Documentary Credits: History and Usage
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Questions and Answers

What event caused the increased reliance on documentary credits before World War I?

  • A global financial crisis
  • The need for established trading chains
  • The outbreak of war (correct)
  • Changes in trade regulations

    • What was the percentage increase in the volume of SWIFT MT700 messages between 2012 and 2013?

  • 4.5 percent
  • 5.0 percent
  • 2.1 percent
  • 3.3 percent (correct)

    • Which region accounted for almost 70 percent of the documentary credit market?

  • North America
  • Europe
  • Africa
  • Asia-Pacific (correct)

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

    <p>USD653,000</p> Signup and view all the answers

    Which currency is now the second most-used for documentary credits?

    <p>Chinese Renminbi (RMB)</p> Signup and view all the answers

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

    <p>399,000</p> Signup and view all the answers

    What was a common practice before World War I regarding the use of documentary credits?

    <p>Selling goods without bank support</p> Signup and view all the answers

    What global trend regarding documentary credits is indicated by the statistics provided?

    <p>Usage remains steady but below levels from previous decades</p> Signup and view all the answers

    What is the primary purpose of a documentary credit?

    <p>To facilitate the shipment of goods and services</p> Signup and view all the answers

    Which of the following items would typically not be covered by a documentary credit?

    <p>The sale of a used book</p> Signup and view all the answers

    How do local regulations impact the use of documentary credits?

    <p>They may require the use of documentary credits for certain import goods.</p> Signup and view all the answers

    Which scenario best illustrates the use of a documentary credit for assembly industries?

    <p>Importing goods in kit form for assembly in a factory</p> Signup and view all the answers

    What type of goods are most commonly transacted using documentary credits?

    <p>Consumbales like food and clothing</p> Signup and view all the answers

    What is a key requirement for using a documentary credit as a method of settlement?

    <p>Documentation of the shipment or service provision</p> Signup and view all the answers

    Which of the following is NOT a characteristic of documentary credits?

    <p>They automatically insure goods during transit.</p> Signup and view all the answers

    What aspect of a documentary credit supports compliance with local requirements?

    <p>Customizable terms and conditions within the credit</p> Signup and view all the answers

    What mainly led exporters to rely increasingly on documentary credits during World War I?

    <p>Lack of information on new counterparties</p> Signup and view all the answers

    The volume of documentary credits issued today is higher than that experienced in the 1970s.

    <p>False</p> Signup and view all the answers

    What is the most common form of documentary credit issuance?

    <p>SWIFT MT700 message</p> Signup and view all the answers

    In 2013, the average value of a documentary credit issued was _____ USD.

    <p>653000</p> Signup and view all the answers

    Match the following documentary credit statistics with their descriptions:

    <p>4,787,071 = Total documentary credits issued in 2013 3.3% = Increase in SWIFT MT700 messages from 2012 to 2013 399,000 = Average documentary credits issued monthly in 2013 70% = Market share in the Asia-Pacific region</p> Signup and view all the answers

    What was a significant change to trading practices during World War I?

    <p>No sales were made without bank support</p> Signup and view all the answers

    The Chinese renminbi (RMB) has surpassed the US dollar (USD) in documentary credit usage.

    <p>False</p> Signup and view all the answers

    What percentage of the documentary credit market does the Asia-Pacific region account for?

    <p>70%</p> Signup and view all the answers

    Documentary credits are primarily used to secure _______ for goods being traded.

    <p>payment</p> Signup and view all the answers

    What trend was observed regarding the issuance of documentary credits from 2012 to 2013?

    <p>An increase in issuance</p> Signup and view all the answers

    Which of the following is a primary benefit of using documentary credits?

    <p>They provide assurance on the terms of the trade.</p> Signup and view all the answers

    Documentary credits are used exclusively for the shipment of large goods only.

    <p>False</p> Signup and view all the answers

    What type of items are referred to as consumables in the context of documentary credits?

    <p>Clothing, food, and other similar goods.</p> Signup and view all the answers

    In some countries, local legislation requires the use of a documentary credit for certain types of goods that are ______.

    <p>imported</p> Signup and view all the answers

    Match the following scenarios with their relevance to documentary credits:

    <p>Shipping consumables = Common use of documentary credits Local assembly of goods = Supports industry development High-value building projects = Examples of substantial transactions Simple spare part shipments = Everyday application of documentary credits</p> Signup and view all the answers

    Which of the following statements is true regarding documentary credits?

    <p>They can cover goods in kit form for local assembly.</p> Signup and view all the answers

    Documentary credits allow for the specification of shipping details and timelines.

    <p>True</p> Signup and view all the answers

    What does the presence of documentation ensure when using a documentary credit?

    <p>It ensures that the shipment of goods or provision of services is verifiable.</p> Signup and view all the answers

    The concept of general credit was exemplified in a letter signed by ______.

    <p>Thomas Jefferson</p> Signup and view all the answers

    Which of the following items could be covered by a documentary credit?

    <p>Airplanes</p> Signup and view all the answers

    Study Notes

    Documentary Credits: History and Usage

    • Documentary credits were less prevalent before WWI. Trade disruptions during the war highlighted the need for payment security, as trading relationships and information became unreliable.
    • The use of documentary credits has remained steady, but volumes are lower than in the 1970s, 1980s, and 1990s.
    • The 2014 ICC Global Trade and Finance Survey Report noted a 3.3% increase in SWIFT MT700 messages (documentary credit issuance) between 2012 and 2013.
    • In 2013, there were 4,787,071 documentary credit issuances, averaging nearly 399,000 per month.
    • The Asia-Pacific region accounted for approximately 70% of the market in 2013.
    • The Chinese renminbi (RMB) is now the second most used currency after the US dollar.
    • The average documentary credit value in 2013 was USD653,000, a 6% increase from 2012.
    • A significant number of sales occurred prior to WWI without bank support. War disrupted existing trading chains, requiring bank undertakings, such as documentary credits, for shipping and payment.

    Using Documentary Credits

    • Documentary credits are versatile, applicable from massive building projects to small parts shipments.
    • Common goods include consumables, clothing, and food items (such as rice, wheat, and sugar). Other transactions, like vessel or aircraft sales/leases/scrapping, can also be supported.
    • Some countries mandate documentary credits for specific imports, ensuring compliance with local regulations.
    • Documentary credits are used to support local assembly industries, covering imported goods in kit form.
    • The credited items can then be assembled locally into finished products, such as televisions, refrigerators, or motor vehicles.
    • Credits enable specific timetables and shipment details for component parts, matching factory assembly.
    • Any transaction with verifiable documentation of goods or services is suitable for credit settlement.

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    Description

    This quiz explores the evolution and current usage of documentary credits in international trade. It examines trends in issuance volumes, currency preferences, and the impact of past global events on trading practices. Prepare to test your knowledge on the significance of documentary credits in modern finance.

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