International Trade Finance and Trade Settlement
Domain 3 tests payment and risk allocation in cross-border trade: documentary credits, collections, guarantees, and the credit-support layer that Korean exporters rely on. Expect discrepancy analysis, Incoterms risk transfer, and questions about who bears which risk at each stage.
Documentary credit discipline
- An L/C is an independent undertaking of the issuing bank, governed by UCP 600. Banks deal in documents, not goods.
- Article 14(b) gives five banking days to examine documents and refuse; silence beyond that generally precludes refusal.
- Strict compliance is required: goods description, dates, ports and Incoterms must match the credit. Any discrepancy allows refusal, and the applicant's waiver is discretionary, not automatic.
- Incoterms 2020 allocate cost and risk, not payment. CIF transfers risk at loading but obliges the seller to contract freight and insurance to destination.
Collections and credit support
- D/P and D/A fall under URC 522; D/A is effectively open credit risk because documents release before payment.
- Forfaiting (without recourse) and factoring convert receivables to cash; K-SURE export credit insurance and KEXIM policy finance cover the political and buyer risk that banks will not.
Worked example
An exporter ships on 12 May but the bill of lading shows an on-board date of 20 May, after a latest shipment date of 15 May. The goods moved on time, yet the document is discrepant and the negotiating bank must refuse within five banking days or lose the right to refuse. The fix precedes shipment: align the booking with the vessel date, or obtain an L/C amendment.
Traps that cost marks
Believing an L/C guarantees payment regardless of documents; confusing the B/L issue date with the on-board date; placing CIF risk transfer at destination; ignoring sanctions and dual-use screening, which can freeze a compliant-looking shipment.