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True / False
1. A Bill of Exchange is a specialized type of non-negotiable instrument used to expedite payment in a documentary
sale.
a. True
b. False
2. A documentary draft is a time draft that has thirty (30) day and sixty (60) day increments used in documentary sale
transactions.
a. True
b. False
3. Under a documentary collection, the banks are acting as the agent of the buyer for collection purposes.
a. True
b. False
4. Letters of credit is a revocable commitment by a bank issued on behalf of its client and promising to pay a specific
sum of money to a beneficiary upon compliance with the instructions of the letter of credit.
a. True
b. False
5. Letters of credit are a bank's promise to pay provided that all of the terms and documents required submitted are
correct.
a. True
b. False
6. The seller's bank acting as an advising bank agrees to transmit the funds received from the buyer's bank to the seller
provided the terms of the letter of credit have been satisfied completely.
a. True
b. False
7. Terms of the sales contract must be reflected in the letter of credit, if not the buyer must clear all discrepancies upon
examination of the letter of credit.
a. True
b. False
8. The obligations under the letter of credit between the seller and buyer and independent of the sales contract between
the seller and the buyer.
a. True
b. False
9. The issuing bank will honor the draft as long as the documents appear to be in good order on their face and
correspond to the terms of the letter of credit, regardless of the conditions of the goods received.
a. True
b. False
10. If the issuing bank accepts documents that contain a discrepancy, the bank cannot seek reimbursement from the
account party, its customer.
a. True
b. False
11. Under the UCP, banks are responsible for the consequences of delay or loss in transit of any messages, credits, or
documents, or for errors of any telecommunication.
a. True
b. False
12. Letters of credit drawn with no specified expiration date are required to be submitted within 21 days or a
discrepancy occurs.
a. True
b. False
13. A red clause in a letter of credit is a promise by the advising bank to reimburse the seller's bank for loans made to
the seller.
a. True
b. False
14. A back-to-back letter of credit is actually two letters of credit used as a financing device.
a. True
b. False
15. Government agencies in the U.S. are not allowed to insure payments made to a U.S. bank if the underlying contract
between the buyer and seller is entirely independent from the letter of credit.
a. True
b. False
16. "Bill of exchange" and "draft" are two names for the same type of negotiable instrument.
a. True
b. False
17. The Convention on Bills of Exchange as well as U.S. and English domestic laws require the language "bill of
exchange" to appear clearly and prominently on the face of the instrument.
a. True
b. False
18. In order to negotiate an order instrument, it must be indorsed and delivered.
a. True
b. False
19. The holder of a banker's acceptance may convert it to cash immediately at a discount rate, sell it on the discount
market, or hold it until it matures, provided the buyer's account has sufficient funds to cover the transaction.
a. True
b. False
20. Under accounts receivable financing, the factor is protected from contract claims for defective goods by the holder
in due course rules.
a. True
b. False
21. The SWIFT System is an electronic network to handle for the exclusive transmission of international banking
transactions and regulated by the World Bank.
a. True
b. False
22. A holder in due course rule, where a purchaser of an acceptance, or any negotiable instrument, takes it free from
most disputes that may arise between the drawer and drawee and is regulated under the Uniform Customs and
Practice for Documentary Credits.
a. True
b. False
23. Bolero is a private company founded by a consortium of the world's largest banks to provide secure "digital
identities" or signatures for confidentiality and authentication of financial and legal documents.
a. True
b. False
24. In a global trade transaction seller would ship monster cables from Port of Oakland to Bangkok, Thailand under an
irrevocable letter of credit. The Thai buyer's bank issued the letter of credit with the instruction that the monster
cables be placed aboard the George Mason on November 25, 2013. The loading brokers loaded the monster cables
on board the ship on November 26, 2013 at 0100 hours (i.e. 1 am). On the manifest the broker wrote placed on
board November 25, 2013. The confirming bank refuses to pay due to the fraud. Is the confirming bank obligated to
pay to beneficiary or holder of the letter of credit.
a. True
b. False
Multiple Choice
25. Maurice O'Meara Co. v. National Park Bank of New York involved a letter of credit for a shipment of
newsprint. The bank was concerned that the shipment was not as represented in the documents. In finding in favor
of the seller's assignee, the court:
a. Emphasized the independence principle in letter of credit transactions.
b. Focused on the bank's legal right to refuse documents that do not strictly comply with the terms of the letter of
credit.
c. Upheld the bank's right to have an inspection to test the tensile strength of the newsprint.
d. A and C only.
26. Suppose that an issuing bank pays on documents that are conforming to the requirements of the letter of credit, but
the seller has shipped worthless goods to the buyer. Which of the following statements, if any, are true?
a. As long as the documents strictly comply with the letter of credit requirements, the bank will not have to
reimburse the buyer.
b. If there is fraud in the transaction, the bank will have to reimburse the buyer and seek its remedies against the
seller.
c. The strict compliance principle insulates the bank from liability, since it assures the bank that the underlying
contract between the buyer and seller is entirely independent from the letter of credit contract.
d. A and C.
27. An international draft is an order from the seller to the buyer or the buyer's bank to pay the seller upon delivery of
goods or the presentation of documents. Thus, the seller is both:
a. The drawer and the drawee.
b. The drawer and the payee.
c. The drawee and the payee.
d. The seller is only the drawer.
28. Which of the following institutions does not provide credit guarantees to back trade finance lending by commercial
institutions?
a. The Federal Reserve Bank.
b. The Eximbank.
c. The Commodity Credit Corporation.
d. The Agency for International Development.
29. A documentary draft issued for the purchase of goods by ABC Co. payable to XYZ Co., payable upon presentation,
defines ABC Co. as the , XYZ Co. as the , and the specialized name for the documentary draft is .
a. Drawee; drawer; sight draft.
b. Drawer; drawee; sight draft.
c. Drawee; drawer; documents against acceptance.
d. Drawer; drawee; cash against documents.
30. A draft due at a future date or after a specified period of time that has been signed by the buyer is called:
a. Sight draft.
b. Time draft.
c. Trade acceptance.
d. All of the above.
31. If the buyer's or seller's bank stamps its name, date, and signature on the face of a draft, it becomes a:
a. Trade Acceptance.
b. Banker's Acceptance.
c. Letter of Credit.
d. None of the above.
32. Bills of exchange are governed in the U.S. by the , in England by the , and in over 20 other countries by
the :
a. Bills of Exchange Act; Convention on Bills of Exchange and Promissory Notes; The Uniform Commercial
Code.
b. Uniform Commercial Code; Convention on Bills of Exchange and Promissory Notes; Bills of Exchange Act.
c. Convention on Bills of Exchange and Promissory Notes; Bills of Exchange Act; Uniform Commercial Code.
d. Uniform Commercial Code; Bills of Exchange Act; Convention on Bills of Exchange and Promissory Notes.
33. A letter of credit is a contract between:
a. The seller and the buyer's bank.
b. The buyer's bank and the seller's bank.
c. The sellers and their own bank.
d. The buyers and their own bank.
34. The internationally accepted body of rules pertaining to letters of credit is:
a. Article 5 of the Uniform Commercial Code.
b. Uniform Customs and Practices for Documentary Credits.
c. Convention on Bills of Exchange and Promissory Notes.
d. Uniform Code of Practice for Letters of Credit.
35. The bank that is responsible for inspecting the documents to be sure they are in order, remitting payment to the
seller, and negotiating the documents to the buyer is called:
a. Issuing bank.
b. Negotiating bank.
c. Advising bank.
d. Lading bank.
