Stacy Morgan Apparel is new to exporting and is worried about not getting paid for its goods.Ally Jones,its CFO,is trying to convince the company CEO that by insisting on a letter of credit,Stacy Morgan Apparel is well covered financially.Which of the following aspects of a letter of credit in international trade should convince the company CEO?
A)No cash deposit or collateral is required from the importer.
B)The exporter pays the trusted third party (usually a bank)a fee for the service.
C)It becomes a financial contract between the trusted third party (usually a bank)and the exporter.
D)It is issued by the exporter at the request of the importer.
E)The creditworthiness of the importer is irrelevant when issuing a letter of credit.

Question

Quizplus · Accepted Answer

A letter of credit becomes a financial contract between the trusted third party (usually a bank) and the exporter, ensuring that the bank is liable for paying the exporter when the importer fails to do so. This provides financial cover to the exporter, reducing the risk of non-payment. Choices A, B, D, and E are not entirely relevant or incorrect in this context.

Stacy Morgan Apparel Is New to Exporting and Is Worried