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Part 1
Max is a manufacturer of machinery in Tomrovia who has entered into a contract to sell machinery to Nisar in Kestria. As the two parties have not dealt with each other previously. Max requires the contract to be financed by an international letter of credit. Nisar’s bank is Old Bank whilst Max’s bank is Pin Bank,
Identify which of the following statements concerning the letter of credit
PART 2 ( TRUE OR FALSE)
1.Max requests Old Bank to issue a letter of credit on behalf of Nisar FALSE
2.Max can ship the goods when Pin Bank agrees to handle the credit on terms arranged with Old Bank TRUE
3.Max receives payment before the funds leave Nisar’s bank account TRUE
4.Nisar will receive the goods after the funds have left his bank account
True3 is true can u plz explain how and 4 also can u explain
The letter of credit arrangement effectively becomes an arrangement between the banks … and in that situation one has to assume that the banks can trust each other
The idea of a letter of credit is that the supplier is guaranteed by the bank to receive their money as soon as the bank is notified that the goods have been despatched
But then, of course, Nisar’s bank, having been notified that funds have been paid into Max’s account by Max’s bank, will take money out of Nisar’s account and pay to Max’s bank
I think that explains both your questions
OK?
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