International Trade Settlement and Trade Finance
Trade settlement items test documentary credits under UCP 600, documentary collections under URC 522, Incoterms 2020, and the financing products built on them. The exam favors document-compliance scenarios and risk-transfer questions.
Documentary credit and collection
An LC is independent of the sales contract; banks deal in documents, not goods. A complying presentation must match the LC terms, including shipment date, latest presentation period, description, and required transport document. A clean on-board bill of lading evidences shipment. In collections, DP releases documents against payment; DA releases against acceptance, so the seller carries acceptance risk.
Incoterms and trade finance
Under FOB and CIF, risk passes when goods are on board, not at destination. CIF adds cost and insurance to the seller's obligations but does not change the risk point. FCA is used for containerized cargo handed to the carrier. Trade finance products include export bill negotiation, discounting, forfeiting, import usance LCs, and trust receipts.
Worked example
An LC requires shipment by 10 May and presentation within 21 days after shipment. The on-board bill of lading is dated 10 May, but documents arrive at the bank on 5 June. That is 26 days after shipment, beyond the 21-day period, so the presentation is discrepant even though shipment itself was timely. The bank may refuse or seek a waiver from the applicant.
Traps
- Believing the LC incorporates the sales contract's quality terms.
- Thinking CIF risk passes at the destination port.
- Treating a received-for-shipment bill as an on-board document.
- Missing the separate latest-shipment and presentation-period tests.