Question 1

Maurice O'Meara Co.v.National Park Bank of New York involved a letter of credit for a shipment of newsprint.The bank was concerned that the shipment was not as represented in the documents.In finding in favor of the seller's assignee,the court:

Accepted Answer

The court emphasized the independence principle in letter of credit transactions. This principle states that the obligation of the bank to pay the beneficiary of a letter of credit is independent of the underlying contract between the buyer and seller. Therefore, the bank cannot refuse payment based on issues with the underlying contract, as long as the documents submitted by the beneficiary comply with the terms of the letter of credit.

Question 2

The internationally accepted body of rules pertaining to letters of credit is:

Accepted Answer

The Uniform Customs and Practices for Documentary Credits, also known as UCP 600, is a set of internationally accepted rules established by the International Chamber of Commerce (ICC) that governs the use of letters of credit. They are widely accepted and used by banks and businesses worldwide, making them the most relevant and comprehensive set of rules for letters of credit. The other options either pertain to domestic rather than international trade or are not specifically related to letters of credit.

Question 3

The issuing bank is required to pay on documents in case of _____,but not in the event of:

Accepted Answer

The issuing bank is required to pay on documents in case of fraud, but not in the event of a breach of warranty. Fraud is a recognized exception to the principle of documentary compliance in letters of credit.

Question 4

Bolero is a private company founded by a consortium of the world's largest banks to provide secure "digital identities" or signatures for confidentiality and authentication of financial and legal documents.

Accepted Answer

Bolero is a global trade finance digitization platform that provides electronic bill of lading and multi-bank trade finance solutions, rather than focusing solely on providing secure digital identities or signatures for financial and legal documents.

Question 5

The type of letter of credit issued to guarantee that a party will fulfill its obligations under a service,construction,or sales contract is called:

Accepted Answer

A standby letter of credit is issued to guarantee that a party will fulfill its obligations under a service, construction, or sales contract. It is commonly used in place of a performance bond or cash deposit, and is often requested by contractors, suppliers, and vendors as a way to ensure payment and performance. Irrevocable letters of credit, confirmed letters of credit, and letters of warranty credit are all different types of letters of credit, but they are not specifically designed to guarantee contract performance.

Question 6

In a global trade transaction seller would ship monster cables from Port of Oakland to Bangkok,Thailand under an irrevocable letter of credit.The Thai buyer's bank issued the letter of credit with the instruction that the monster cables be placed aboard the George Mason on November 25,2013.The loading brokers loaded the monster cables on board the ship on November 26,2013 at 0100 hours (i.e.1 am).On the manifest the broker wrote placed on board November 25,2013.The confirming bank refuses to pay due to the fraud.Is the confirming bank obligated to pay to beneficiary or holder of the letter of credit.

Accepted Answer

The confirming bank is obligated to pay to the beneficiary or holder of the letter of credit because the discrepancy between the manifest and the actual date of loading is not material. The letter of credit instructed that the goods be placed aboard the George Mason on November 25, 2013, and the goods were loaded on November 26, 2013 at 0100 hours. This is a minor discrepancy that does not affect the validity of the letter of credit.

Question 7

Bills of exchange are governed in the U.S.by the _____,in England by the _____,and in over 20 other countries by the _____

Accepted Answer

In the U.S., bills of exchange are governed by the Uniform Commercial Code (UCC), in England by the Bills of Exchange Act, and in over 20 other countries by the Convention on Bills of Exchange and Promissory Notes.

Question 8

A holder in due course rule,where a purchaser of an acceptance,or any negotiable instrument,takes it free from most disputes that may arise between the drawer and drawee and is regulated under the Uniform Customs and Practice for Documentary Credits.

Accepted Answer

The holder in due course rule, which allows a purchaser of a negotiable instrument to take it free from most disputes between the original parties, is governed by the Uniform Commercial Code (UCC), not the Uniform Customs and Practice for Documentary Credits (UCP), which primarily deals with letters of credit.

Question 9

The type of letter of credit that can be split up between many suppliers,each able to present their own documents for payment and allowing the trader to take his profits from the balance of the credit,is called:

Accepted Answer

A transferable credit allows the primary beneficiary (the trader) to transfer his credit to one or more secondary beneficiaries (the suppliers) who can then present their own documents for payment, with the trader taking his profits from the balance of the credit. This is useful when a trader needs to source goods or services from multiple suppliers and wants to simplify the payment process. Irrevocable, revolving, and standby credits do not permit this feature.

Question 10

The bank that is responsible for inspecting the documents to be sure they are in order,remitting payment to the seller,and negotiating the documents to the buyer is called:

Accepted Answer

The answer of The bank that is responsible for inspecting...

Question 11

A draft due at a future date or after a specified period of time that has been signed by the buyer is called:

Accepted Answer

The answer of A draft due at a future date...

Question 12

Which of the following institutions does not provide credit guarantees to back trade finance lending by commercial institutions?

Accepted Answer

While the Federal Reserve Bank is responsible for monetary policy and regulating banks, it does not provide credit guarantees for trade finance lending. The Eximbank, the Commodity Credit Corporation, and the Agency for International Development all provide credit guarantees to support trade finance lending.

Question 13

An international draft is an order from the seller to the buyer or the buyer's bank to pay the seller upon delivery of goods or the presentation of documents.Thus,the seller is both:

Accepted Answer

In an international draft, the seller is the drawer because they issue the draft, and they are also the payee because they are the party that receives the payment.

Question 14

Suppose that an issuing bank pays on documents that are conforming to the requirements of the letter of credit,but the seller has shipped worthless goods to the buyer.Which of the following statements,if any,are true?

Accepted Answer

The answer of Suppose that an issuing bank pays on...

Question 15

When the Seller's bank guarantees payment under the letter of credit issued by buyer's bank it becomes a(n):

Accepted Answer

When the Seller's bank guarantees payment under the letter of credit issued by buyer's bank, it becomes a confirmed letter of credit. In a confirmed letter of credit, the seller's bank adds its guarantee to the letter of credit, making payment more secure for the seller.

Question 16

The rule that usually prevails for interpreting documents that are submitted to a bank for payment under a letter of credit is commonly called the:

Accepted Answer

The strict compliance rule is the standard approach for interpreting documents submitted for payment under a letter of credit. This means that the documents must precisely comply with the terms and conditions outlined in the letter of credit without any deviation or discrepancies. Failure to comply strictly can result in the bank rejecting the documents and potentially breaching the letter of credit.

Question 17

A letter of credit is a contract between:

Accepted Answer

The answer of A letter of credit is a contract...

Question 18

In the event that a discrepancy is found in the documents presented under a letter of credit,the bank may request a waiver or:

Accepted Answer

If a discrepancy is found in the documents presented under a letter of credit, the bank may refuse to pay against those documents. This is because the documents must strictly conform to the terms and conditions of the letter of credit. The bank cannot simply waive the discrepancies or request resubmission, as this would be contrary to the fundamental principles of the letter of credit. Voiding the transaction or refusing delivery may also be options in certain circumstances, but these are not the best choices in general.

Question 19

A documentary draft issued for the purchase of goods by ABC Co.payable to XYZ Co.,payable upon presentation,defines ABC Co.as the _____,XYZ Co.as the _____,and the specialized name for the documentary draft is _____

Accepted Answer

ABC Co. is the drawee as they are the party expected to pay the draft. XYZ Co. is the drawer as they are the party that issues the draft. A documentary draft payable upon presentation is known as a sight draft.

Question 20

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

Accepted Answer

When a bank stamps its name, date, and signature on the face of a draft, it becomes a banker's acceptance. This indicates that the bank has accepted the obligation to pay the face value of the draft on its maturity date. The use of banker's acceptances is common in international trade transactions, where they provide assurance to the seller that payment will be made by a reputable financial institution.

Quiz 7: Bank Collections and Letters of Credit