it.
An irrevocable LC can be changed or cancelled only with the agreement of the seller, the issuing bank and any confirming bank.
UCP 600 is the rule book for documentary credits. URC 522 is for collections, Incoterms for delivery terms, URDG 758 for demand guarantees.
The applicant is the buyer (importer) who applies to his bank to open the LC.
The beneficiary is the seller in whose favour the LC is opened: Evelyn. She is the one who gets paid.
A confirming bank adds its own promise to pay. The seller then has two banks standing behind the payment.
False. An advising bank checks that the LC appears genuine and passes it on. It makes no promise to pay unless it also confirms the LC.
The nominated bank is the bank the LC names (or any bank, if the LC allows it) where the seller can present documents and may get paid.
Roles are hats, not separate people. One bank often wears two or three of them.
Under UCP 600, a confirming bank adds its confirmation when the issuing bank requests or authorises it. The seller may ask the buyer to arrange this.
False. Even when the LC mentions the contract, the bank is not bound by it. It checks the documents against the LC's own terms.
If any quarrel between buyer and seller could stop payment, the bank's promise would be worth little. Independence keeps it reliable.
The bank follows only the LC's terms. Anything the buyer truly needs, such as the latest shipment date, must be written into the LC.
The bank's promise depends only on this LC's terms. An old or separate dispute is a matter between buyer and seller.
Banks deal in documents, not goods. They check that the documents fit the LC terms and don't conflict with each other.
The LC protects the buyer only through its documents. If quality matters, he asks for an inspection certificate in the LC.
True. A mismatch between the documents and the LC, or between the documents themselves, can delay payment or lead the bank to refuse.
In many countries, courts can step in only in rare cases of proven fraud. Otherwise the bank must honour a complying presentation.
A discrepancy is a mismatch between the documents and the LC terms, or between the documents themselves. Shipping after the latest shipment date the LC allows is a classic one.
The core benefit for the seller is a bank's promise instead of depending only on the buyer.
Opening, advising, confirmation, amendment and discrepancy fees are usual LC costs. The buyer's warehouse rent has nothing to do with the LC.
Margin is security the issuing bank may ask the buyer to deposit when it opens the LC.
Foreign exchange business, including LCs, goes through bank branches licensed as Authorised Dealers (AD branches).
Under a usance LC, payment falls due a set number of days later, for example 90 days from sight, giving the buyer time to sell the goods.
A back-to-back LC is an import LC opened on the support of an export LC. Garment exporters use it to buy fabric and accessories.
The buyer (applicant) applies to his bank with an LC application. Nothing happens until he does.
The LC is a risk for the issuing bank, so it is counted against the buyer's credit limit until it is paid or expires.
Banks almost always issue LCs as secure SWIFT messages, which the advising bank can authenticate.
Under UCP 600, the issuing bank is bound from the time it issues the LC. That is why it checks the buyer carefully first.
The application sets out the LC terms: amount, goods, dates and documents. The seller's wage bill has nothing to do with it.
Before opening an LC, the branch checks that the import is allowed. Margin or confirmation can't make a disallowed import allowed.
The advising bank checks that the LC appears genuine and passes it on. It does not judge goods or the buyer's wallet.
False. A bank may decline to confirm. It then tells the issuing bank, and may still just advise the LC.
Checking at once leaves time to ask for an amendment. After shipment, it is usually too late to fix a term she can't meet.
Only the issuing bank can change the LC, through an amendment the buyer requests. Shipping late would create a discrepancy.
Only the issuing bank can amend its own LC. The amendment usually reaches the seller through the same advising bank.
False. Partial acceptance is not allowed. She must accept the whole amendment or reject it.
True. Until she accepts, the original LC terms still apply to her. Her later documents can show which version she followed.
If the LC is silent, the rule is 21 calendar days after shipment, and always within the LC's expiry date.
21 days would run to 22 June, but documents can never be presented after expiry. The earlier date, 12 June, wins.
Documents go to the nominated bank named in the LC, often her own bank, or directly to the issuing bank.
The on-board date shows when the goods were loaded on the ship. That is the date checked against the latest shipment date.
False. A late presentation is a discrepancy. The bank may refuse, and Evelyn then depends on the buyer's goodwill.
Under UCP 600, each bank has a maximum of five banking days after the day of presentation to examine the documents.
Honour means paying at sight, accepting a draft, or making a deferred payment promise. Banks never handle the goods.
Under an acceptance LC, the bank accepts the seller's draft and pays it on its due date, for example 90 days later.
A refusal doesn't end the LC. If time allows, she can fix the documents and present them again.
Under UCP 600, a refusing bank sends a single notice listing every discrepancy. It can't add new ones later.
True. The issuing bank may approach the buyer for a waiver. If he agrees, the bank can pay, though it doesn't have to.
Negotiation means the nominated bank gives value to Evelyn against complying documents, then claims from the issuing bank.
The issuing bank must reimburse a nominated bank that honoured or negotiated a complying presentation, sometimes through a reimbursing bank.
Under an LC the documents travel through the banks. The issuing bank releases them once the buyer pays, or once it agrees to finance him.
The documents are the key to the goods. Faruk pays or is financed, takes the documents, and his C&F agent uses them to clear the parts through Customs.
Usance payable at sight: the seller gets paid at sight, while the importer pays on a later due date.
True. The issuing bank makes its own check, also within five banking days, before it reimburses or pays.
A sight LC pays once the bank finds the documents comply. The others involve waiting or repeat use.
Under an acceptance LC, the bank signs the draft as accepted. That is its promise to pay on the due date.
Both give time, but a deferred payment LC needs no bill of exchange. The bank's promise to pay later is enough.
Negotiation means the nominated bank gives the seller value early and then claims reimbursement from the issuing bank.
True. Five banking days after the day of presentation is the maximum time to examine the documents.
Deferred payment and acceptance LCs both pay on a later date, giving the buyer time.
A nominated bank that negotiates without confirming normally keeps the right to claim back from the seller. A confirming bank that negotiates can't claim the money back from her.
A confirmed LC has the issuing bank's promise plus a separate promise from the confirming bank.
Confirmation protects against issuing bank risk and country risk, so sellers want it when those risks look high.
False. A confirming bank takes real risk and charges a confirmation fee. Advising alone is a different service.
True. The confirming bank's promise is separate and its own, so it does not depend on the issuing bank paying.
A bank confirms only when it is comfortable with the issuing bank and country. In very risky cases, no bank may agree.
A back-to-back LC is a separate import LC, opened on the support of the export LC. Garment exporters use it to buy fabric and accessories.
The master LC is the export LC on whose strength the back-to-back import LC is opened.
A back-to-back LC is a separate LC. The issuing bank must honour complying documents even if the export deal falls through.
Under UCP 600, an LC can be transferred only if it says it is "transferable".
False. A transferable LC can be transferred only once. It may only come back to the first beneficiary.
The first beneficiary may reduce the amount and price, shorten dates and substitute its own invoice, so it keeps the difference.
Back-to-back means a second, brand-new LC with its own promise. Transferable means one LC passed on to a second beneficiary.
A revolving LC renews itself by amount or time, so one LC can serve repeat shipments.
A red clause lets the seller get an advance before shipment, for example to buy materials or pay wages.
The issuing bank must repay the bank that gave the advance, and then claims from the buyer. That is why red clause LCs are used only between trusted partners.
UPAS means usance payable at sight: the seller is paid at sight while the importer pays later.
False. Under UPAS, a financing bank pays the seller at sight. It is the importer who pays later, on the due date.
UPAS lets the seller be paid at sight while the importer pays later. The importer usually bears the interest cost.
A commercial LC pays in the normal course of trade. A standby is a safety net that pays when the applicant fails.
ISP98 (International Standby Practices) was made for standbys. A standby may also follow UCP 600 if it says so.
True. A standby can follow ISP98 or UCP 600; the standby itself says which rules apply.
Standby documents are usually simple: a demand or statement of default, and whatever else the standby asks for.
A standby LC can back open account sales: if the buyer doesn't pay, Evelyn claims from the bank with the documents the standby asks for.
A complying presentation matches the LC terms, the UCP rules and international standard banking practice. The contract and the goods are not part of the check.
ISBP (current version ISBP 821) is the ICC's guide to international standard banking practice for checking documents under UCP 600.
True. Under UCP 600, the nominated bank, any confirming bank and the issuing bank each have a maximum of five banking days after the day of presentation.
The count starts the day after the documents are presented, and only banking days count.
Banks judge the documents alone. What is written is what counts; intentions and the goods themselves are outside the check.
Documents are examined on their face. A phone call can't fix what the paper doesn't say; the invoice must be corrected.
The invoice's goods description must correspond with the LC. Other documents may use general terms that don't conflict.
False. Data need not be identical, only free of conflict. Only the invoice must correspond with the LC's description, and other documents may use general terms.
Documents other than the invoice may describe the goods in general terms, as long as they don't conflict with the LC.
Under UCP 600, documents the LC didn't ask for are disregarded and may be returned. They can't be used to find fault.
Data need not be identical, but it must not conflict. Two different quantities for the same shipment are a clear conflict.
Under international standard banking practice, a typing error that doesn't change the meaning is generally not a discrepancy. Still, careful typing is cheaper than hoping.
The on-board date is after the latest shipment date in the LC, so the shipment is late.
Under UCP 600, if the LC is silent, originals of the transport document must be presented within 21 calendar days after shipment, and always within the LC's expiry.
A clean bill of lading has no clause from the carrier declaring the goods or packaging defective. A note like "cartons torn" makes it unclean.
True. Under UCP 600, when the LC is silent, the minimum cover is 110% of the CIF or CIP value of the goods.
The 21-day period always stops at the expiry date. Presenting after expiry is a discrepancy.
If the LC asks for originals, copies won't do. Missing or wrong documents are one of the most common discrepancies.
Under UCP 600, a refusing bank sends one notice listing every discrepancy, within its five banking days.
False. The refusal must be one notice listing all discrepancies. A discrepancy left out generally can't be raised later.
A waiver is the buyer accepting discrepant documents. The issuing bank may ask him, but he decides, and the seller can't demand it.
False. Asking the buyer for a waiver doesn't extend the bank's five banking days.
Correcting and re-presenting in time is the cleanest road. A corrected, complying presentation keeps the bank's promise working for her.
On approval, the bank forwards the documents without paying. Evelyn waits, and payment depends on the documents being accepted.
Issuing banks often charge a discrepancy fee for handling discrepant documents and take it out of the payment to the seller.
Checking on arrival leaves time to ask for an amendment before shipment, while problems are still easy to fix.
True. An amendment needs the beneficiary's acceptance. Until then, the original LC terms still apply to her.
An honest amendment, arranged in time, is the right fix. A false date on a bill of lading would be fraud.
Early presentation gives a safety margin. If the bank finds a slip, there is still time to fix it within the presentation period and before expiry.
Using one checked source for names and addresses keeps every document consistent and avoids conflicting data.
Under a collection, banks act as messengers. They give no promise to pay; the money still depends on the buyer.
URC 522 is the rule book for collections. UCP 600 and ISBP 821 are for LCs, and ISP98 is for standby LCs.
False. Under a collection, banks check that the listed documents have arrived, but they don't examine what the documents say.
Collections cost less and need less paperwork than LCs. They work when buyer and seller already trust each other.
True. The presenting bank releases the documents against payment (D/P) or against acceptance (D/A), as the instruction says.
Banks in a collection carry documents and follow instructions. They don't step in to pay if the buyer refuses.
The principal is the seller who hands the documents to her bank and starts the collection. Here, Evelyn.
The drawee is the person the bill of exchange is drawn on, the one asked to pay or accept: the buyer.
The remitting bank is the seller's bank, which receives the documents from her and sends them abroad.
The presenting bank is the collecting bank that presents the documents to the drawee. It is often the buyer's own bank.
True. Often one bank in the buyer's country both receives the documents and presents them to the buyer.
The collection instruction is the bank's rule sheet for that collection. Banks act on it and don't guess.
Banks follow the collection instruction. Anything that matters to the seller, starting with D/P or D/A, must be written clearly in it.
D/P means documents against payment: the buyer pays to get the documents.
CAD (cash against documents) is the common local name for documents against payment.
The bill of lading is the document of title. Without it, the buyer can't normally claim the goods from the shipping line.
True. Under D/P the buyer pays when the documents are presented, so the bill is usually a sight bill.
Evelyn ships and lodges documents, her bank sends them, the buyer pays, and only then are the documents released.
Under D/P, documents are released only against payment. Releasing them early breaks the instruction.
Under documents against acceptance, the buyer signs (accepts) the bill and gets the documents now, paying later.
The maturity date is when the accepted bill falls due for payment, for example 90 days after sight.
Under D/A the buyer takes the goods after accepting. If he doesn't pay at maturity, the seller can't take them back easily.
False. Acceptance is the buyer's own promise. A bank is liable only if it separately agrees, for example by guaranteeing the bill.
The seller has given away the documents and goods. What she holds is the buyer's signed acceptance on the bill.
Under D/A the goods are gone. Evelyn holds the buyer's acceptance and must negotiate, wait or take legal action.
In a collection, the seller carries the risk. Banks don't look after the goods unless they agree to.
Banks protest only if the collection instruction tells them to. Evelyn's bank should ask her whether she wants it.
False. An air waybill is not a document of title. If it names the buyer, he may collect the goods without paying.
Because no bank promises to pay, collections suit buyers the seller trusts, in countries without serious payment trouble.
Banks don't carry the payment risk in a collection. In Bangladesh, CAD and DA exports need extra care from the exporter's bank, including follow-up on repatriation.
Only under an LC does a bank (the issuing bank, and any confirming bank) promise to pay. In collections and open account, no bank makes that promise.
D/A means documents against acceptance: the buyer signs (accepts) a bill of exchange to pay later and takes the documents now.
The LC adds a bank promise. D/P keeps the documents until payment. D/A releases them against a promise to pay later. Open account gives the goods and papers away with no hold at all.
False. In a collection, banks handle the documents but don't promise to pay. If the buyer refuses, the seller carries the risk.
Under open account, the seller sends the documents straight to the buyer, so there are few bank charges. The price is that the seller carries the most risk.
Under D/P the documents are released only against payment, so the buyer can't claim the goods. But Evelyn has unpaid goods far away, and must resell them, ship them back or negotiate.
A sea bill of lading can be a document of title, but an air waybill is only a receipt and contract of carriage. So holding it gives much weaker control.
Every change to an LC is an amendment, and banks usually charge a fee for each one.
The confirming bank adds its own promise. The shakier the issuing bank or its country, the bigger the risk it takes, and the higher the fee tends to be.
False. Rates differ from bank to bank and deal to deal, depending on the risk, the amount and the period.
The issuing bank promises to pay against complying documents, so it is taking a risk on the buyer. That risk sits within his credit limit.
Under a usance LC, a bank accepts the bill of exchange and promises to pay on the due date. Its charge for that promise is the acceptance commission.
A collection doesn't use up an LC limit in the same way, because no bank promises to pay. Any change must still be agreed with the supplier and fit the rules. Informal channels are never an option.
True. Charges are part of the deal. Writing them down avoids arguments when the bills arrive.
A confirming bank adds its own promise to pay. It protects the seller against the issuing bank or its country being unable to pay.
Goods made for one buyer have few other buyers. If that buyer walks away, the seller is stuck, so stronger protection makes sense.
A new buyer and goods that can't wait at a port are two big question marks. Under D/A the buyer gets the goods against only a promise to pay later.
True. That is country risk: problems in the buyer's country, such as a dollar shortage, can delay or stop payment even from an honest buyer.
A tested buyer, a stable country, standard goods and a small amount mean few question marks. Lower-cost terms such as D/P can be reasonable.
The bank's promise depends on complying documents. Frequent discrepancies weaken the protection an LC gives and add fees.
Banks deal in documents, not goods. If quality matters, the buyer asks in the LC for an inspection certificate from an independent company.
Under UPAS, a bank funds the gap: the seller gets paid at sight and the importer pays on the later due date.
False. A bank funds the gap between paying the seller and collecting from the importer, and the importer normally bears that interest cost.
UPAS gives the seller payment at sight and the importer time to pay, with a bank funding the gap. Kamal pays the interest cost.
For a payment months away, the exchange rate can move. A forward contract can fix the rate today.
The collecting bank presents the documents, and the buyer can look at them before paying. The goods are usually still at the port or on the way.
Sellers often start with an LC and move down the ladder to collections and open account as the buyer proves himself.
Trust can move both ways. When the buyer or his country looks shakier, a seller returns to safer terms. That is good housekeeping, not an insult.
True. Credit insurance pays the seller when the buyer fails to pay, for example because he goes bankrupt, within what the policy covers.
Open account and collection terms still sit within Bangladesh's export rules, and the money must come home within the allowed time. The AD branch can guide her.