Examkin

Question

Difficulty: MediumBanking: Functions and Services to Trade

A manufacturing firm in Onitsha receives a large order on credit from a new business client located in Jos. Before granting the credit facility, the manufacturer asks its bank to investigate the financial reliability and creditworthiness of the client through the client's bank. Which banking service to trade is the manufacturer utilizing?

  1. Credit status enquiryAnswer
  2. B
    Letter of credit
  3. C
    Direct debit mandate
  4. D
    Discounting bill of exchange

Answer

Credit status enquiry
A credit status enquiry (or banker's reference) is an essential auxiliary banking service to trade where a merchant requests their bank to obtain confidential information from another trader's bank regarding their solvency and credit reliability before granting credit terms.

Step-by-Step Solution

1
Analyze the trading scenario described in the question stem
The seller wants to obtain information about a new buyer's creditworthiness before extending credit terms.
Granting credit to unknown buyers carries financial default risk, requiring verification of credit reliability.
2
Identify the commercial banking service designed for credit risk assessment
The service used is a credit status enquiry (banker's reference).
Commercial banks exchange confidential reports on the financial standing of their account holders to assist business clients in making safe credit decisions.

Key Concept

Credit Status Enquiry (Banker's Reference)
Estimated Time:1m 0s
Rate this question

Topics

Banking: Functions and Services to Trade

More questions from this topic