CH. 7 Bank Collections, Trade Finance, & L.O.C.

Question 1

a signed writing, containing an unconditional promise or order to pay a fixed sum of money, to order or to bearer, on demand or at a definite time.

Answer 1

negotiable instrument

Question 2

the signed order of the drawer, given to a drawee who is in possession of money to which the drawer is entitled, to pay a sum of money to a third party, the payee, on demand or at a definite time.

Answer 2

draft

Question 3

a specialized type of international draft commonly used to expedite foreign money payments in many types of international transactions.

Answer 3

bill of exchange

Question 4

functions as a check, in that it is an unconditional order to pay a sum of money.

Answer 4

bill of exchange

Question 5

the transfer of an instrument from one party to another so that the transferee takes legal rights in the instrument.

Answer 5

negotiation

Question 6

an obligation of a bank, usually irrevocable, issued on behalf of one of its customers and promising to pay a sum of money to a beneficiary upon the happening of a certain event or events.

Answer 6

letter of credit

Question 7

account party

Answer 7

buyer

Question 8

issuing bank

Answer 8

buyer’s bank

Question 9

beneficiary

Answer 9

seller

Question 10

A letter of credit is NOT a contract.

A letter of credit is IRREVOCABLE, unless otherwise stated with specific language.

Answer 10

L.O.C. rules

Question 11

the terms of the documents presented to the issuing bank must strictly conform to the requirements of the letter of credit and the UCP.

Answer 11

rule of strict compliance

Question 12

is when a second bank, usually in the seller’s country, agrees to purchase documents and honor drafts on the same terms as the original issuing bank.

Answer 12

confirmed letter of credit

Question 13

a letter of credit in which the issuer is obligated to pay a beneficiary upon the presentation of documents indicating a default by the account party in the payment of a debt or the performance of an obligation.

Answer 13

standby letter of credit

Question 14

the commercial invoice must describe the goods exactly as they are described in the L.O.C. aka the letter of credit is not _____.

Answer 14

transferable

Question 15

How long do issuing, advising, and confirming banks have to review documents?

Answer 15

3 days under UCC

7 days under UCP

Question 16

beneficiary party (usually the seller) must deliver documents to the buyer within 21 days of receiving them

Answer 16

UPC 21 day rule

Question 17

the issuing and confirming banks are only required to review the submitted documents and compare them to the requirements listed in the letter of credit.

• not liable for other problems (ex. fraud)
• not required to apply common trade customs or practices

Answer 17

rule of facial compliance

Question 18

True or false:

The Letter of Credit must have an expiration date.

Answer 18

true