Deck 13: International Trade Finance

Question 1

The seller assumes the risk of non-delivery in an open account transaction.

Answer 1

True

Question 2

The party in whose favor the letter of credit is issued is known as the account party.

Answer 2

False

Question 3

The bank acts a guarantor of payment in the documentary credit transaction.

Answer 3

True

Question 4

A standby letter of credit acts a performance guarantee and serves the same purpose as a bank guarantee or performance bond.

Question 5

Bill of exchange and draft are two names for the same type of negotiable instrument.

Question 6

Under the UCP 500, a document titled "Letter of Credit" is presumed to be irrevocable.

Question 7

In a documentary collections transaction, the bank acts as the buyer's agent for collections purposes only.

Question 8

The use of a draft or promissory note given by the purchaser (guaranteed by purchaser's bank) to the exporter to obtain non-recourse financing is known as factoring.

Question 9

The strict compliance rule says that the bank's payment obligation to the beneficiary is primary, direct and completely independent of any claims that may arise in the underlying sale of goods transaction.

Question 10

The issuing bank is responsible for inspecting letter of credit documents, remitting payment to the seller, and negotiating the documents to the buyer.

Question 11

Banks are required to know or investigate common trade usage.

Question 12

A corresponding bank that confirms the letter of credit is independently liable for its payment.

Question 13

An advising bank is liable for the dishonoring of a credit by the issuing bank.

Question 14

A documentary draft payable within 60 days from the time documents are presented is called a sight draft.

Question 15

The UCC requires that banks review documents relating to a letter of credit within 7 days of receipt.

Question 16

Oral acceptance of a draft is allowed under the Uniform Commercial Code section 3-410.

Question 17

The difference between a draft and an ordinary check is that in the documentary draft the seller acts as both the drawer and the payee.

Question 18

A documentary draft by terms cash against documents is known as a time draft.

Question 19

Under Article 48 of the UCP, a letter of credit is non-transferable unless so designated.

Question 20

The commercial invoice, bill of lading, and insurance documents must all include the exact description of the goods found in the letter of credit.

Question 21

A bank may honor a letter of credit when documents comply on their face even if notified that they are forgeries or that there is fraud in the transaction.

Question 22

A banker's acceptance can be discounted and sold prior to maturity.

Question 23

The Bill of Exchange Act governs drafts/bills of exchange in England.

Question 24

If the buyer's or seller's bank stamps its name, date and signature on the face of a draft, it becomes a bankers' acceptance.

Question 25

If a bank discovers a discrepancy in the documents under a letter of credit, the bank may request a waiver in order to pay on the documents.

Question 26

International demand guarantees are governed by the ICC's Uniform Rules for Demand Guarantees.

Question 27

If bank discounts a draft without recourse to the exporter, then the exporter must reimburse the bank if the party obligated to pay the draft defaults.

Question 28

The Agency for International Development (AID) is a U.S. government owned corporation that encourages U.S. investment projects in developing countries by offering political risk insurance, guaranties, and direct loans.

Question 29

The party applying for a letter of credit from a bank is the:

A) Issuer
B) Beneficiary
C) Exporter
D) Account party

Question 30

The party in whose favor a letter of credit is issued is the:

A) Beneficiary
B) Account party
C) Importer
D) Buyer

Question 31

The uses of letters of credit in international transactions include all of the following except:

A) As a device to guarantee payment obligation
B) As a tool to expedite customs release
C) As a standby to guarantee a performance obligation
D) To help finance the importing or exporting of goods

Question 32

The bank in the beneficiary's country that further guarantees the issuing banks commitment to pay the letter of credit is the:

A) Advising bank
B) Correspondent bank
C) Issuing bank
D) Confirming bank

Question 33

A bank in the beneficiary's country through which the issuing bank communicates the credit to the beneficiary is known as the:

A) Advising bank
B) Correspondent bank
C) Confirming bank
D) Both A & B

Question 34

This network was set up to provide banks with a means of handling inter-bank transactions including bank transfers and foreign exchange confirmations:

A) SWIFT
B) JUST
C) EDI
D) LOC

Question 35

A typical letter of credit transaction consists of a contractual relationship between:

A) Buyer and its bank
B) Issuing bank and seller
C) Issuing bank and corresponding bank
D) A & B only
E) All of the above

Question 36

A form of financing in which the seller-exporter is allowed to receive an advance on the letter of credit prior to presenting the required documents is known as:

A) Forfaiting
B) Factoring
C) Red clause
D) Standby

Question 37

The international rules for letters of credit transactions are found within:

A) UCC Article 5
B) UCP 500
C) UCC Article 7
D) CISG

Question 38

Which of the following is the rule that is usually followed by banks for interpreting documents submitted for payment under a letter of credit:

A) Facial compliance rule
B) Strict compliance rule
C) Reasonable compliance rule
D) Good faith rule

Question 39

Under the UCP 500, banks have a reasonable period to review documents, not to exceed:

A) 3 days
B) 5 days
C) 7 days
D) 9 days
E) None of the above

Question 40

A guarantee from an insurance company to pay in case of default is known as a:

A) Performance bond
B) Credit surety
C) Standby letter of credit
D) Retention surety
E) None of the above

Question 41

The Eximbank's finance export programs include:

A) Loans
B) Guarantees
C) Working capital guarantee
D) Insurance
E) All of the above

Question 42

The governing body of rules for standby letters of credit is:

A) Uniform Commercial Code
B) Uniform Customs and Practices for Documentary Credits
C) International Standby Practices
D) Convention on Bills of Exchange and Promissory Notes
E) Uniform Code of Practices for Standby letters of Credit

Question 43

A letter of credit in which the buyer is allowed to reuse the credit after the letter is drawn down by the seller and the bank is reimbursed is known as a:

A) Transferable letter of credit
B) Revolving letter of credit
C) Back-to-back letter of credit
D) Letter of warranty credit
E) None of the above

Question 44

A letter of credit that may be split up among many parties, each able to present their own documents for payment is known as a:

A) Irrevocable letter of credit
B) Revocable letter of credit
C) Back-to-back letter of credit
D) Transferable letter of credit
E) None of the above

Question 45

The discounting of a foreign account receivable that does not involve a draft is known as:

A) Factoring
B) Forfaiting
C) Letter of credit
D) Performance guarantee

Question 46

Under the UCP 500, a beneficiary is required to deliver documents within ____ days of the receipt of the bill of lading:

A) 3 days
B) 7 days
C) 21 days
D) 30 days
E) None of the above

Question 47

_________ secures performance of a non-monetary obligation and serves as a default device when performance is not satisfactory:

A) Standby letter of credit
B) Demand guarantee
C) Transferable letter of credit
D) A & B only
E) All of the above

Question 48

Explain the difference between a revocable and irrevocable letter of credit. Explain the difference between transferable and non-transferable letters of credit. Describe how each letter of credit is used.

Question 49

What are the differences among the advising, confirming, and nominating banks?

Question 50

What are the rules of strict compliance and facial compliance? How do they apply to a bank's duties in a letter of credit transaction?

Question 51

What is a standby letter of credit and how does it act as a performance guarantee?

Question 52

Describe the methods available to guarantee performance?