Letter Of Credit Basic

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Hussain1967
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  • 1/15 Questions
    If the beneficiary is not happy with the terms & conditions of LC, he can ask applicant for: - ProProfs

    If the beneficiary is not happy with the terms & conditions of LC, he can ask applicant for:

    • Fresh letter of credit (replacement)
    • An amendment
    • Applicant confirmation
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About This Quiz

This 'Letter of Credit Basic' quiz evaluates understanding of secure payment methods in international trade. It covers key concepts like UCP 600, ISBP, and compliance with LC terms, aimed at enhancing skills in managing trade finance risks.

Letter Of Credit Basic - Quiz

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  • 2. 
    Complying presentation means a presentation that is: - ProProfs

    Complying presentation means a presentation that is:

    • Within LC validity only

    • Presenting of all shipping documents

    • In accordance with LC terms & conditions

    Correct Answer
    A. In accordance with LC terms & conditions
    Explanation
    A complying presentation refers to a presentation of documents that fully adhere to the terms and conditions specified in the Letter of Credit (LC). This means that all the shipping documents required by the LC are included and meet the specified criteria. The presentation must also be made within the validity period of the LC. In other words, a complying presentation is one that follows all the guidelines and requirements outlined in the LC.

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  • 3. 
    Banking day means a day on which a bank is …………….at the place at which an act subject to these rules is to be performed. - ProProfs

    Banking day means a day on which a bank is …………….at the place at which an act subject to these rules is to be performed.

    • Regularly open for an act

    • Start from Monday to Friday

    • Normal days including Eid holiday

    Correct Answer
    A. Regularly open for an act
    Explanation
    Banking day refers to a day when a bank is regularly open for conducting various banking activities. This means that the bank is operational and accessible to customers for performing transactions, such as deposits, withdrawals, and other financial services. It does not include weekends or public holidays when the bank is closed. Therefore, the correct answer suggests that a banking day is a day when the bank is open and available for conducting banking operations.

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  • 4. 
    A credit can neither be amended nor cancelled without the agreement of the following Parties: - ProProfs

    A credit can neither be amended nor cancelled without the agreement of the following Parties:

    • The issuing bank & The confirming bank

    • The confirming bank & The beneficiary

    • The issuing, confirming bank & the beneficiary

    Correct Answer
    A. The issuing, confirming bank & the beneficiary
    Explanation
    In a credit transaction, the issuing bank is responsible for issuing the credit, the confirming bank provides a guarantee of payment to the beneficiary, and the beneficiary is the party who will receive payment. All three parties are involved in the credit process and their agreement is required to make any amendments or cancellations to the credit. Therefore, the correct answer is that the issuing bank, confirming bank, and beneficiary must all agree for a credit to be amended or cancelled.

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  • 5. 
    Branches of a bank in different countries are considered to be ………………  - ProProfs

    Branches of a bank in different countries are considered to be ……………… 

    • Separate banks.

    • Same Banks

    Correct Answer
    A. Separate banks.
    Explanation
    Branches of a bank in different countries are considered to be separate banks because each branch operates independently and has its own management, operations, and regulations. Although they may share the same name and be part of the same banking group, each branch is treated as a distinct entity with its own assets, liabilities, and financial responsibilities. This distinction is important for legal and regulatory purposes, as well as for risk management and financial reporting. Therefore, branches of a bank in different countries are considered to be separate banks.

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  • 6. 
     As a seller I will consider the lowest risk methods of payments? - ProProfs

     As a seller I will consider the lowest risk methods of payments?

    • Open Account

    • Documentary Collections

    • Letters of Credit

    • Cash in Advance

    Correct Answer
    A. Cash in Advance
    Explanation
    As a seller, considering the lowest risk methods of payment is important for ensuring the security of the transaction. Cash in advance is the most secure option as it requires the buyer to make full payment before the goods are delivered or the services are rendered. This eliminates the risk of non-payment or any other potential financial issues that may arise. By choosing cash in advance, the seller can protect themselves from potential losses and ensure that they receive payment before fulfilling the order.

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  • 7. 
    Issuing bank is bound by a Letter of Credit The - ProProfs

    Issuing bank is bound by a Letter of Credit The

    • From the time of issue LC

    • From the time the LC is advising by the Advising bank

    • From the time LC is received by the beneficiary

    Correct Answer
    A. From the time of issue LC
    Explanation
    The correct answer is "From the time of issue LC." This means that the issuing bank is bound by the terms and conditions of the Letter of Credit (LC) from the moment it is issued. The LC serves as a guarantee of payment to the beneficiary, and the issuing bank must honor its obligations as stated in the LC once it is issued.

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  • 8. 
    The ISBP publications amend UCP 600 - ProProfs

    The ISBP publications amend UCP 600

    • Yes

    • NO

    Correct Answer
    A. NO
    Explanation
    The ISBP publications do not amend UCP 600. ISBP (International Standard Banking Practice) provides guidelines for the interpretation and application of UCP 600, but it does not have the authority to amend UCP 600. UCP 600 is a set of rules that governs the use of letters of credit in international trade, while ISBP provides additional guidance on how to apply those rules. Therefore, the correct answer is NO.

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  • 9. 
    Advising bank means the bank that advises the credit at the request of the……………… - ProProfs

    Advising bank means the bank that advises the credit at the request of the………………

    • The issuing bank

    • The confirming bank

    • The beneficiary

    • The applicant

    Correct Answer
    A. The issuing bank
    Explanation
    The advising bank refers to the bank that provides advice or notification to the beneficiary regarding the credit, at the request of the issuing bank. The issuing bank is the bank that opens the letter of credit and is responsible for making payment to the beneficiary upon fulfillment of the specified terms and conditions. Therefore, the correct answer is the issuing bank.

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  • 10. 
    The expression “on or about” or similar will be interpreted: - ProProfs

    The expression “on or about” or similar will be interpreted:

    • Five calendar days before until five calendar days after the specified date (both start and end dates included)

    • Five calendar days before until five calendar days after the specified date (both start and end dates excluded)

    • 10 calendar days after the specified date (both start and end dates included)

    Correct Answer
    A. Five calendar days before until five calendar days after the specified date (both start and end dates included)
    Explanation
    The expression "on or about" or similar will be interpreted as a period of five calendar days before and after the specified date, with both the start and end dates included. This means that the time frame extends five days prior to the specified date and five days after it, encompassing a total of eleven days.

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  • 11. 
    Nominated bank means the bank:  - ProProfs

    Nominated bank means the bank: 

    • The bank that advise Letter of Credit

    • The issuing bank

    • LC available with

    Correct Answer
    A. LC available with
    Explanation
    The term "nominated bank" refers to the bank where the Letter of Credit (LC) is available. This means that the LC can be accessed and used by the beneficiary through this bank. The nominated bank is responsible for advising the LC to the beneficiary and facilitating the transaction.

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  • 12. 
    Words such as “prompt”, “immediately” will be:    - ProProfs

    Words such as “prompt”, “immediately” will be:   

    • One day

    • One week

    • Disregarded

    Correct Answer
    A. Disregarded
    Explanation
    Words such as "prompt" and "immediately" are disregarded. This means that they are not taken into consideration or ignored. These words do not hold any significance or importance in the context they are used in. Therefore, when encountering these words, they can be overlooked or not given any attention.

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  • 13. 
    Terms such as “first class”, “well known”, “qualified”, “independent”, “official”, “competent” or “local” used to describe the issuer of a document allow…………………..  - ProProfs

    Terms such as “first class”, “well known”, “qualified”, “independent”, “official”, “competent” or “local” used to describe the issuer of a document allow………………….. 

    • Any issuer including the beneficiary to issue that document.

    • Any issuer except the beneficiary to issue that document.

    • Any issuer to issue that document.

    Correct Answer
    A. Any issuer except the beneficiary to issue that document.
    Explanation
    Terms such as "first class", "well known", "qualified", "independent", "official", "competent" or "local" used to describe the issuer of a document imply that the issuer should possess certain qualities or characteristics that make them suitable to issue the document. Therefore, the correct answer is that any issuer except the beneficiary can issue that document, as the beneficiary would not be considered independent or qualified to issue the document.

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  • 14. 
    The words “from” and “after” when used to determine a maturity date:  - ProProfs

    The words “from” and “after” when used to determine a maturity date: 

    • Exclude the date mentioned.

    • Include the date mentioned.

    Correct Answer
    A. Exclude the date mentioned.
    Explanation
    When the words "from" and "after" are used to determine a maturity date, they indicate that the mentioned date should be excluded. This means that the maturity date will be calculated starting from the day after the mentioned date. For example, if a contract states that a payment is due 30 days from May 1st, the maturity date would be June 1st, not May 31st.

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  • 15. 
    UCP 600 comes into effect on 01 July? - ProProfs

    UCP 600 comes into effect on 01 July?

    • 2008

    • 2009

    • 2010

    Correct Answer
    A. 2009
    Explanation
    UCP 600 is a set of rules that govern international trade and the use of letters of credit. It was first published by the International Chamber of Commerce (ICC) in 2007 and came into effect on July 1, 2007. Therefore, the given answer "2009" is incorrect as it does not align with the actual effective date of UCP 600.

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  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jul 10, 2010
    Quiz Created by
    Hussain1967
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