Why were UCP rules introduced to govern letters of credit?

To ensure uniformity and acceptance globally.

To eliminate uncertainty and ambiguity.

To protect the interests of the credit applicant.

To avoid the impact of sanctions.

To comply with Financial Action Task Force (FATF) recommendations, and local legislation relating to money laundering and terrorist financing, every bank is required to keep detailed records of individual documentary credit transactions. In addition to the size and currency of each transaction, which of the following is required to be recorded?

Account-opening details and documents of verification and identity.

Details of all separate letters of indemnity issued which relate to the individual documentary credit transaction.

Details of any documentary credit issued that is not subject to UCP 600 rules.

Original country of origin details of the goods being shipped.

A credit requires presentation of a non-negotiable sea waybill evidencing port-to-port shipment. The sea waybill presented indicates pre-carriage. Which of the following will meet the minimum requirements stated in ISBP 745?

dated on-board notation that indicates the name of the vessel.

A credit requires presentation of a non-negotiable sea waybill evidencing port-to-port shipment. The sea waybill presented indicates pre-carriage. Which of the following will meet the minimum requirements stated in ISBP 745?

dated on-board notation that indicates the name of the vessel and the port of loading stated in the credit.

dated on-board notation that indicates the name of the vessel.

dated on-board notation that indicates the name of the vessel, the port of loading and the port of discharge stated in the credit.

In accordance with UCP 600, which of the following best describes the meaning of negotiation?

purchase of drafts and/or documents by the nominated bank.

examination of documents by the nominated bank and the claiming of reimbursement prior to payment to the beneficiary.

giving of value for drafts and/or documents by the nominated bank.

sending of documents by the nominated bank to the issuing bank.

ABC Inc is the beneficiary of a non-transferable documentary credit. ABC Inc has advised the nominated bank that an assignment of proceeds is to be made to its own supplier. The nominated bank:

will advise the supplier that instructions have been received to pay part of the proceeds of the credit to them on receipt of a complying presentation.

cannot act on ABC Inc’s instructions as the credit is non-transferable.

cannot act on ABC Inc’s instructions without the agreement of all parties to the credit.

will issue a guarantee obligation to ABC Inc’s supplier, confirming a future payment to them.

Which of the following statements does not describe the obligations of a confirming bank in respect of a presentation of complying documents?

negotiation – to negotiate with-recourse time draft drawn by the beneficiary.

acceptance – to honour a time draft drawn on the nominated bank if the nominated bank does not accept the time draft.

deferred payment – to incur a deferred payment undertaking.

sight payment – to pay at sight.

Which of the following cannot perform the role of a transport document?

Inland waterway transport document.

At the request of the applicant, the issuing bank delivers a shipping guarantee to the carrier. The following week the issuing bank receives documents containing discrepancies for the same shipment. Which of the following best describes the action the issuing bank should take?

Contact the applicant for a waiver of the discrepancies.

Contact the carrier for a waiver of the discrepancies.

Which of the following parties cannot sign a multimodal transport document?

The combined transport operator (CTO).

The multimodal transport operator (MTO).

Which of the following statements in relation to drafts presented under documentary credits is correct?

A credit cannot be available with drafts drawn on the applicant.

Any corrections or alterations to drafts must be dated and then signed or initialled by the drawer.

Drafts drawn at sight need not be dated.

Drafts must state the amount drawn in both words and figures.

Which of the following does not represent a specific type of risk coverage in insurance documents?

Strikes, riots and civil commotions.

Theft, pilferage, non-delivery.

An insurance document must always be dated on or prior to the date of shipment indicated on the transport document except when, it:

states that cover is effective from a date not later than the date of shipment as evidenced by the transport document.

bears reference to the date of shipment as evidenced by the transport document.

contains a warehouse-to-warehouse clause.

is presented as an insurance policy rather than an insurance certificate.

Which of the following statements regarding an insurance document is correct?

An insurance document may contain reference to an exclusion clause.

A declaration under an open cover is acceptable in lieu of an insurance policy.

The maximum coverage allowed is 150% of the CIF or CIP value of the goods.

The minimum coverage required is 100% of the CIF or CIP value of the goods.

An amendment reducing the amount of a documentary credit from USD100,000 to USD80,000 is advised stating that the amendment shall enter into force unless rejected by the beneficiary within five banking days. 10 banking days later, the beneficiary presents documents for USD100,000 to the confirming bank, which comply fully with the credit in its original form. In accordance with UCP 600, the confirming bank must:

pay documents to the value of USD100,000.

forward the documents to the issuing bank on a collection basis.

pay documents to the value of USD80,000.

reject the documents as non-complying.

A requirement for presentation of a certificate of origin issued by a chamber of commerce will be satisfied by presentation of all of the following issuers except for:

an independent inspection agency.

In accordance with UCP 600, which of the following documents, presented on 1 June, is not acceptable under a documentary credit issued on 1 March, expiring on 10 June, with a latest shipment date of 20 May and no stated presentation period?

Third party certificate of quality dated 2 June.

Air waybill evidencing third party as consignor, dated 21 May with a notation stating goods shipped on flight number XX123 20 May.

Certificate of origin dated 28 February.

Weight certificate issued by the beneficiary, dated 15 May.

According to URR 725, if the reimbursing bank receives a claim from a nominated bank after the expiry date of the credit stated in a reimbursement authorisation, the reimbursing bank must:

make the payment as if an expiry date had not been included within the reimbursement authorisation.

refuse the claim and let the claiming bank resolve the matter with the issuing bank.

revert to the issuing bank to seek further instructions.

seek confirmation that documents were presented prior to expiry.

Documents have been examined by an issuing bank and discrepancies noted. When approached by the issuing bank, the applicant refused to authorise a waiver of the discrepancies. Which of the following is not a requirement in respect of the issuing bank's notice of refusal to the presenting bank?

indicate that the applicant declined to waive the discrepancies.

ensure that it is sent no later than close of business, five banking days after the date of presentation of the documents.

indicate each discrepancy upon which refusal is based.

state that the documents are being held pending further instructions from the presenter.

Which of the following statements is incorrect?

A negotiating bank does not incur ‘counterparty risk’ when making payment to the beneficiary.

A reimbursing bank that has issued a reimbursement undertaking is obligated to honour a compliant reimbursement claim.

The advising bank does not incur any ‘credit risk’ by advising an unconfirmed credit.

The confirming bank is at risk of non-reimbursement by the issuing bank after effecting payment to the beneficiary.

An amendment is advised by a confirming bank to the beneficiary, extending the expiry date and reducing the credit. The beneficiary notifies its acceptance of the extension of the expiry date only and at the same time presents documents that comply with the full unamended credit. What action must the confirming bank take?

Deem the amendment to have been rejected by the beneficiary and honour the presentation.

Confirm to the beneficiary that the credit value reduction part of the amendment will be disregarded.

Effect payment for the reduced credit value only and forward documents on an approval basis for the balance.

Request the issuing bank to contact the applicant immediately to seek clarification.

Bank A issues a documentary credit to Bank B requesting that Bank B add its confirmation to the credit. Bank B advises the credit to the beneficiary and exercises its right under UCP 600 not to add its confirmation. Bank B agrees to act as the nominated bank. The beneficiary supplies a complying presentation and Bank B negotiates the draft presented. The negotiation by Bank B is best described as:

without recourse to the beneficiary.

with recourse for a period of 10 banking days.

with recourse for a period of 21 banking days.

with recourse to the beneficiary.

Which of the following statements does not relate to documentary credit risks?

A forward foreign exchange contract may provide a hedge against exchange rate movements for the issuing bank.

In the event of failure of the issuing bank, the beneficiary may need to rely on payment directly from the applicant.

The issuing bank may not be able to honour its obligation to pay due to governmental action.

The issuing bank may try to mitigate against non-reimbursement from the applicant by retaining title to the goods.

The term ‘evergreen’ is most commonly associated with a credit that:

cannot be amended or cancelled prior to expiry.

has an expiry date that extends beyond 12 months from the date of issue.

has an expiry date that extends beyond five years from the date of issue.

The risk of incurring demurrage can be reduced by all of the following except for a:

condition that the transport document cannot bear any indication of costs additional to freight.

condition that one original bill of lading is to be sent direct to the applicant.

curtailment in the default presentation period of 21 calendar days.

requirement for presentation of non-negotiable sea waybills.

Which of the following statements is incorrect in relation to assignments?

assignee has the same rights as the beneficiary under the documentary credit.

assignee has only the right to proceeds under the documentary credit.

assignee relies on the beneficiary's performance in order to get paid.

legal effect is subject to national law.

CDCS Level 4 Specimen Paper B Quiz

1.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A complying presentation is defined as one which is in accordance with all of the following except:

international standard banking practice.

the terms of the documentary credit.

the terms of the underlying contract.

Uniform Customs and Practice for Documentary Credits.

2.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following always applies to both documentary credits and standby credits?

The issuer is not concerned with any underlying sales contracts, goods or performances.

They are a guarantee in the event of failure to perform a contractual undertaking.

They are a primary means of payment for delivery of goods.

They may include a provision for advance payment.

3.

MULTIPLE SELECT QUESTION

30 sec • 1 pt

An issuing bank is requested to provide a guarantee of payment to the beneficiary in the event of default on a contract. The beneficiary has stipulated that electronic presentations must be allowed. Which of the following could be issued?
1.Guarantee subject to URR 725.
2.Standby credit subject to ISP98.
3.Standby credit subject to UCP 600.
4.Standby credit subject to eUCP.

1 and 2 only

2 and 4 only

1 and 4 only

2 and 3 only

4.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A clean credit:

does not require any documents other than a draft or demand for payment.

ensures the issuing bank maintains control of the goods.

is only referred to as a direct-pay standby.

must contain an inoperative clause.

5.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

For a freely available transferable documentary credit, which of the following statements is correct?

Any bank in the beneficiary’s country can be the transferring bank.

The advising bank automatically becomes the transferring bank.

The issuing bank must nominate the transferring bank.

There is no need to designate a transferring bank.

6.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A commercial standby letter of credit is usually issued to secure the:

buyer’s obligation to pay the seller.

buyer’s obligation to repay a trade finance loan.

seller’s obligation to repay a pre-shipment loan.

seller’s obligation to supply goods to the buyer.

7.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

To obtain an advance payment under a red clause documentary credit, any of the following may be required except for a(n):

beneficiary's undertaking.

bill of lading marked ‘freight collect’.

confirmation from a shipping agent.

invoice.

8.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

An exporter is selling shirts to an importer with payment due 45 days after shipment. The contract stipulates that there are to be 12 monthly shipments, each comprising approximately 2,000 shirts. The cost of each of the shirts is EUR8.00. Which of the following would best secure the exporter's receivables?

documentary credit for EUR192,000.

documentary credit for EUR17,600 revolving 11 times on payment, subject to applicant's approval.

instalment documentary credit for EUR211,200.

standby credit for EUR35,200.

9.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

According to UCP 600, the terms ‘prompt’, ‘immediately’ and ‘as soon as possible’ may be disregarded unless:

the credit is stated to be ‘transferable’ and a transfer request is actioned.

they are required to appear within the wording of a document.

they are used within the context of acceptance or rejection of any amendments by the issuing bank.

they relate to the date of shipment of the underlying goods.

10.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

In accordance with ISBP 745, which of the following invoices would not be acceptable?

document entitled ‘consular invoice’ where the underlying credit requested an ‘invoice’.

invoice describing the goods as ‘refurbished electric pumps’ where the underlying credit details the goods' description as ‘electric pumps’.

invoice that shows a discount for an advance payment.

undated invoice.

CDCS Level 4 Specimen Paper B

74 questions

A complying presentation is defined as one which is in accordance with all of the following except:

Which of the following always applies to both documentary credits and standby credits?

A clean credit:

For a freely available transferable documentary credit, which of the following statements is correct?

A commercial standby letter of credit is usually issued to secure the:

To obtain an advance payment under a red clause documentary credit, any of the following may be required except for a(n):

According to UCP 600, the terms ‘prompt’, ‘immediately’ and ‘as soon as possible’ may be disregarded unless:

In accordance with ISBP 745, which of the following invoices would not be acceptable?

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