Documentary Credits History and Usage

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Questions and Answers

What became a prerequisite for shipping goods during World War I due to the war's impact on trading chains?

Trade agreements

Letters of credit

Documentary credits (correct)

Cash transactions

What was the percentage increase in the volume of SWIFT MT700 messages from 2012 to 2013?

3.3% (correct)

5.0%

4.0%

2.5%

As of 2013, which region accounted for the majority of the documentary credit market?

North America

Asia-Pacific (correct)

Middle East

Europe

What was the average value of a documentary credit issued in 2013?

$653,000 Signup and view all the answers

What is the most common form of documentary credit issuance?

SWIFT MT700 message Signup and view all the answers

Which currency ranked second in usage among documentary credits as of 2013?

Chinese renminbi (RMB) Signup and view all the answers

How many documentary credits were issued on average per month in 2013?

399,000 Signup and view all the answers

What trend was observed in the global volume of documentary credits compared to the 1970s, 1980s, and 1990s?

Global volumes remain below the levels experienced in earlier decades Signup and view all the answers

What is the primary purpose of a documentary credit?

To facilitate the shipment or performance of goods/services and ensure compliance with terms Signup and view all the answers

In what types of situations can a documentary credit be utilized?

For any shipment or service provision as long as it can be documented Signup and view all the answers

Which of the following items is NOT commonly associated with the use of a documentary credit?

Legal documents Signup and view all the answers

How do local legislations typically relate to documentary credits?

They may mandate the use of documentary credits for certain imported goods Signup and view all the answers

What role does a documentary credit play in local assembly industries?

It facilitates the import of good in kit form for local assembly Signup and view all the answers

What kind of terms can be included in a documentary credit?

Terms dictating when and how components are to be shipped Signup and view all the answers

Which of the following transactions is least likely to use a documentary credit?

A local grocery store's cash transaction Signup and view all the answers

What is a key requirement for using a documentary credit?

The corresponding documents must be presented to a bank Signup and view all the answers

Study Notes

Documentary Credits: History and Usage

Documentary credits were less prevalent before WWI, with many sales lacking bank support.
War disrupted trade, making bank undertakings (like documentary credits) necessary for shipments.
Exporters relied increasingly on documentary credits to secure payment due to uncertainty about new trading partners.

Documentary Credit Statistics

Documentary credits remain a common trade settlement method.
SWIFT MT700 messages (documentary credit issuance) increased by 3.3% between 2012 and 2013.
This resulted in 4,787,071 issuances in 2013, averaging almost 399,000 per month.
Asia-Pacific region accounted for ~70% of the volume in 2013.
Current volumes are lower than those seen in the 1970s-1990s.
Chinese RMB is the second most used currency after the USD.
Average documentary credit value in 2013: USD 653,000 (6% increase from 2012).

Using a Documentary Credit

Documentary credits are versatile, applicable to various transactions, from small parts to multimillion-dollar projects (e.g., building projects, consumables, clothing, food).
Specialized transactions like vessel/aircraft sales, leases, or scrapping also utilize documentary credits.
Some countries mandate documentary credits for specific imports to align with local regulations.
Documentary credits support local assembly industries, covering imports of goods in kits for assembly at local factories (e.g., TVs, refrigerators, vehicles).
Credit terms can detail shipping components to match factory workflows.
Documentary credits are suitable for any documented goods shipment or service, enabling bank settlement.

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Description

Explore the evolution and significance of documentary credits in international trade. This quiz covers the period before WWI, statistics on documentary credit usage, and their application in modern commerce. Test your knowledge of how these financial instruments facilitate global transactions.