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Difficulty: EasyCommercial Documents in Foreign Trade

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

  1. Letter of creditAnswer
  2. B
    Bill of lading
  3. C
    Advice note
  4. D
    Certificate of origin

Answer

Letter of credit
A letter of credit is a financial instrument issued by the buyer's (importer's) bank to assure the seller (exporter) that payment will be received provided specified shipping documents are submitted in order.

Step-by-Step Solution

1
Identify the primary function described in the question.
The requirement is a bank-backed guarantee securing payment from an importer to an exporter upon presentation of trade documents.
Foreign trade involves financial risk between international buyers and sellers who may not know each other.
2
Match the requirement with the correct foreign trade commercial document.
A letter of credit fulfills the role of a bank guarantee for foreign trade transactions.
It substitutes the creditworthiness of the importing bank for that of the individual importer.

Key Concept

Functions of foreign trade financial and shipping documents
Estimated Time:45s
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Topics

Commercial Documents in Foreign Trade

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