Module: | MODULE A: INTERNATIONAL BANKING
Q75: Consider the following statements regarding Transferable Credits:
Statement 1: A transferable credit can be transferred to a second beneficiary, and subsequently from that second beneficiary to a third beneficiary to facilitate complex supply chains.
Statement 2: The transferred credit must accurately reflect the terms of the original credit, except that the amount, unit price, and the period for presentation may be reduced or curtailed.
Statement 3: The first beneficiary has the right to substitute its own invoice and draft for those of the second beneficiary to conceal the original supplier pricing from the applicant.
Statement 2: The transferred credit must accurately reflect the terms of the original credit, except that the amount, unit price, and the period for presentation may be reduced or curtailed.
Statement 3: The first beneficiary has the right to substitute its own invoice and draft for those of the second beneficiary to conceal the original supplier pricing from the applicant.
✅ Correct Answer: B
The correct option is B. Only 2 and 3 are correct.
Concept Definition: A Transferable Credit is a Letter of Credit that specifically states it is transferable.
This allows the first beneficiary, who is usually a middleman, to transfer all or part of the credit to one or more secondary beneficiaries, who are the actual suppliers.
Structural Breakdown: The transaction involves the Applicant, the Issuing Bank, the Transferring Bank, the First Beneficiary, and the Second Beneficiary.
Historical/Related Context: Governed by Article 38, transferable credits are designed to help intermediaries finance trade without needing their own credit lines.
The rules strictly limit the transfer to only one tier.
This means a second beneficiary cannot transfer it to a third beneficiary.
Causal Reasoning: Limiting transfers to a single tier prevents uncontrollable chains of risk and document complexity, making Statement 1 incorrect.
Statement 2 is correct because the intermediary must buy at a lower price and ship within the original timeframe to make a profit and meet the deadline.
Statement 3 is correct because the first beneficiary substitutes invoices to claim the profit margin difference between the second beneficiary price and the original drawing amount.
Concept Definition: A Transferable Credit is a Letter of Credit that specifically states it is transferable.
This allows the first beneficiary, who is usually a middleman, to transfer all or part of the credit to one or more secondary beneficiaries, who are the actual suppliers.
Structural Breakdown: The transaction involves the Applicant, the Issuing Bank, the Transferring Bank, the First Beneficiary, and the Second Beneficiary.
Historical/Related Context: Governed by Article 38, transferable credits are designed to help intermediaries finance trade without needing their own credit lines.
The rules strictly limit the transfer to only one tier.
This means a second beneficiary cannot transfer it to a third beneficiary.
Causal Reasoning: Limiting transfers to a single tier prevents uncontrollable chains of risk and document complexity, making Statement 1 incorrect.
Statement 2 is correct because the intermediary must buy at a lower price and ship within the original timeframe to make a profit and meet the deadline.
Statement 3 is correct because the first beneficiary substitutes invoices to claim the profit margin difference between the second beneficiary price and the original drawing amount.