CE Trade Documentation & Payment Methods 5

Question 1

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

Accepted Answer

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

Answer

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.

Question 2

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?

Accepted Answer

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

Answer

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.

Question 3

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

Accepted Answer

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

Answer

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

Question 4

An exporter's proforma invoice is best described as:

Accepted Answer

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

Answer

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.

Question 5

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

Accepted Answer

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

Answer

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.

(CE) Certified Exporter Practice Test

(CE) Certified Exporter Practice Test

CE Trade Documentation & Payment Methods 5