I85PREP
⌘ K
IIBF Trade Finance study materials
IIBF Trade Finance study resources

IIBF Trade Finance practice questions

One question at a time. Build your IIBF Trade Finance understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Trade finance fundamentals and documentation

Under UCP 600, within how many banking days following the day of presentation must a nominated bank examine a presentation and determine whether it is complying?

  1. Maximum five banking days Correct answer.
  2. Maximum seven banking days
  3. Maximum three banking days
  4. Maximum ten banking days

Explanation

UCP 600 Article 14(b) gives a nominated bank a maximum of five banking days following the day of presentation to examine the documents and decide on compliance. The period is not shortened by the number of documents involved, and it is expressed in banking days rather than calendar days.

Question 2Trade finance fundamentals and documentation

A letter of credit states that it is 'available with any bank by negotiation'. What does this availability designation primarily determine?

  1. The currency in which the beneficiary must invoice the buyer
  2. The shipping terms that must appear on the bill of lading
  3. The maximum tenor allowed for usance drafts
  4. The place where the credit expires and the banks that may act on it Correct answer.

Explanation

Availability identifies the bank or banks with which the credit is available and, under UCP 600, the place of expiry where the credit is available with a nominated bank. It governs which banks may honour or negotiate and where documents must be presented in time.

Question 3Trade finance fundamentals and documentation

Which document issued by a carrier evidences that goods have been received for shipment but not yet loaded on board the vessel?

  1. Forwarder's certificate of receipt
  2. Received for shipment bill of lading Correct answer.
  3. Shipped on board bill of lading
  4. Charter party bill of lading

Explanation

A received for shipment bill of lading confirms that the carrier has taken charge of the goods for later loading. It differs from a shipped on board bill of lading, which confirms actual loading on the named vessel.

Question 4Trade finance fundamentals and documentation

In a documentary collection, what is the role of the remitting bank?

  1. It issues the letter of credit supporting the transaction
  2. It insures the goods against marine perils during transit
  3. It guarantees payment to the exporter if the importer defaults
  4. It forwards documents and instructions to the collecting bank on behalf of the exporter Correct answer.

Explanation

The remitting bank is the exporter's bank, which sends the documents and the collection instruction to a bank in the importer's country. It acts as an intermediary and does not assume payment risk under URC 522.

Question 5Trade finance fundamentals and documentation

Which Incoterms 2020 rule requires the seller to place the goods on board the vessel nominated by the buyer and to clear the goods for export?

  1. FOB Correct answer.
  2. DDP
  3. EXW
  4. CPT

Explanation

Under FOB the seller delivers by placing the goods on board the vessel nominated by the buyer at the named port of shipment and must handle export clearance. Risk passes at that point, with freight and import formalities on the buyer.

Question 6Trade finance fundamentals and documentation

What is the principal purpose of a bill of exchange drawn by the beneficiary under a letter of credit?

  1. To transfer title of the goods to the issuing bank
  2. To demand payment of a stated sum at sight or on a stated future date Correct answer.
  3. To certify the origin of the goods for customs purposes
  4. To confirm that the goods conform to the contract specification

Explanation

A bill of exchange is an unconditional written order requiring the drawee to pay a stated sum at sight or at a determinable future date. In credit practice it provides the payment mechanism for usance and sight drawings.

Question 7Trade finance fundamentals and documentation

Which party in a letter of credit transaction is normally responsible for reimbursing a nominated bank that has honoured a complying presentation?

  1. The beneficiary
  2. The issuing bank Correct answer.
  3. The advising bank
  4. The shipping company

Explanation

The issuing bank's undertaking is to reimburse a nominated bank that has honoured or negotiated a complying presentation. The nominated bank looks to the issuing bank for reimbursement, not to the beneficiary or carrier.

Question 8Trade finance fundamentals and documentation

Which of the following best describes a standby letter of credit?

  1. A revolving credit used to fund repetitive raw material purchases
  2. A bank guarantee issued only for performance obligations
  3. An undertaking payable on presentation of documents evidencing a default or breach Correct answer.
  4. A credit restricted to a single shipment with no renewal option

Explanation

A standby letter of credit is a documentary undertaking that functions like a guarantee, payable when the beneficiary presents documents showing that the applicant has failed to perform. It is governed by documentary credit rules such as UCP 600 or ISP98 when so stated.

Question 9Trade finance fundamentals and documentation

A credit issued by a bank in Country A is advised through a bank in Country B and confirmed by that advising bank. What additional protection does the confirmation give the beneficiary?

  1. An extension of the credit's expiry date by the confirming bank
  2. A reduction in the documents required for presentation
  3. A guarantee that the goods will meet the contract specification
  4. A payment undertaking from the confirming bank independent of the issuing bank's ability to pay Correct answer.

Explanation

Under UCP 600 Article 8 a confirming bank adds its own definite undertaking to honour or negotiate a complying presentation. The beneficiary therefore has a claim against the confirming bank even if the issuing bank fails.

Question 10Trade finance fundamentals and documentation

A presentation under a credit includes an insurance document dated three days after the date of shipment shown on the bill of lading. How should the nominated bank treat this under UCP 600?

  1. Accept it if the insurance document is issued in the same currency as the credit
  2. Disregard the discrepancy because insurance documents need not be dated before shipment
  3. Treat it as a discrepancy because the insurance document must be dated no later than the shipment date Correct answer.
  4. Accept it if the insured amount exceeds 110 per cent of the invoice value

Explanation

UCP 600 Article 28(e) requires an insurance document to be dated no later than the date of shipment unless the credit stipulates otherwise. A later date leaves a gap in cover and is a discrepancy.

Question 11Trade finance fundamentals and documentation

A credit requires a full set of 3/3 original bills of lading marked 'freight prepaid'. The presented bill shows 'freight collect'. What is the position?

  1. The document is acceptable if a freight receipt is attached
  2. The document is acceptable because freight payment is a matter between the parties
  3. The document is discrepant because it conflicts with the credit term on freight Correct answer.
  4. The document is discrepant only if the goods are shipped on deck

Explanation

Under UCP 600 Article 14(d), data in a document must not conflict with data in the credit. A bill marked freight collect directly contradicts the required freight prepaid notation, so it is discrepant.

Question 12Trade finance fundamentals and documentation

Under URC 522, what happens if a collecting bank receives documents with no instruction on how to handle a refusal by the drawee?

  1. It may return the documents to the remitting bank without further liability Correct answer.
  2. It must release the documents to the drawee against a trust receipt
  3. It must sue the drawee for the amount of the collection
  4. It must store the goods at the drawee's expense indefinitely

Explanation

URC 522 Article 26 provides that if the collecting bank has not received instructions on non-payment or non-acceptance, it may return the documents to the bank from which they were received without further liability. Banks are not obliged to take action on goods.

Question 13Trade finance fundamentals and documentation

A credit is available with the issuing bank by deferred payment at 90 days after the bill of lading date. When does the issuing bank's payment obligation fall due?

  1. On the date the beneficiary presents the documents
  2. At maturity calculated from the date stated in the credit's tenor clause Correct answer.
  3. On the date the goods arrive at the destination port
  4. On the date the applicant accepts the documents

Explanation

In a deferred payment credit the bank undertakes to pay at a determinable future date stated in the credit, typically calculated from the transport document date. The obligation matures on that calculated date, not on arrival of goods or applicant acceptance.

Question 14Trade finance fundamentals and documentation

Which statement correctly describes the independence principle in documentary credit law?

  1. The credit is separate from the underlying sale contract and banks deal only with documents Correct answer.
  2. The beneficiary may rely on the sale contract to cure a documentary discrepancy
  3. The issuing bank may refuse payment whenever the buyer alleges defective goods
  4. The credit lapses automatically if the sale contract is amended

Explanation

Under UCP 600 Article 4 and Article 5, a credit is independent of the underlying sale contract and banks deal with documents rather than goods. Payment depends on a complying presentation, not on contractual disputes.

Question 15Trade finance fundamentals and documentation

A certificate of origin presented under a credit is issued by a chamber of commerce but the credit requires issuance by a named government authority. What is the correct treatment?

  1. Accept it because any competent authority may issue origin certificates
  2. Accept it if the certificate states the correct origin of the goods
  3. Reject the certificate as discrepant because the issuer differs from the stipulated issuer Correct answer.
  4. Accept it if the beneficiary endorses the certificate

Explanation

When a credit stipulates the issuer of a document, the presented document must appear to have been issued by that party. A certificate from a different body fails that requirement even if the origin data is accurate.

Question 16Trade finance fundamentals and documentation

What is the effect of a 'soft clause' in a letter of credit?

  1. It converts a sight credit into a usance credit
  2. It allows the beneficiary to amend the credit unilaterally
  3. It makes payment conditional on a document or event controlled by the applicant Correct answer.
  4. It softens the bank's examination standard for minor discrepancies

Explanation

A soft clause conditions payment on a document such as a certificate of inspection issued or signed by the applicant, giving the applicant control over whether the beneficiary is paid. Such clauses reduce the security value of the credit for the beneficiary.

Question 17Trade finance fundamentals and documentation

A bill of lading shows the port of loading as Shanghai and the port of discharge as Hamburg, while the credit requires shipment from Ningbo to Hamburg. What is the position?

  1. Acceptable, because Hamburg matches the credit
  2. Discrepant, because the port of loading conflicts with the credit Correct answer.
  3. Discrepant only if the vessel name is also incorrect
  4. Acceptable, because both ports are in China

Explanation

The transport document must show shipment from the port stated in the credit. A different port of loading conflicts with the credit terms and is a discrepancy regardless of other correct data.

Question 18Trade finance fundamentals and documentation

Under UCP 600, how must a credit that is available with a nominated bank by negotiation and expires in the beneficiary's country be treated by the nominated bank when documents are presented after the expiry date?

  1. The nominated bank must forward documents to the issuing bank for a decision
  2. The nominated bank may honour if the applicant agrees to waive the discrepancy
  3. The nominated bank may honour if the goods were shipped before expiry
  4. The nominated bank must refuse because presentation occurred after expiry Correct answer.

Explanation

A presentation must be made on or before the expiry date at the place of expiry. A late presentation is discrepant, and the nominated bank is not obliged to act on it unless the issuing bank authorises or the discrepancy is waived.

Question 19Trade finance fundamentals and documentation

Which of the following is a key difference between a documentary collection and a letter of credit?

  1. A collection involves a confirming bank, while a credit never does
  2. A collection is always governed by UCP 600, while a credit is governed by URC 522
  3. A collection requires a bill of lading, while a credit does not
  4. A collection gives no bank payment undertaking, while a credit does Correct answer.

Explanation

In a collection, banks act as intermediaries to present documents and collect payment without assuming payment risk. A letter of credit contains a definite undertaking by the issuing bank to pay against a complying presentation.

Question 20Trade finance fundamentals and documentation

A credit requires a commercial invoice in the name of the applicant and shows a unit price of USD 20 per unit for 1,000 units. The invoice shows USD 25 per unit and a total of USD 25,000. How should the bank treat this?

  1. Accept it because unit prices may be varied at the seller's discretion
  2. Reject it only if the goods description also differs
  3. Accept it because the total value is within the credit amount
  4. Reject it because the invoice data conflict with the credit Correct answer.

Explanation

Under UCP 600 Article 18(c) and Article 14(d), the invoice must not conflict with the credit. A unit price different from the one stated in the credit is a conflict and therefore a discrepancy.

Question 21Trade finance fundamentals and documentation

What is the principal function of a forfaiting transaction in trade finance?

  1. The collection of documents on a sight basis through correspondent banks
  2. The provision of short-term overdraft facilities to importers
  3. The issuance of performance guarantees on behalf of exporters
  4. The outright purchase of medium-term receivables at a discount without recourse to the exporter Correct answer.

Explanation

Forfaiting involves the discount purchase of trade receivables, often evidenced by bills of exchange or promissory notes, on a non-recourse basis. The forfaiter assumes the credit and country risk of the obligor.

Question 22Trade finance fundamentals and documentation

A bank issues a credit with a reimbursement undertaking to a nominated bank. Under UCP 600, when may the issuing bank refuse to reimburse the nominated bank that has honoured a complying presentation?

  1. Only where the nominated bank acted on a presentation that was not complying Correct answer.
  2. Whenever the goods are found to be defective on arrival
  3. Whenever the applicant fails to reimburse the issuing bank
  4. Whenever the nominated bank is located outside the issuing bank's country

Explanation

The issuing bank must reimburse a nominated bank that has honoured a complying presentation. Refusal is justified only if the presentation did not comply; the applicant's failure to pay or the condition of the goods is irrelevant.

Question 23Trade finance fundamentals and documentation

An applicant seeks an amendment to a credit that reduces the amount and shortens the shipment date. The beneficiary remains silent. What is the effect under UCP 600?

  1. The amendment is void because two changes were made at once
  2. The amendment takes effect automatically after a fixed number of days
  3. The amendment is not binding on the beneficiary until it communicates acceptance Correct answer.
  4. The amendment is binding because the issuing bank issued it

Explanation

Under UCP 600 Article 10, an amendment is not binding on the beneficiary until it communicates its acceptance. Silence is not acceptance, and the beneficiary may reject the amendment.

Question 24Trade finance fundamentals and documentation

In a transferable credit, what is the maximum amount that can normally be transferred to the second beneficiary?

  1. Always the full amount of the original credit
  2. The amount of the underlying purchase order
  3. The amount of the credit, reduced by any drawing already made and any stated reduction Correct answer.
  4. The amount agreed between the applicant and the first beneficiary

Explanation

Under UCP 600 Article 38, a transferable credit may be transferred for an amount not exceeding the credit amount, less any drawings already made and any reduction stated in the credit. The transferred credit must not exceed the original.

Question 25Trade finance fundamentals and documentation

A presentation includes a copy of a document when the credit requires the original. Which statement reflects UCP 600 treatment of originals?

  1. The credit's requirement for an original must be met; a copy does not satisfy it Correct answer.
  2. A copy is acceptable if the issuing bank already holds the original
  3. A copy is acceptable if the beneficiary certifies it as a true copy
  4. A copy is always acceptable if it is legible

Explanation

UCP 600 Article 17 allows at least one original of each stipulated document, and where the credit requires an original, a copy does not comply. Banks apply the rules on what constitutes an original document.

Question 26Trade finance fundamentals and documentation

Under UCP 600, which document must a bank treat as the primary description of the goods when checking a presentation?

  1. The commercial invoice Correct answer.
  2. The packing list
  3. The bill of lading
  4. The certificate of origin

Explanation

UCP 600 Article 18 makes the commercial invoice the document in which the goods must be described in terms corresponding to those in the credit. Other documents may describe the goods in general terms not inconsistent with the credit, so the invoice is the benchmark for description matching.

Question 27Trade finance fundamentals and documentation

In a documentary collection, which party instructs the remitting bank to forward documents to the presenting bank abroad?

  1. The principal (exporter) Correct answer.
  2. The collecting bank
  3. The importer's bank
  4. The carrier

Explanation

Under URC 522 the principal, normally the exporter, hands documents and a collection instruction to the remitting bank. The remitting bank then forwards them to the collecting bank in the importer's country.

Question 28Trade finance fundamentals and documentation

A credit requires presentation of an 'insurance policy' in the currency of the credit for 110% of the CIF value. Which statement reflects UCP 600 treatment of an insurance document presented as a policy?

  1. It need not be dated at all
  2. It must be signed by the insurer or its agent and cover the credit currency amount Correct answer.
  3. It may be issued by the beneficiary as a self-declaration
  4. It may be in any currency chosen by the beneficiary

Explanation

UCP 600 Article 28 requires an insurance document to appear to be issued and signed by an insurer or underwriter, or their agent, and to be in the same currency as the credit. Where the credit requires a policy, that form of document must be presented.

Question 29Trade finance fundamentals and documentation

Which Incoterms 2020 rule places the obligation to contract for carriage and to pay main carriage on the seller, while risk passes to the buyer on board the vessel?

  1. EXW
  2. FOB
  3. CFR Correct answer.
  4. DAP

Explanation

Under CFR the seller contracts and pays for carriage to the named destination port, but risk passes when goods are on board the vessel at the port of shipment. FOB leaves main carriage to the buyer, so it does not fit.

Question 30Trade finance fundamentals and documentation

A credit calls for a multimodal transport document showing dispatch from an inland container depot and final destination Hamburg. Which date governs the shipment date for the purposes of the credit?

  1. The date of the on-board notation on any feeder vessel
  2. The date of dispatch shown on the multimodal transport document Correct answer.
  3. The date the container arrives at Hamburg
  4. The date the credit was issued

Explanation

Under UCP 600 Article 19, when a multimodal transport document is presented, the date of shipment is the date of dispatch, taking in charge or shipped on board shown on that document. The inland dispatch date therefore controls.

Question 31Trade finance fundamentals and documentation

A credit is silent on whether partial shipments are allowed. The beneficiary ships 40% of the goods and presents documents for that portion only. How must the issuing bank treat the presentation?

  1. Hold it until the balance is shipped
  2. Honour it, since partial shipment is allowed when the credit is silent Correct answer.
  3. Treat it as a discrepancy only if the invoice exceeds the credit amount
  4. Refuse it because partial shipment needs express authorisation

Explanation

UCP 600 Article 31 provides that partial shipment is allowed unless the credit states otherwise. Silence therefore permits the beneficiary to draw for part of the goods, provided the presentation is otherwise complying.

Question 32Trade finance fundamentals and documentation

An issuing bank receives a complying presentation from a nominated bank that has honoured and seeks reimbursement. The applicant has meanwhile become insolvent. What is the issuing bank's obligation?

  1. It may refuse because the applicant cannot fund the account
  2. It may ask the beneficiary to repay the nominated bank first
  3. It may reimburse only 50% pending liquidation of the applicant
  4. It must reimburse the nominated bank, since its undertaking is independent of the applicant's position Correct answer.

Explanation

The issuing bank's undertaking under UCP 600 is independent of the applicant's ability to reimburse it. Once a complying presentation is made to the nominated bank that has honoured, the issuing bank must reimburse that bank.

Question 33Trade finance fundamentals and documentation

A credit requires 'full set 3/3 original bills of lading consigned to order of the issuing bank'. The presented bill is consigned 'to order' with no named party. What is the position?

  1. It complies if the notify party is the applicant
  2. It complies because 'to order' bills are always acceptable
  3. It is discrepant only if the bill is not endorsed in blank
  4. It is discrepant because the consignee differs from the credit requirement Correct answer.

Explanation

UCP 600 Article 14 requires data in a document not to conflict with the credit. A bill consigned 'to order' does not match a credit calling for consignment to the order of the issuing bank, so the presentation is discrepant.

Question 34Trade finance fundamentals and documentation

A credit is available with any bank by negotiation and expires on 30 June at the counters of the nominated bank in the beneficiary's country. The beneficiary presents to its own bank on 28 June. Which statement is correct?

  1. The presentation is late because it must reach the issuing bank by 30 June
  2. The expiry date is irrelevant for negotiation credits
  3. The presentation must be made directly to the issuing bank
  4. The presentation is timely if the nominated bank acts within the expiry date at its counters Correct answer.

Explanation

Where a credit is available with a nominated bank, UCP 600 Article 6(d)(ii) allows presentation at that bank's counters on or before the expiry date. The documents need not reach the issuing bank by the expiry date.

Question 35Trade finance fundamentals and documentation

A beneficiary presents documents to a nominated bank on day 3 after shipment. The nominated bank forwards them to the issuing bank on day 12. Which maximum period applies to the issuing bank for examining the presentation?

  1. Five banking days from the day of presentation to the nominated bank
  2. Five banking days following the day of receipt of the documents by the issuing bank Correct answer.
  3. Thirty calendar days from receipt
  4. Twenty-one calendar days from shipment

Explanation

UCP 600 Article 14(b) gives the issuing bank a maximum of five banking days following the day of receipt of the documents to examine and determine compliance. The clock runs from receipt by that bank, not from presentation to the nominated bank.

Question 36Trade finance fundamentals and documentation

A credit requires a certificate of analysis 'issued by the manufacturer'. The presented certificate is issued by an independent laboratory and states the results match the credit. What should the issuing bank do?

  1. Refuse it because the issuer does not match the required party Correct answer.
  2. Refer the decision to the applicant
  3. Accept it if the beneficiary countersigns
  4. Accept it because the data comply with the credit

Explanation

Where a credit stipulates the issuer of a document, UCP 600 Article 3 and sub-article 14(f) require the document to be issued by that party. Content compliance cannot cure the wrong issuer.

Question 37Trade finance fundamentals and documentation

A credit is issued in USD and requires the draft to be drawn at 60 days after sight on the issuing bank. Which statement best describes the nature of the credit?

  1. It is an irrevocable credit available by deferred payment
  2. It is a sight credit available by negotiation
  3. It is a usance credit available by acceptance Correct answer.
  4. It is a standby credit

Explanation

A credit requiring a draft payable at a future date drawn on the issuing bank is a usance credit available by acceptance. The issuing bank accepts the draft and pays at maturity.

Question 38Trade finance fundamentals and documentation

An amendment to a credit increases the amount and extends the shipment date. The beneficiary ships within the original shipment date but presents documents after the original expiry, relying on the extension. Which statement is correct?

  1. The beneficiary may reject the amendment and present under the original terms Correct answer.
  2. The amendment binds the beneficiary automatically once received
  3. The amendment is void because it changes two terms
  4. Silence by the beneficiary constitutes acceptance of the amendment

Explanation

Under UCP 600 Article 10, an amendment is binding on the beneficiary only when it communicates acceptance. Silence is not acceptance, and the beneficiary may reject the amendment and present under the original credit terms.

Question 39Trade finance fundamentals and documentation

A bank issues a credit at the request of an applicant and later discovers the applicant provided forged documents to obtain the credit. The beneficiary has presented complying documents and acted in good faith. What is the issuing bank's position?

  1. It may cancel the credit unilaterally
  2. It may refuse payment because the underlying transaction is tainted by fraud
  3. It must honour the complying presentation, since its undertaking is independent of the underlying contract Correct answer.
  4. It may pay only if the applicant confirms the forgery

Explanation

The independence principle means the bank deals in documents, not goods or underlying contracts. Fraud by the applicant in the underlying transaction does not, without more, relieve the issuing bank of its obligation to honour a complying presentation by a good-faith beneficiary.

Question 40Trade finance fundamentals and documentation

A credit requires presentation of a 'copy of the certificate of origin'. The beneficiary presents an original certificate of origin. How should the bank treat it?

  1. Accept it, since presenting an original satisfies a requirement for a copy Correct answer.
  2. Accept it only if the certificate is countersigned by the chamber
  3. Refuse it because an original was presented instead of a copy
  4. Refuse it until the beneficiary re-presents a photocopy

Explanation

UCP 600 Article 17(d) provides that if a credit requires presentation of copies of documents, presentation of either originals or copies is permitted. An original therefore satisfies a copy requirement.

Question 41Letters of credit (UCP 600) and collections (URC 522)

Under UCP 600, within how many banking days following the day of presentation must a nominated bank that determines a presentation is complying examine it and determine whether it is complying?

  1. Five banking days Correct answer.
  2. Three banking days
  3. Seven banking days
  4. Ten banking days

Explanation

Article 14(b) of UCP 600 gives a maximum of five banking days following the day of presentation for the nominated bank to examine the documents and decide on compliance. This period is not shortened by the reasonableness standard in Article 14(a), which applies where the bank acts as issuing bank. The five-day period is a ceiling, not an entitlement to use in every case.

Question 42Letters of credit (UCP 600) and collections (URC 522)

A presentation is made under a credit available with a nominated bank by negotiation. Which statement correctly reflects the UCP 600 position on the issuing bank's undertaking?

  1. The issuing bank's undertaking is conditional on the applicant's prior acceptance
  2. The issuing bank's undertaking is independent of the nominated bank's willingness to negotiate Correct answer.
  3. The issuing bank's undertaking arises only after the nominated bank has negotiated
  4. The issuing bank is discharged if the nominated bank declines to negotiate

Explanation

Under UCP 600 the issuing bank's undertaking to honour is independent and is not affected by whether a nominated bank chooses to act. A nominated bank that does not negotiate simply leaves the beneficiary to present to the issuing bank. The applicant's acceptance is irrelevant because the credit is separate from the underlying sale contract.

Question 43Letters of credit (UCP 600) and collections (URC 522)

Under URC 522, what is the role of a collecting bank in relation to goods shipped under a documentary collection?

  1. It must insure the goods from the date of arrival at the port of destination
  2. It has no obligation to take delivery of the goods or to store or insure them Correct answer.
  3. It must take delivery of the goods and store them pending payment
  4. It acts as agent of the principal for customs clearance in all cases

Explanation

Article 10 of URC 522 states that banks have no obligation to take delivery of goods, and goods are not to be consigned to a bank without its prior agreement. Where a bank does act to protect goods, it does so without liability and at the principal's risk and expense. This reflects the principle that collections deal in documents, not goods.

Question 44Letters of credit (UCP 600) and collections (URC 522)

Which of the following best describes the nature of a letter of credit as against the underlying sale contract?

  1. A contract of insurance protecting the buyer against non-delivery
  2. An agency arrangement under which the bank acts for the seller
  3. A guarantee that is accessory to the sale contract
  4. A separate transaction independent of the sale contract Correct answer.

Explanation

UCP 600 Article 5 provides that banks deal with documents and not with goods, services or performance, and the credit is separate from the sale contract on which it may be based. The bank's obligation is to honour a complying presentation, not to adjudicate contractual disputes. This independence is the foundation of the autonomy principle.

Question 45Letters of credit (UCP 600) and collections (URC 522)

A credit states it is available with any bank by negotiation. What does this availability permit the beneficiary to do?

  1. Present documents to any bank, which may then negotiate if it agrees Correct answer.
  2. Require any bank to discount the documents at the beneficiary's request
  3. Demand payment from any bank before the credit's expiry date regardless of terms
  4. Compel the issuing bank to reimburse any bank that examines the documents

Explanation

Freely negotiable availability means the beneficiary may present to any bank, but no bank is obliged to negotiate unless it has expressly agreed to do so. A bank that negotiates becomes a nominated bank and acquires rights against the issuing bank. Availability defines where documents may be presented, not a duty on every bank to discount.

Question 46Letters of credit (UCP 600) and collections (URC 522)

Under UCP 600, which party is responsible for the accuracy and authenticity of the documents presented under a credit?

  1. The issuing bank, which must verify their authenticity
  2. The beneficiary, who prepares and presents them Correct answer.
  3. The advising bank, which certifies the documents on advice
  4. The nominated bank, which warrants the goods' description

Explanation

Banks examine documents on their face for compliance with the credit terms and do not assume responsibility for the truth or accuracy of the content. UCP 600 Article 34 places the responsibility for the accuracy of documents on the party issuing them, normally the beneficiary. Banks do not verify authenticity of documents or goods.

Question 47Letters of credit (UCP 600) and collections (URC 522)

Which document is normally required under a credit to evidence that goods have been shipped on board a named vessel?

  1. Commercial invoice
  2. Packing list
  3. Ocean bill of lading Correct answer.
  4. Certificate of origin

Explanation

A bill of lading is a transport document that evidences shipment and serves as a document of title, and UCP 600 Article 20 sets standards for it. An on board notation confirms loading on a named vessel. The other documents serve commercial, packing or origin purposes and do not evidence carriage.

Question 48Letters of credit (UCP 600) and collections (URC 522)

In a documentary collection, what does the term 'D/A' mean in the collection instruction?

  1. Documents are despatched against the collecting bank's advice of arrival
  2. Documents are released against the drawee's payment in cash
  3. Documents are delivered against the applicant's authority to the bank
  4. Documents are released against the drawee's acceptance of a draft Correct answer.

Explanation

Documents against acceptance means the collecting bank releases documents to the drawee once the drawee accepts a time draft, creating a payment obligation at maturity. It is distinct from documents against payment, where release follows actual payment. The remitting bank must follow the principal's clear instruction on the release basis.

Question 49Letters of credit (UCP 600) and collections (URC 522)

Under UCP 600, when must a beneficiary present documents at the latest?

  1. Within 30 days of the credit's issue date
  2. On or before the expiry date and within any presentation period stated in the credit Correct answer.
  3. Before the goods arrive at the port of destination
  4. Within 21 calendar days of shipment in every case

Explanation

Article 6(d) requires presentation on or before the expiry date, and Article 14(c) requires presentation within 21 calendar days after shipment where the credit does not state a presentation period. The credit's own stated period, if any, prevails. Expiry is a hard deadline that cannot be extended by the bank.

Question 50Letters of credit (UCP 600) and collections (URC 522)

A credit requires an invoice 'certified by the chamber of commerce'. The beneficiary presents an invoice bearing a chamber stamp but no signature. How should the issuing bank treat this under UCP 600?

  1. Reject it, because certification always requires a handwritten signature
  2. Reject it, because only the issuing bank may certify an invoice
  3. Accept it, because a certification need not be signed unless the credit requires a signature Correct answer.
  4. Accept it only if the chamber confirms by separate telex

Explanation

Under UCP 600 Article 3, a document may be signed by various means and, where a document is to be legalised or certified, the requirement is met by any signature, mark, stamp or label appearing on it. The credit did not stipulate a signature. The bank therefore examines the document on its face against the credit terms.