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3. What document does the seller need to obtain from the shipping firm to present to the
advising bank?
A) Certificate of origin
B) Commercial invoice
C) Negotiable bill of lading
D) Inspection certificate
E) Insurance document
Answer: C) Negotiable bill of lading
Explanation: According to Section 9 – International Payments, it is mentioned that “The
seller (beneficiary) ships the goods to the buyer and obtains a negotiable transport document
(negotiable bill of lading) from the shipping firm/agent”.
4. In a deferred payment credit, when does the buyer make the payment to the bank?
A) Immediately upon receiving the goods
B) After the bank has received the documents
C) At a specified time after accepting the documents
D) Upon receiving the bill of lading
E) Once the goods are inspected and approved
Answer: C) At a specified time after accepting the documents
Explanation: According to Section 9 – International Payments, in a deferred payment credit,
the buyer agrees to pay the bank at a specified future time after accepting the documents,
providing a period between delivery of the goods and payment.
5. Why is it important for the buyer's instructions to the issuing bank to be clear and concise?
A) To ensure the goods meet the quality standards
B) To avoid any discrepancies that could void the credit
C) To expedite the shipping process
D) To ensure the seller receives payment on time
E) To reduce the transaction fees
Answer: B) To avoid any discrepancies that could void the credit
Explanation: According to Section 9 – International Payments, clear and concise instructions
are crucial to avoid discrepancies in the documentary credit, which could lead to it being
voided by the banks, potentially derailing the transaction.
6. Which of the following details is NOT included in a documentary credit application?

A) Beneficiary’s name and address
B) Desired shipping route
C) Amount of the credit
D) Validity period
E) Type of payment availability
Answer: B) Desired shipping route
Explanation: According to Section 9 – International Payments, the desired shipping route is
not included in a documentary credit application, it focuses on details like the beneficiary’s
name, credit amount, validity period, and type of payment availability instead.
What is the fundamental principle of documentary credits?

A) Banks deal in goods.
B) Banks ensure the quality of goods.
C) Banks deal in documents, not goods.
D) Banks negotiate between buyer and seller.
E) Banks inspect the shipment.
Answer: C) Banks deal in documents, not goods.
Explanation: According to Section 9 – International Payments, it is mentioned, "It is
important to note, and not for the last time, that a fundamental principle of documentary
credits is that banks deal in documents and not goods."
Which term is historically used for a documentary credit?

A) Bill of exchange
B) Trade credit
C) Letter of credit
D) Promissory note
E) Purchase order
Answer: C) Letter of credit.
Explanation: According to Section 9 – International Payments, it is mentioned that "Letter of
credit (L/C) is the historic and popular term used for a documentary credit because such
credits were and are transmitted in the form of a letter from the buyer’s bank."
In the issuance phase, what must the buyer do to initiate a documentary credit?
A) Notify the seller directly.
B) Apply to their bank and open a documentary credit.
C) Ship the goods to the seller.
D) Contact the advising bank first.
E) Present documents to the issuing bank.
Answer: B) Apply to their bank and open a documentary credit.
Explanation: According to Section 9 – International Payments, it is mentioned: "The buyer
applies to his bank (issuing bank) and opens a documentary credit naming the seller as
beneficiary based on specific terms and conditions that are listed in the credit."
What responsibility do banks have in a documentary credit transaction?

A) Ensuring the goods are as ordered.
B) Inspecting the quality of goods.
C) Mediating disputes between buyer and seller.
D) Handling issues related to documents.
E) Verifying the buyer’s payment capacity.
Answer: D) Handling issues related to documents.
Explanation: According to Section 9 – International Payments, it is mentioned: "Banks are
responsible for issues relating to documents and the specific wording of the documentary
credit as opposed to issues relating to the goods themselves."
What is the purpose of the Uniform Customs and Practice for Documentary Credits (UCP)?
A) To standardize international shipping procedures.
B) To unify banking practices regarding documentary credits.
C) To resolve trade disputes between countries.
D) To regulate international trade tariffs.
E) To certify the quality of exported goods.
Answer: B) To unify banking practices regarding documentary credits.
Explanation: According to Section 9 – International Payments, it is mentioned: "The Uniform
Customs and Practice for Documentary Credits (UCP) is the internationally recognized
codification of rules unifying banking practice regarding documentary credits."
Who is referred to as the "beneficiary" in a documentary credit transaction?

A) The buyer's bank
B) The seller
C) The advising bank
D) The issuing bank
E) The buyer
Answer: B) The seller.
Explanation: According to Section 9 – International Payments, it is mentioned: "The seller is
the beneficiary of the documentary credit. The seller, therefore, may be called the seller in
commercial terms, the exporter in economic terms, and the beneficiary in banking terms."
What should the seller do immediately upon receipt of the documentary credit?
A) Ship the goods.
B) Contact the issuing bank.
C) Examine the credit to ensure it conforms with the original sales contract.
D) Request an amendment.
E) Make a cash payment to the advising bank.
Answer: C) Examine the credit to ensure it conforms with the original sales contract.
Explanation: According to Section 9 – International Payments, it is mentioned that "Upon
receipt of the documentary credit, the seller should immediately and carefully examine it to
ensure it conforms with the original sales contract with the buyer and that all the conditions
stated in the credit can be met."

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6. Which of the following details is NOT included in a documentary credit application?

What is the fundamental principle of documentary credits?

Which term is historically used for a documentary credit?

What responsibility do banks have in a documentary credit transaction?

Who is referred to as the "beneficiary" in a documentary credit transaction?

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