Letters of credit are: (0.5 marks)Question 7Answera.reminders sent by FIs to customers who have outstanding debit balances.b.contingent guarantees sold by an FI to underwrite the trade or commercial performance of the buyer of the guarantee.c.guarantees bought by an FI because they are convinced by the issuer's commercial performance.d.another word for cheques.
Question
Letters of credit are: (0.5 marks)Question 7Answera.reminders sent by FIs to customers who have outstanding debit balances.b.contingent guarantees sold by an FI to underwrite the trade or commercial performance of the buyer of the guarantee.c.guarantees bought by an FI because they are convinced by the issuer's commercial performance.d.another word for cheques.
Solution
The correct answer is:
b. contingent guarantees sold by an FI to underwrite the trade or commercial performance of the buyer of the guarantee.
Letters of credit are financial tools used in international trade to ensure that the payment will be made as long as the services or goods are delivered as agreed. They are issued by a bank or financial institution (FI) to the seller (beneficiary) on behalf of the buyer. They serve as a guarantee that the seller will receive a specified amount of money within a specified time. In case the buyer is unable to make the payment, the bank will cover the amount.
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