Letter of Credit in International Trade

What is the main function of a Letter of Credit (L/C) in international trade?

• Avoid payment

• Guarantee delivery of goods

• Provide financing

• Guarantee payment for exporters

• Ensure safety of goods

Who issues the Letter of Credit in international trade transactions?

• Importer

• Issuing bank

• Exporter

• Correspondent bank

• Commercial bank

In an L/C transaction, who acts as the applicant?

• Exporter

• Importer

• Issuing bank

• Correspondent bank

• Commercial bank

The party receiving payment through the Letter of Credit is called…

• Beneficiary

• Applicant

• Issuer

• Notary

• Commercial bank

Which of the following is a type of Letter of Credit that cannot be unilaterally canceled by one party?

• Revocable L/C

• Irrevocable L/C

• Transferable L/C

• Revolving L/C

• Beneficiary

In a Letter of Credit, who is responsible for delivering documents that comply with the L/C terms?

• Issuing bank

• Exporter

• Importer

• Correspondent bank

• Beneficiary

What is the main requirement for payment to be made in the Letter of Credit mechanism?

• Buyer receives goods

• Goods are shipped correctly

• Required documents are submitted according to L/C terms

• Importer pays directly to exporter

• Provide financing

When a company opens a Letter of Credit (L/C) for purchasing goods, the correct journal entry is…

• Debit Inventory, Credit Cash

• Debit Cash, Credit L/C

• Debit L/C, Credit Accounts Payable

• Debit Receivables, Credit Inventory

• Debit Cash, Credit Inventory

When a company pays the bank after receiving goods with L/C, the correct journal entry is…

• Debit Accounts Payable, Credit Cash

• Debit Inventory, Credit Cash

• Debit Inventory, Credit Accounts Payable

• Debit Cash, Credit Accounts Payable

• Debit Cash, Credit L/C

When goods ordered with L/C have been shipped and the bank pays the exporter, the company records…

• Debit Administrative Expenses, Credit L/C

• Debit Inventory, Credit Cash

• Debit L/C, Credit Accounts Payable

• Debit Inventory, Credit L/C

• Debit Cash, Credit L/C