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Knowledge Statement

Knowledge of Types of Payment: Sight, Deferred, Acceptance

Activities

You are the exporter and have just shipped an order with a letter of credit. Using the following scenarios, determine when you will receive your funds and which bank will send them to you:

Scenario A

Invoice Date: January 15, 2007

Shipping Date: January 22, 2007

Type of LC: 60 Days after Invoice Date

Scenario B

Invoice Date: January 15, 2007

Shipping Date: January 22, 2007

Type of LC: 60 Days after Transport Date

Scenario C

Invoice Date: February 12, 2007

Shipping Date: February 12, 2007

Type of LC: at Sight

Scenario D

Invoice Date: March 19, 2007

Shipping Date: March 24, 2007

Type of LC: 90 days after negotiation by the Confirming Bank

Scenario E

Invoice Date: March 19, 2007

Shipping Date: March 24, 2007

Type of LC: 90 days after negotiation by the Issuing Bank

Assessment

1.                     Letters of credit promise the beneficiary that funds will always be transferred

a.      immediately.

b.      based on the agreed tenor of the l/c.

c.       within 3 – 5 working days.

d.      in a reasonable time frame.

2.                     When funds are transferred 60 days after sight without a draft, this is a(n) ___________ letter of credit. 

a.      acceptance

b.      negotiation deferred payment

c.        

d.      sight

3.                     The different types of letters of credit allow the buyer and seller to be

a.      risk-free.

b.      restricted.

c.       limited.

d.      flexible.

4.                     If payment is to be made at negotiation, the funds are paid to the beneficiary by the

a.      advising, issuing or confirming bank.

b.      issuing bank only.

c.       confirming bank only.

d.      advising bank only.

(Correct answers: 1=b, 2=c, 3=d, 4=a.)