Advising Letters of Credit through Overseas Banks

Please assume letters of credit are favouring a beneficiary overseas and that the letter of credit needs to be advised through a bank also located overseas.

1. An irrevocable Letter of Credit is an instrument issued by a financial institution (henceforth referred to as Issuing Bank) to serve as a means to achieve one of the objectives stated below.

1. Assure Applicant that Beneficiary will complete delivery of ordered goods
2. Assure Beneficiary that Applicant will honour all claims in accordance with the terms stated in the letter of credit
3. Assure Applicant that Beneficiary is in good financial state
4. Assure Beneficiary that upon their submission of documents strictly complying with all stated terms of the letter of credit, Issuing Bank shall honour the Beneficiary’s claim in accordance with the terms of the letter of credit

2. Issuing Bank issues an irrevocable letter of credit on 1 March. Three days later (assume it is a banking day), Applicant informs Issuing Bank they have mutually agreed with Beneficiary to cancel the underlying commercial contract with no penalties to apply on either party. Which one of the statements below is in accordance with letter of credit practice?

1. Issuing Bank informs Advising Bank that the letter of credit is cancelled with immediate effect
2. Issuing Bank informs Applicant in response that should Beneficiary proceed with performance of their now ‘mutually cancelled contract’ and Beneficiary’s subsequent presentation of documents under the letter of credit are fully compliant, Issuing Bank shall honour the Beneficiary’s claim
3. Issuing Bank advises Beneficiary they are immediately free of all financial responsibility in relation to the ‘mutually cancelled contract’.
4. Issuing Bank immediately marks down Applicant’s credit limit utilisation allowing Applicant to issue more letters of credit

3. Trade Bank of Singapore, Singapore issues a letter of credit advising it through their branch, Trade Bank of Singapore, Bangkok. Since the letter of credit is apparently from a sister office, the Bangkok branch dispenses with the formality of authenticating the instrument before advising it to Beneficiary in Thailand. Choose one of the following as being acceptable in accordance with letter of credit practice:

1. Trade Bank of Singapore need not authenticate the letter of credit from their Singapore office and may proceed to advise the instrument as received to Beneficiary
2. Having advised without authentication, Trade Bank of Singapore, Bangkok should accept Beneficiary’s request to add Confirmation
3. Trade Bank of Singapore, if it chooses to advise the letter of credit to Beneficiary must follow the authentication protocol before delivering the instrument to Beneficiary
4. Trade Bank of Singapore, Bangkok branch agrees to perform authentication only if Beneficiary pays them a fee. Otherwise, the Bangkok branch shall advise the letter of credit without authentication

4. Trade Bank of Singapore, Singapore issues a letter of credit indicating it is available by Payment at the counters of Trade Bank of Singapore, Bangkok. It seems Trade Bank of Singapore, Bangkok is the nominated bank and had received no prior request from Issuing Bank. Which one of the following statements is correct in accordance with letter of credit practice?

1. As a branch of the same bank, Trade Bank of Singapore, Bangkok must willingly accept its nomination as Paying Bank and must perform all obligations in that role
2. As a branch in a different country, Trade Bank of Singapore, Bangkok is deemed a bank separate from Issuing Bank. Consequently, Trade Bank of Singapore, Bangkok is at liberty to refuse to act as nominated bank and may unilaterally inform their Singapore branch that the Bangkok branch shall not assume the role of Paying Bank
3. Trade Bank of Singapore, Singapore may assert its status as Head Office/Main Branch and may insist Trade Bank of Singapore, Bangkok fall in line with its wishes
4. Trade Bank of Singapore, Bangkok informs Issuing Bank to cancel the Letter of Credit after it has been advised to Beneficiary

5. An Issuing Bank issues a letter of credit available at its own counters, by acceptance of drafts (bills of exchange) drawn 90 days from BL date on Issuing Bank. Does this mean the letter of credit

1. Is available by acceptance at the counters of Advising Bank
2. Is available by Payment at the counters of Advising Bank
3. Is available by negotiation as the counters of Advising Bank
4. None of the above three responses

6. An Issuing Bank issues a letter of credit available with the Advising Bank by Payment. Which one of the following responses is correct?

1. The letter of credit is automatically availableat the counters of Issuing Bank by Payment
2. The letter of credit is not availableat the counters of Issuing Bank by Payment
3. The letter is available at the counters of Issuing Bank by Negotiation
4. None of the above three responses

7. An Issuing Bank issues a letter of credit available by Negotiation at the counters of Advising Bank. This implies the letter of credit is automatically available by Negotiation at the counters of Issuing Bank. Choose one of the two responses

1. True
2. False

8. An Issuing Bank issues a letter of credit available by Negotiation at the counters of any bank in Beneficiary’s country. The letter of credit requires Beneficiary to include in their documentary presentation, bills of exchange for 100% of the value of the corresponding commercial invoice also issued by Beneficiary. Which of the statements mentioned below is correct?

1. The negotiating bank Beneficiary chooses for presentation of documents is at liberty to refuse to negotiate documents although it is fully compliant
2. Typically, in a letter of credit transaction available by Negotiation, the beneficiary’s bills of exchange are drawn on Issuing Bank
3. The bank receiving presentation of documents from Beneficiary may advance less than 100% of the value of bills of exchange and commercial invoice, pending reimbursement from Issuing Bank
4. All of the above

9. A letter of credit requires Beneficiary to present a Certificate of Origin indicating certain goods are of Indonesian origin. Beneficiary presents a Certificate of Origin indicating goods originate from ASEAN region. Which of the following statements apply according to letter of credit practice?

1. The goods contain raw materials from Thailand although finished goods were fully manufactured in Indonesia. Therefore, goods cannot be deemed to be of Indonesian origin even if Certificate of Origin is issued stating goods are of Indonesian origin and the name and address of the manufacturer in Indonesia is also stated in the document
2. The Certificate of Origin is fully compliant with terms of the letter of credit
3. The corresponding transport document indicates goods are being transported from Singapore so goods cannot be of Indonesian origin even if Certificate of Origin states so
4. None of the above is correct in terms of letter of credit practice

10. A bank chooses to add Confirmation to a letter of credit. Which of the statements mentioned below are correct in accordance with letter of credit practice? View each statement below in isolation.

1. Issuing Bank may concurrently assume the role of Confirming Bank for the letter of credit it issues
2. When adding Confirmation, the Confirming Bank is at liberty to refuse receipt of a presentation of documents from Beneficiary which need to be scrutinised for strict compliance.
3. Beneficiary makes presentation of documents consisting of 995 pages. Confirming Bank is at liberty to take reasonable time, say 2 weeks to scrutinise documents to check for strict compliance
4. None of the above