CCP Export Credit & Letters of Credit 2 — Questions and Answers
Question 1: Under UCP 600, how many banking days does a nominated bank have to examine documents presented under a letter of credit?
- 3 banking days
- 5 banking days (Correct answer)
- 7 banking days
- 10 banking days
Correct answer: 5 banking days
UCP 600 Article 14 allows a maximum of five banking days following the day of presentation to examine documents.
Question 2: Which type of letter of credit provides the exporter with the greatest payment security?
- Revocable LC
- Unconfirmed irrevocable LC
- Confirmed irrevocable LC (Correct answer)
- Standby LC
Correct answer: Confirmed irrevocable LC
A confirmed irrevocable LC adds the confirming bank's independent payment undertaking on top of the issuing bank's obligation, giving the exporter dual bank commitment.
Question 3: What is the primary function of the Export-Import Bank of the United States (EXIM Bank)?
- Regulate foreign exchange transactions
- Provide financing and insurance to support US exports (Correct answer)
- Issue documentary letters of credit
- Set US tariff policy
Correct answer: Provide financing and insurance to support US exports
EXIM Bank's mission is to fill financing gaps left by the private sector, providing loans, guarantees, and insurance to facilitate US exports.
Question 4: A 'discrepancy' in an LC transaction refers to:
- A difference in exchange rates between countries
- A document that does not comply with LC terms and conditions (Correct answer)
- An error in the buyer's purchase order
- A dispute between the exporter and freight forwarder
Correct answer: A document that does not comply with LC terms and conditions
A discrepancy occurs when presented documents contain errors or omissions that do not strictly conform to the terms of the letter of credit.
Question 5: Under a transferable letter of credit, the first beneficiary may transfer the LC to a second beneficiary primarily to:
- Avoid paying import duties
- Allow a supplier to receive payment directly (Correct answer)
- Convert it into a standby LC
- Reduce the credit limit required
Correct answer: Allow a supplier to receive payment directly
Transferable LCs allow an intermediary (first beneficiary) to direct payment to their supplier (second beneficiary), facilitating trade without the intermediary funding the transaction.
Question 6: Which document in an LC transaction serves as title to the shipped goods?
- Commercial invoice
- Certificate of origin
- Negotiable bill of lading (Correct answer)
- Packing list
Correct answer: Negotiable bill of lading
A negotiable bill of lading is a document of title; whoever holds the original endorsed copy has the right to claim the goods from the carrier.
Question 7: What does 'at sight' mean in the context of a letter of credit?
- Payment is deferred for 90 days after shipment
- Payment is made upon presentation and examination of complying documents (Correct answer)
- The LC is issued without requiring collateral
- The buyer inspects goods before payment is released
Correct answer: Payment is made upon presentation and examination of complying documents
An 'at sight' LC requires the issuing or nominated bank to pay immediately upon determining that presented documents comply with LC terms.
CCP Export Credit & Letters of Credit 2
Under UCP 600, how many banking days does a nominated bank have to examine documents presented under a letter of credit?