Module: | MODULE A: INTERNATIONAL BANKING
Q87: Consider the following statements regarding International Commercial Terms commonly used within Letters of Credit:
Statement 1: Under the Free On Board term, the seller is responsible for bearing the costs and risks of the goods only until they are physically loaded on board the vessel at the named port of shipment.
Statement 2: Under the Cost, Insurance, and Freight term, the seller is legally obligated to arrange and pay for the main ocean carriage and the marine insurance up to the named port of destination.
Statement 3: International Commercial Terms automatically dictate the exact moment when the legal ownership and title of the goods transfer from the seller to the buyer.
Statement 2: Under the Cost, Insurance, and Freight term, the seller is legally obligated to arrange and pay for the main ocean carriage and the marine insurance up to the named port of destination.
Statement 3: International Commercial Terms automatically dictate the exact moment when the legal ownership and title of the goods transfer from the seller to the buyer.
✅ Correct Answer: A
The correct option is A. Only 1 and 2 are correct.
Concept Definition: International Commercial Terms are standard trade definitions published by the International Chamber of Commerce.
They are universally used in sales contracts and Letters of Credit to clearly define the responsibilities, costs, and risk transfers between buyers and sellers.
Structural Breakdown: Each term is typically a three letter acronym.
The terms dictate who pays for freight, who pays for insurance, who handles customs clearance, and where the physical risk of loss shifts from the seller to the buyer.
Historical/Related Context: The rules are updated approximately every ten years to reflect modern logistics practices.
The most recent major revision is the 2020 publication.
Causal Reasoning: Statement 1 correctly defines the Free On Board rule, where the risk passes exactly when the goods are placed on the ship.
Statement 2 correctly defines Cost, Insurance, and Freight, where the seller pays for the journey and insurance, but the risk actually transfers to the buyer as soon as the goods are loaded at the origin port.
Statement 3 is entirely incorrect.
International Commercial Terms deliberately never address the transfer of legal ownership or title.
The transfer of title is determined separately by the underlying sales contract and the applicable national laws.
Concept Definition: International Commercial Terms are standard trade definitions published by the International Chamber of Commerce.
They are universally used in sales contracts and Letters of Credit to clearly define the responsibilities, costs, and risk transfers between buyers and sellers.
Structural Breakdown: Each term is typically a three letter acronym.
The terms dictate who pays for freight, who pays for insurance, who handles customs clearance, and where the physical risk of loss shifts from the seller to the buyer.
Historical/Related Context: The rules are updated approximately every ten years to reflect modern logistics practices.
The most recent major revision is the 2020 publication.
Causal Reasoning: Statement 1 correctly defines the Free On Board rule, where the risk passes exactly when the goods are placed on the ship.
Statement 2 correctly defines Cost, Insurance, and Freight, where the seller pays for the journey and insurance, but the risk actually transfers to the buyer as soon as the goods are loaded at the origin port.
Statement 3 is entirely incorrect.
International Commercial Terms deliberately never address the transfer of legal ownership or title.
The transfer of title is determined separately by the underlying sales contract and the applicable national laws.