Quiz on Financing International Trade

What is a letter of credit?

• A guarantee of payment by the buyer's bank to the seller upon presentation of specific documents.

• A payment made by the buyer after the goods are received.

• A contract between the buyer and seller without bank involvement.

• A bill issued by the seller for payment at a later date.

What does the seller do after receiving the letter of credit from the advising bank?

• Immediately ships the goods.

• Examines the details to ensure they meet the conditions.

• Sends payment to the buyer.

• Cancels the transaction.

Who fills out the letter of credit application form?

• The seller

• The buyer

• The advising bank

• The International Chamber of Commerce

In a bill of exchange, who is the drawee?

• The person receiving the payment

• The person paying the bill

• The advising bank

• The issuing bank

What happens if the details on the documents presented by the seller are incorrect?

• The issuing bank pays the seller anyway.

• The buyer collects the goods.

• The advising bank asks the seller for corrected documents.

• The advising bank cancels the transaction.

What is a bill of exchange?

• A method of payment where the buyer pays immediately.

• An order by the exporter instructing the importer to pay a specified amount at a specified time.

• A payment guarantee issued by the buyer's bank.

• A direct contract between the buyer and seller.

What is the first step in a letter of credit transaction?

• The seller ships the goods.

• The buyer completes a contract with the seller.

• The issuing bank approves the letter of credit.

• The advising bank authenticates the letter of credit.

What does the advising bank do after receiving the letter of credit?

• Approves the transaction and notifies the buyer.

• Ships the goods to the buyer.

• Authenticates the letter of credit and sends the details to the seller.

• Pays the seller immediately.

Why doesn't the seller have to wait for the bill of exchange to mature before getting paid?

• The buyer pays in advance.

• The advising bank provides financing in advance of payment.

• The seller doesn't need immediate payment.

• The bill is endorsed by a third party.

When does the buyer collect the goods in a letter of credit transaction?

• After the seller ships the goods.

• After the issuing bank releases the documents.

• After the advising bank pays the seller.

• After the seller presents the documents to the advising bank.