4 A BFM letters of credit
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Bank Financial Management — CAIIB.
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What is a Letter of Credit (LC) in international trade?
A Letter of Credit is a written undertaking by a bank (issuing bank) on behalf of the buyer (applicant) to pay the seller (beneficiary) a specified amount, provided the seller presents complying documents within the stipulated time.
What is the maximum credit period allowed under a usance LC for imports in India?
RBI permits usance LCs up to 360 days from shipment date.
Which international rules primarily govern Letters of Credit?
Letters of Credit are primarily governed by the Uniform Customs and Practice for Documentary Credits (UCP 600), published by the International Chamber of Commerce (ICC), which came into effect on 1 July 2007.
What is the liability of the issuing bank in a documentary LC transaction?
Issuing bank undertakes primary liability to honour complying presentations.
Who are the four principal parties in a documentary Letter of Credit?
The four principal parties are the Applicant (buyer/importer), the Issuing Bank (buyer's bank), the Beneficiary (seller/exporter), and the Advising Bank (correspondent bank in the exporter's country).
What does 'negotiation' mean under UCP 600 Article 2?
Negotiation means purchase of complying documents by the nominated bank.
What is the role of an Advising Bank in an LC transaction?
The Advising Bank authenticates the LC and forwards it to the beneficiary in the exporter's country; it does not undertake any payment obligation unless it also acts as the Confirming Bank.
How many banking days does an issuing bank have to examine documents under UCP 600?
Issuing bank has a maximum of five banking days to examine documents.
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