Module: | MODULE A: INTERNATIONAL BANKING
Q93: Consider the following statements regarding installment drawings and shipments:
Statement 1: If a drawing or shipment by installments within given periods is stipulated in the credit, and any installment is not drawn or shipped within that allowed period, the credit automatically ceases to be available for that installment and all subsequent installments.
Statement 2: The beneficiary retains the legal right to combine a missed installment with the next scheduled installment without incurring any penalty.
Statement 3: The issuing bank must issue a formal notice of cancellation to the beneficiary if an installment period is missed.
Statement 2: The beneficiary retains the legal right to combine a missed installment with the next scheduled installment without incurring any penalty.
Statement 3: The issuing bank must issue a formal notice of cancellation to the beneficiary if an installment period is missed.
✅ Correct Answer: A
The correct option is A. Only 1 is correct.
Concept Definition: Installment shipments involve a strict, contractually agreed schedule mandated by the Letter of Credit.
This requires specific quantities of goods to be shipped within specific, predefined calendar windows or periods.
Structural Breakdown: This is a highly rigid structure compared to general partial shipments.
The buyer uses this mechanism to manage inventory levels precisely, ensuring goods arrive exactly when needed for manufacturing or retail, rather than arriving all at once and overwhelming their warehouses.
Historical/Related Context: Article 32 enforces strict adherence to the schedule.
The penalty for missing a single window is severe, reflecting the critical importance of supply chain timing for the applicant.
Causal Reasoning: Statement 1 is correct.
The rule is absolute.
If one installment is missed, the Letter of Credit immediately ceases to be available for that missed shipment and for every single future shipment remaining on the schedule.
The credit effectively dies.
Statement 2 is incorrect.
The beneficiary cannot roll over or combine missed installments because the credit is already voided for all subsequent periods.
Statement 3 is incorrect.
The cessation of the credit is automatic based on the failure to present documents for that specific period.
No formal notice of cancellation is required from the issuing bank.
Concept Definition: Installment shipments involve a strict, contractually agreed schedule mandated by the Letter of Credit.
This requires specific quantities of goods to be shipped within specific, predefined calendar windows or periods.
Structural Breakdown: This is a highly rigid structure compared to general partial shipments.
The buyer uses this mechanism to manage inventory levels precisely, ensuring goods arrive exactly when needed for manufacturing or retail, rather than arriving all at once and overwhelming their warehouses.
Historical/Related Context: Article 32 enforces strict adherence to the schedule.
The penalty for missing a single window is severe, reflecting the critical importance of supply chain timing for the applicant.
Causal Reasoning: Statement 1 is correct.
The rule is absolute.
If one installment is missed, the Letter of Credit immediately ceases to be available for that missed shipment and for every single future shipment remaining on the schedule.
The credit effectively dies.
Statement 2 is incorrect.
The beneficiary cannot roll over or combine missed installments because the credit is already voided for all subsequent periods.
Statement 3 is incorrect.
The cessation of the credit is automatic based on the failure to present documents for that specific period.
No formal notice of cancellation is required from the issuing bank.