Module: | MODULE A: INTERNATIONAL BANKING
Q91: Consider the following statements regarding tolerance limits for amounts, quantities, and unit prices in a Letter of Credit:
Statement 1: The use of the words about or approximately allows a tolerance of exactly 10 percent more or 10 percent less in the credit amount, the quantity of goods, or the unit price.
Statement 2: If the credit does not state the quantity in terms of a stipulated number of packing units or individual items, a tolerance of 5 percent more or less in quantity is automatically allowed.
Statement 3: The automatic 5 percent tolerance rule for quantity applies equally to the unit price of the goods, allowing a 5 percent variance without explicit authorization.
Statement 2: If the credit does not state the quantity in terms of a stipulated number of packing units or individual items, a tolerance of 5 percent more or less in quantity is automatically allowed.
Statement 3: The automatic 5 percent tolerance rule for quantity applies equally to the unit price of the goods, allowing a 5 percent variance without explicit authorization.
✅ Correct Answer: A
The correct option is A. Only 1 and 2 are correct.
Concept Definition: Tolerance limits provide necessary flexibility in international shipping.
This is particularly important for bulk commodities like grain, coal, or oil, where exact physical measurement at the time of loading is scientifically impossible or commercially impractical.
Structural Breakdown: The banking rules divide tolerance into two distinct categories.
First is explicit tolerance, requested by the use of words like approximately.
Second is implicit or automatic tolerance, allowed purely by the physical nature of the goods being shipped.
Historical/Related Context: These rules prevent trivial discrepancies from halting massive international shipments.
However, this flexibility is strictly mathematically controlled to prevent sellers from deliberately overcharging buyers by shipping massive amounts of excess goods.
Causal Reasoning: Statement 1 is correct.
Article 30 explicitly states that words like about or approximately grant a 10 percent variance.
Statement 2 is correct.
For bulk goods not measured in individual units, an automatic 5 percent variance is allowed, provided the total financial amount drawn does not exceed the total credit amount.
Statement 3 is incorrect.
The rules explicitly state that while quantity may vary by 5 percent for bulk goods, the unit price stipulated in the credit cannot be altered or reduced under the automatic tolerance rule.
Concept Definition: Tolerance limits provide necessary flexibility in international shipping.
This is particularly important for bulk commodities like grain, coal, or oil, where exact physical measurement at the time of loading is scientifically impossible or commercially impractical.
Structural Breakdown: The banking rules divide tolerance into two distinct categories.
First is explicit tolerance, requested by the use of words like approximately.
Second is implicit or automatic tolerance, allowed purely by the physical nature of the goods being shipped.
Historical/Related Context: These rules prevent trivial discrepancies from halting massive international shipments.
However, this flexibility is strictly mathematically controlled to prevent sellers from deliberately overcharging buyers by shipping massive amounts of excess goods.
Causal Reasoning: Statement 1 is correct.
Article 30 explicitly states that words like about or approximately grant a 10 percent variance.
Statement 2 is correct.
For bulk goods not measured in individual units, an automatic 5 percent variance is allowed, provided the total financial amount drawn does not exceed the total credit amount.
Statement 3 is incorrect.
The rules explicitly state that while quantity may vary by 5 percent for bulk goods, the unit price stipulated in the credit cannot be altered or reduced under the automatic tolerance rule.