Podcast
Questions and Answers
Which payment method incurs the least risk for the buyer?
Which payment method incurs the least risk for the buyer?
- Payment in advance
- Open account trading
- Documentary collection
- Documentary credit (correct)
Which option best meets the requirements of both the importer and exporter needing quality assurance and payment certainty?
Which option best meets the requirements of both the importer and exporter needing quality assurance and payment certainty?
- Confirmed documentary credit payable at sight (correct)
- Confirmed standby credit payable on demand
- Unconfirmed documentary credit with drafts on issuing bank
- Confirmed documentary credit available by acceptance
Which type of documentary credit allows a beneficiary to access pre-shipment financing without affecting their existing facility?
Which type of documentary credit allows a beneficiary to access pre-shipment financing without affecting their existing facility?
- Irrevocable, payable at sight
- Transferable
- Red clause (correct)
- Confirmed irrevocable, payable at maturity
Which statement about transferable documentary credits is correct?
Which statement about transferable documentary credits is correct?
If a credit allows GBP10,000 to be drawn each month for a year, what type of credit is it?
If a credit allows GBP10,000 to be drawn each month for a year, what type of credit is it?
Which payment method poses the highest risk for the buyer?
Which payment method poses the highest risk for the buyer?
Which type of documentary credit is often used for transactions where the seller must provide proof of quality before payment?
Which type of documentary credit is often used for transactions where the seller must provide proof of quality before payment?
In which situation would a transferable documentary credit NOT be appropriate?
In which situation would a transferable documentary credit NOT be appropriate?
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Study Notes
Payment Methods and Documentary Credits
- The buyer incurs the least risk by agreeing to a Documentary credit, which provides assurance of payment to the seller while the seller ships the goods.
Meeting Importer and Exporter Requirements
- A confirmed documentary credit payable at sight calling for beneficiary's quality certificate would BEST meet both the importer's requirement for goods of a stipulated quality and the exporter's requirement for certainty of payment.
Documentary Credits and Financing
- A Red clause documentary credit enables a beneficiary to obtain pre-shipment financing without impacting their facility, allowing them to access funds before shipping the goods.
Transferable Documentary Credits
- In a transferable documentary credit:
- The first beneficiary cannot request that confirmation be withheld from the transferred credit.
- The first beneficiary cannot cancel the transferred credit without the second beneficiary's consent.
- A transferred credit can be transferred at the request of the second beneficiary to any subsequent beneficiary.
- The transferred credit may not expire in the second beneficiary's country of domicile on the expiry date of the first beneficiary's credit.
Types of Documentary Credits
- If a credit states that a fixed amount (e.g., GBP10,000) may be drawn each month during its validity period (e.g., one year), then the credit is a revolving credit.
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