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Difficulty: EasyForms and Instruments of Credit

Which credit instrument is issued by an importer's bank to guarantee payment to an exporter upon the presentation of specified shipping documents?

  1. Letter of CreditAnswer
  2. B
    Bill of Lading
  3. C
    Promissory Note
  4. D
    Credit Note

Answer

Letter of Credit
A Letter of Credit is an undertaking by a buyer's bank assuring the seller that payment will be made provided the required shipping documents are presented in compliance with the agreement.

Step-by-Step Solution

1
Identify the primary function described in the scenario.
The instrument serves as a bank-backed payment guarantee in foreign trade.
Exporters require assurance that they will receive payment before shipping goods overseas.
2
Match the function to the correct credit instrument.
A Letter of Credit is the standard financial instrument used by commercial banks to guarantee foreign trade payments.
It substitutes the creditworthiness of the bank for that of the importer.

Key Concept

Forms and Instruments of Credit - Letter of Credit
Estimated Time:45s
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Topics

Forms and Instruments of Credit

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