Trade Documentation & Payment Methods Flashcards

Which of the following is TRUE about an 'irrevocable' letter of credit under UCP 600?

Answer: All LCs under UCP 600 are deemed irrevocable — revocable LCs no longer exist under this version

UCP 600 eliminated the concept of revocable LCs — every LC issued under UCP 600 is automatically irrevocable and can only be amended or cancelled with all parties' consent.

A U.S. exporter wants to ship goods to a buyer in a country with high political risk. Which combination of payment mechanisms best protects the exporter?

Answer: Confirmed, irrevocable letter of credit with a U.S. bank as confirming bank

A confirmed LC adds a U.S. bank's payment guarantee on top of the foreign issuing bank's obligation, eliminating both the buyer's credit risk and the country/bank risk of the importing country.

On a Certificate of Origin, the 'country of origin' for U.S. exports is determined primarily by:

Answer: Where substantial transformation occurred or where sufficient value was added to the product

U.S. origin rules are based on 'substantial transformation' — where the product was last substantially transformed into a new and different article of commerce.

An exporter's proforma invoice is best described as:

Answer: A preliminary invoice sent to the buyer before shipment to confirm pricing, terms, and details for LC application

A proforma invoice is a preliminary document that mirrors the commercial invoice format, used to give the buyer enough information to arrange financing, open an LC, or obtain import permits.

What is the key risk to the exporter when using 'open account' payment terms in international trade?

Answer: Goods are shipped and delivered before payment is made, creating significant non-payment risk

Under open account terms, the exporter extends credit by shipping goods before receiving payment, bearing all credit risk if the buyer delays, defaults, or disputes the transaction.

A 'usance' or 'term' draft in a documentary collection differs from a 'sight' draft because it:

Answer: Matures and becomes payable at a specified future date after acceptance

A usance (term) draft specifies a future payment date (e.g., 60 or 90 days after sight), giving the buyer a credit period; a sight draft requires immediate payment upon presentation.

Which document is typically required by customs authorities in both the U.S. and most importing countries to assess duties and verify the transaction value of imported goods?

Answer: Commercial invoice

The commercial invoice is the primary document used by customs authorities worldwide to determine dutiable value, verify the transaction, and classify the goods for tariff purposes.