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Questions and Answers
What is the primary role of a bank in a Documentary Collection?
What is the primary role of a bank in a Documentary Collection?
What is the main difference between a Simple Remittance and a Documentary Remittance?
What is the main difference between a Simple Remittance and a Documentary Remittance?
In a Documentary Collection (D/P), when does the importer receive the documents?
In a Documentary Collection (D/P), when does the importer receive the documents?
What is the key distinction between Documentary Collection (D/P) and Documentary Acceptance (D/A)?
What is the key distinction between Documentary Collection (D/P) and Documentary Acceptance (D/A)?
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What is the role of MCGL (Merchant Credit and Guarantee Corporation Limited) in Documentary Collections?
What is the role of MCGL (Merchant Credit and Guarantee Corporation Limited) in Documentary Collections?
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What is the primary responsibility of the bank in a Documentary Collection?
What is the primary responsibility of the bank in a Documentary Collection?
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Which of these options is NOT a type of Documentary Collection?
Which of these options is NOT a type of Documentary Collection?
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According to the provided content, what is a key limitation of using Documentary Collections?
According to the provided content, what is a key limitation of using Documentary Collections?
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Which party's creditworthiness is essentially replaced by the bank's guarantee in a documentary credit transaction?
Which party's creditworthiness is essentially replaced by the bank's guarantee in a documentary credit transaction?
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Which of the following best describes the issuing bank's primary obligation in a documentary credit?
Which of the following best describes the issuing bank's primary obligation in a documentary credit?
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Who has the authority to accept modifications to a documentary credit?
Who has the authority to accept modifications to a documentary credit?
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What is the significance of the 'expiry date for presentation' in a documentary credit?
What is the significance of the 'expiry date for presentation' in a documentary credit?
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According to the information, what is a critical characteristic of a documentary credit?
According to the information, what is a critical characteristic of a documentary credit?
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What is the latest timeframe, after the shipment date, for presenting the original transport documents?
What is the latest timeframe, after the shipment date, for presenting the original transport documents?
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A presentation of documents is made after the documentary credit's expiry date. What is the likely outcome?
A presentation of documents is made after the documentary credit's expiry date. What is the likely outcome?
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When is a documentary credit most likely to be used?
When is a documentary credit most likely to be used?
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Study Notes
Documentary Collections
- A documentary collection is a trade finance method where an exporter gets paid by an importer after exchanged documents between banks.
- The Merchant Credit and Guarantee Corporation Limited (MCG) helps with these documents for importers and exporters.
- Banks process documents to get acceptance or payment.
Bank's Role
- Banks are authorized to follow instructions and established rules regarding document processing.
- Banks aren't liable for collection outcomes, but guarantee delivery based on instructions.
- Remittance doesn't guarantee successful collection – only that documents are delivered if instructions are followed.
Documentary Collection Types (Typology)
- Simple: Money sent directly without much documentation.
- Documentary: Money sent with commercial documents (e.g., invoices, bills of lading).
- Collection (D/P) (or CAD, COD): Documents given to the recipient in exchange for payment (Cash Against Documents or Cash on Delivery).
- Acceptance (D/A): Documents given to the recipient in exchange for accepting a bill of exchange or promissory note.
- Acceptance with bank guarantee: Similar to D/A, but with additional bank guarantee to ensure future payment.
Documentary Credits
- Used for high-value transactions or when parties have concerns about the other side's reliability.
- Provides security for both exporter and importer.
- Exporter gets advance assurance of payment when documents are presented correctly.
- Buyer is assured bank payment if correct documents are given.
- Documentary credit substitutes the importer's credit worthiness with the issuing bank's.
- Issuing bank is obligated to beneficiary (seller) and only the beneficiary can modify the credit.
- The credit is irrevocable and an absolute commitment by bank to honor the approved document presentation.
Final Presentation Dates
- Specify and include an expiry date for the presentation process.
- Original transport documents must be presented within 21 calendar days after shipment.
- Presentations cannot happen after the credit's expiry.
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Description
This quiz covers the fundamentals of documentary collections in trade finance, detailing the roles of banks, types of collections, and the process involved. Understand how exporters and importers interact through banks using various payment methods.
