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Letter of Credit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA LW Exams › Letter of Credit

  • This topic has 9 replies, 2 voices, and was last updated 10 years ago by MikeLittle.
Viewing 10 posts - 1 through 10 (of 10 total)
  • Author
    Posts
  • January 16, 2015 at 7:12 am #222787
    Kyaw
    Member
    • Topics: 31
    • Replies: 37
    • ☆☆

    The following question is from F4 Global December 2014 Specimen Paper.

    Letters of credit are ways of transferring payment internationaly through the banking system.

    In this context of international payments, which of the following statements is correct?

    A) The issuing bank represents the seller
    B) The advising bank represents the seller
    C) the issuing bank represents the buyer

    The correct answer is A.
    I don’t understand the meaning of the word “represent” using in the statement.
    Please help me, Sir!

    January 16, 2015 at 7:59 pm #222854
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23309
    • ☆☆☆☆☆

    Do you have a bank account? Let’s say that you have a current account with Barclays Bank

    If you want to get a letter of credit to guarantee that you will be paid for some sales made by you, you will ask the customer to ask his bank to issue a letter of credit and send it to you.

    Then the process of the sale takes place and eventually you get the money in your bank and the customer has money taken out f their bank account

    Here’s a link with pictures to show you what’s happening

    “I don’t understand the meaning of the word “represent” using in the statement.” In this context, the word “represents” would in your case be Barclays Bank as representative of you. In the course notes I use the expression “buyer’s bank” and “seller’s bank” – the buyer’s bank represents the buyer and the seller’s bank represents …… the seller!

    ok?

    January 26, 2015 at 5:11 pm #223831
    Kyaw
    Member
    • Topics: 31
    • Replies: 37
    • ☆☆

    According to the document from the link you has provided to me, I think the issuing bank is the buyer’s bank and the answer for the above question should be C. Help me, Sir!

    January 26, 2015 at 5:17 pm #223832
    Kyaw
    Member
    • Topics: 31
    • Replies: 37
    • ☆☆

    This question is really driving me crazy! The following paragraph is from the CreditManagementWorld.com.

    Revocable vs. Irrevocable Letters of Credit

    A Letter of Credit may be revocable or irrevocable. In a
    revocable Letter of Credit, the issuing bank (representing the
    buyer) has the right to cancel or alter its obligation at any time
    before payment of a sight draft or acceptance of a time draft.
    That situation exists even if goods were shipped in reliance on
    the expectation of payment.

    It says the issuing bank (representing the buyer) but ACCA specimen exam says it is wrong. Help me!

    January 26, 2015 at 9:12 pm #223853
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23309
    • ☆☆☆☆☆

    It would seem from the above that the answer should be c

    People make mistakes! What else can I say?

    January 27, 2015 at 5:23 am #223869
    Kyaw
    Member
    • Topics: 31
    • Replies: 37
    • ☆☆

    This question is very confusing. I can’t distinguish what is right or what is wrong. When I sit ACCA specimen exam, the correct answer is A. Which answer should I gave for a question like this, Sir?

    January 27, 2015 at 5:28 am #223871
    Kyaw
    Member
    • Topics: 31
    • Replies: 37
    • ☆☆

    I think ACCA specimen exam can’t be wrong.

    January 27, 2015 at 12:02 pm #223940
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23309
    • ☆☆☆☆☆

    I think that you should not place 100% faith in anything – sorry.

    Of course a specimen paper could be wrong although I admit that it’s unlikely.

    The reference that I gave you clearly suggests that the correct answer is “c”

    Isn’t it also in the specimen paper or is it one of my own questions about appealing the decision in a magistrates court. It IS possible to appeal from magistrates court to County Court but that’s not what the solution suggests

    When is your exam? On reading your questions on this site, I already have the impression that you are a comfortable pass student. Don’t let one questionable answer distract you from the bigger picture!

    January 31, 2015 at 8:08 am #224459
    Kyaw
    Member
    • Topics: 31
    • Replies: 37
    • ☆☆

    I’ve got 81%, Sir. Thank you very much, Sir! You’re are very helpful.

    January 31, 2015 at 3:17 pm #224518
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23309
    • ☆☆☆☆☆

    81% is not bad!

    :-))

    I’m very pleased for you – it’s a good score

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