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Class: ITF-CLC
Check Term of Payments and Trade services
Question 1: In negotiating a trade transaction, the party with the most leverage will:
_____ a) finance the seller.
_____ b) be able to dictate the terms.
_____ c) have none of the advantages.
_____ d) incur foreign exchange risk.
Question 2: In a documentary collection, the banks:
_____ a) monitor the quality of the goods shipped.
_____ b) assume the buyers credit risk.
___ c) act as intermediaries in the collection process.
_____ d) verify that the number of goods shipped agrees with the title document.
Question 3: An exporter receives a purchase order and payment for 1500 pairs of shoes.
This is an example of which type of payment option?
_____ a) Documentary Collections
_____ b) Open Account
_____ c) Cash in Advance
_____ d) On Consignment
L/C:
Question 1: Which party typically adds its promise to pay under a confirmed letter of credit?
_____ a) Buyer
_____ b) Bank in the beneficiarys country
_____ c) Bank that issued the letter of credit
_____ d) Beneficiary
Question 2: Typically, under what conditions will the paying bank pay the seller under a commercial letter
of credit? (Select all that apply.)
_____ a) Seller presents to the paying bank the documents that meet the L/C terms and conditions
_____ b) Buyer confirms receipt of the goods
_____ c) Buyer presents the title document and guarantees to the issuing bank
_____ d) Buyer places sufficient funds in his or her account with the issuing bank
_____ e) Paying bank receives funds from issuing bank or its agent bank
Question 3: The best protection for the seller is provided by a(n):
_____ a) straight letter of credit.
_____ b) open account.
_____ c) revolving letter of credit.
_____ d) confirmed, irrevocable letter of credit.
Question 4: Identify the type of commercial letter of credit used by an importer with multiple scheduled
payments:
_____ a) Revolving, irrevocable letter of credit
_____ b) Confirmed, irrevocable letter of credit
_____ c) Negotiable, import letter of credit
_____ d) Red clause, straight letter of credit
Question 5: A commercial letter of credit whereby the beneficiary has the right to request that it be made
available to one or more parties and is less risky to the nominated advisory / confirming bank, is known as a:
_____ a) red clause letter of credit.
_____ b) transferable letter of credit.
_____ c) back-to-back letter of credit.
_____ d) clean letter of credit.
Question 6: In a letter of credit, banks deal:
_____ a) only in goods, not with documents.
_____ b) only with documents, not in goods.
_____ c) with documents and in goods.
_____ d) only with documents, not in goods, as long as it is a standby letter
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Question 7: In a straight letter of credit, the parties involved are always the:
_____ a) applicant, issuing bank, and beneficiary.
_____ b) applicant, issuing bank, paying bank, and beneficiary.
_____ c) applicant, issuing bank, negotiating bank, and beneficiary.
_____ d) applicant, issuing bank, advising bank, and beneficiary.
Question 8: An exporter and importer are about to close a large trade deal but the issuing bank is unknown
to the exporter. What commercial letter of credit would best meet the needs of the exporter to minimize its
risk?
_____ a) Negotiable
_____ b) Confirmed
_____ c) Straight
_____ d) Back-to-Back
Question 9: For each role that a bank plays in a commercial letter of credit, identify
one or more of the most common risks associated with the role.
_____ a) Issuing Bank 1. Credit risk of the applicant
_____ b) Advising Bank 2. Operational risk
_____ c) Paying Bank
3. Credit risk of the issuing bank
_____ d) Negotiating Bank
4. Foreign exchange risk
_____ e) Confirming Bank 5. Interest rate risk
6. Political risk
7. Credit risk of the beneficiary
Question 10: A seller, who will have a letter of credit opened in his favor, does not have funds to purchase
the goods from his supplier and does not qualify for a bank loan. What would be the least complicated letter
of credit to be issued that would enable the seller to obtain the goods?
_____ a) Revolving
_____ b) Back-to-Back
_____ c) Transferable
_____ d) Red Clause
Question 11: Match the type of standby letter of credit with the application. Use G for guarantee and P for
payment.
_____ a) In lieu of a bid bond
_____ b) In lieu of bank guarantees
_____ c) Salary disbursements
_____ d) Principal and/or interest on bonds payments
_____ e) Security for advance payments
Question 12: A standby letter of credit is different from a commercial letter of credit because a:
_____ a) commercial letter of credit requires the beneficiary to present shipping documentation to draw
against the letter of credit.
_____ b) standby letter of credit is always revocable.
_____ c) commercial letter of credit does not have an expiration date.
_____ d) standby letter of credit can be viewed as either an import letter of credit or an export letter of
credit.
Question 13: What option is available to a beneficiary who is in need of financing to pay its supplier, but
does not wish to issue another letter of credit or change a letter of credit already opened in its favor?
_____ a) Revolving
_____ b) Back-to-Back
_____ c) Transferable
_____ d) Assignment of Proceeds
Question 14: Select the one correct tenor for each settlement.
_1____ a) Sight Payment
_3____ b) Negotiation
_2____ c) Deferred Payment
_2____ d) Acceptance
1. Payment is made immediately to the beneficiary when complying documents are presented
2. Payment is made to the beneficiary at a specified future date

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3. Payment is made immediately to the beneficiary, normally at a discount, upon presentation of the
complying documents
Question 15: Match each of the five customer needs to one of the three instruments that will best meet the
need.
_____ a) A seller who is shipping to a buyer on open account may expect the
buyer to provide a bank assurance that payment will be made when due.
_____ b) A company may need to support a foreign subsidiary in its local borrowing needs. A foreign lending
bank has indicated a willingness to accommodate the subsidiarys borrowing needs if such
borrowings are backed by a prime international bank.
_____ c) A company may be interested in bidding on a sale of goods to a certain buyer. The buyers invitation
to bid includes a stipulation that all bidders must post a bond or promise to establish financial responsibility
and to assure that, if awarded the bid, the bidder will enter into a firm contract.
_____ d) A company may enter into a contract to supply services in which the buyer requires the supplier to
post a bond or ensure that, if the supplier fails to perform and execute the contract in accordance with all its
terms and conditions, a monetary compensation will be made.
_____ e) In the course of a project, a buyer may be required to make progress payments to the supplier. The
buyer may require that the supplier obtain a bank guarantee that, in the event of nonperformance by the
supplier, the buyer will be reimbursed for all of the progress payments.
_____ f) As part of a divorce settlement, one of the parties requires alimony payments under a letter of credit
by the other party who has moved to a distant country. The condition is that if the party receiving alimony
marries, the other party is no longer under obligation to continue the payments. What is the appropriate letter
of credit for this situation?
Instruments available:
1. Standby letter of credit, irrevocable, payment type
2. Standby letter of credit, irrevocable, guarantee type
3. Standby letter of credit, revocable, payment type
Documents using in Trade Finance
Question 1: The document that transfers title is the:
_____ a) commercial invoice.
_____ b) bill of lading.
_____ c) draft.
_____ d) certificate of origin.
Question 2: Which document covers the risks that may affect the merchandise from the time it is delivered
by the seller until it is received by the buyer?
_____ a) Insurance document
_____ b) Analysis certificate
_____ c) Commercial invoice
_____ d) Quality certificate
Question 3: Which document is provided by the seller to the buyer and gives a description and cost of
goods and/or services?
_____ a) Analysis certificate
_____ b) Inspection certificate
_____ c) Weight list
_____ d) Commercial invoice
Question 4: A document that demands payment when it is presented is a:
_____ a) commercial invoice.
_____ b) sight draft.
_____ c) time draft.
_____ d) promissory note.
Question 5: Merchandise imports that are priced according to a quality criteria may require a(n):
_____ a) certificate of origin.
_____ b) shipping guaranty.
_____ c) letter of indemnity.

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_____ d) inspection certificate.
Question 6: Which of the following documents are negotiable instruments?
_____ a) Promissory Note
_____ b) Commercial Invoice
_____ c) Bill of Lading
_____ d) Bill of Exchange
Question 7: Place an F in front of the names of financial documents and a C in front of the names of
commercial documents.
_____ Bill of Exchange
____ Bill of Lading
_____ Promissory Note
____ Commercial Invoice
_____ Certificate of Origin
_____ Weight List
Question 8: A document that represents the buyers commitment to pay is a:
_____ a) commercial invoice.
_____ b) sight draft.
_____ c) time draft.
_____ d) promissory note.