Module: | MODULE A: INTERNATIONAL BANKING
Q74: Consider the following statements regarding the irrevocability of a Letter of Credit under the Uniform Customs and Practice for Documentary Credits 600:
Statement 1: A credit is deemed to be irrevocable even if there is no explicit indication to that effect within the credit document.
Statement 2: An irrevocable credit can be amended or cancelled at any time by the issuing bank without requiring the agreement of the beneficiary.
Statement 3: The concept of a revocable credit is no longer recognized or supported under this regulatory framework.
Statement 2: An irrevocable credit can be amended or cancelled at any time by the issuing bank without requiring the agreement of the beneficiary.
Statement 3: The concept of a revocable credit is no longer recognized or supported under this regulatory framework.
✅ Correct Answer: C
The correct option is C. Only 1 and 3 are correct.
Concept Definition: An irrevocable Letter of Credit constitutes a definite undertaking of the issuing bank to honor a complying presentation.
This means it cannot be cancelled or amended without the consent of all involved parties.
Structural Breakdown: The primary parties involved whose consent is required for amendment or cancellation are the issuing bank, the confirming bank if one exists, and the beneficiary who receives the payment.
Historical/Related Context: Under older regulations, a credit was deemed revocable unless it was expressly stated as irrevocable.
The International Chamber of Commerce reversed this rule in the year 2007 to provide greater security to exporters.
Article 3 explicitly states that a credit is irrevocable even if there is no indication to that effect.
Causal Reasoning: The shift to default irrevocability eliminates ambiguity and protects the beneficiary from arbitrary cancellations by the applicant or the issuing bank after goods are manufactured or shipped.
Therefore, Statement 1 and Statement 3 are correct.
Statement 2 is incorrect because Article 10 states that an irrevocable credit cannot be amended or cancelled without the agreement of the issuing bank, the confirming bank, and the beneficiary.
Concept Definition: An irrevocable Letter of Credit constitutes a definite undertaking of the issuing bank to honor a complying presentation.
This means it cannot be cancelled or amended without the consent of all involved parties.
Structural Breakdown: The primary parties involved whose consent is required for amendment or cancellation are the issuing bank, the confirming bank if one exists, and the beneficiary who receives the payment.
Historical/Related Context: Under older regulations, a credit was deemed revocable unless it was expressly stated as irrevocable.
The International Chamber of Commerce reversed this rule in the year 2007 to provide greater security to exporters.
Article 3 explicitly states that a credit is irrevocable even if there is no indication to that effect.
Causal Reasoning: The shift to default irrevocability eliminates ambiguity and protects the beneficiary from arbitrary cancellations by the applicant or the issuing bank after goods are manufactured or shipped.
Therefore, Statement 1 and Statement 3 are correct.
Statement 2 is incorrect because Article 10 states that an irrevocable credit cannot be amended or cancelled without the agreement of the issuing bank, the confirming bank, and the beneficiary.