Documents under Letter of Credit

Documents under Letter of Credit (LC)

I. Introduction to Documents under Letter of Credit:

  • Documents play a crucial role in Letter of Credit (LC) transactions, as they determine payment and compliance with terms.
  • Accurate and compliant documents ensure a smooth trade process.

II. Important Documents in LC Transactions:

  1. Commercial Invoice:
    • Provides a detailed description of the goods.
    • Should match the description in the LC.
  2. Bill of Lading (B/L):
    • Serves as evidence of shipment and contract of carriage.
    • Must be in accordance with LC terms.
  3. Packing List:
    • Lists the contents and quantity of each package.
    • Helps verify the goods received against the invoice.
  4. Certificate of Origin:
    • States the origin of the goods.
    • Important for tariff classification and customs clearance.
  5. Insurance Certificate:
    • Demonstrates that the goods are insured during transit.
    • Should comply with the LC requirements.
  6. Certificate of Inspection:
    • Provides evidence of the quality, quantity, or condition of goods.
    • Required when specified in the LC.
  7. Bill of Exchange (Draft):
    • A written order by the beneficiary to the applicant to pay.
    • Used in sight or term drafts.

III. Importance of Document Compliance:

  • Documents must strictly adhere to LC terms to avoid discrepancies.
  • Discrepancies can lead to payment delays or rejections.

IV. Multiple Choice Questions (MCQs) with Answers:

  1. What role do documents play in Letter of Credit transactions? a) Determine the interest rate for payment b) Confirm the beneficiary’s identity c) Determine payment and compliance with terms (Correct) d) Replace the need for goods’ physical inspection
  2. What document serves as evidence of shipment and the contract of carriage? a) Invoice b) Packing List c) Bill of Lading (B/L) (Correct) d) Certificate of Origin
  3. Which document provides information about the contents and quantity of each package? a) Certificate of Origin b) Bill of Lading (B/L) c) Packing List (Correct) d) Insurance Certificate
  4. What is the purpose of a Certificate of Inspection? a) Provides evidence of the origin of the goods b) Demonstrates that the goods are insured c) Demonstrates compliance with LC terms d) Provides evidence of the quality, quantity, or condition of goods (Correct)

Note: This information is accurate up to September 2021. Always consult current sources or professionals for the latest information on the documents required in Letter of Credit transactions.