Chat with AIExam 7: Bank Collections and Letters of Credit
Describe the benefits and risks of banker's acceptance financing and accounts receivable financing.Under which form of financing will a bank be liable for defective goods?
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Answered by Examlex AI CopilotBanker's acceptance financing and accounts receivable financing are both forms of short-term financing that offer various benefits and risks for businesses.
Banker's acceptance financing involves a bank guaranteeing a future payment on behalf of a business. The benefit of this type of financing is that it allows the business to access funds quickly and at a lower interest rate than other forms of financing. However, the risk is that if the business is unable to make the future payment, the bank will be liable for the amount guaranteed.
Accounts receivable financing, on the other hand, involves a business using its accounts receivable as collateral for a loan. The benefit of this type of financing is that it provides immediate cash flow for the business without adding debt to its balance sheet. However, the risk is that if the accounts receivable are not collected, the business will still be liable for the loan.
In terms of liability for defective goods, a bank would be liable under accounts receivable financing. If a business uses its accounts receivable as collateral for a loan and it is later discovered that the goods sold were defective, the bank may be held liable for the loan amount if the accounts receivable cannot be collected.
In conclusion, both forms of financing have their benefits and risks, and it is important for businesses to carefully consider their options and potential liabilities before choosing a financing method.
The seller's bank acting as an advising bank agrees to transmit the funds received from the buyer's bank to the seller provided the terms of the letter of credit have been satisfied completely.
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VerifiedTrue
Under a documentary collection,the banks are acting as the agent of the buyer for collection purposes.
(35) VerifiedFalse
If the buyer's or seller's bank stamps its name,date,and signature on the face of a draft,it becomes a:
(41) Terms of the sales contract must be reflected in the letter of credit,if not the buyer must clear all discrepancies upon examination of the letter of credit.
(32) A documentary draft is a time draft that has thirty (30)day and sixty (60)day increments used in documentary sale transactions.
(36) In a global trade transaction seller would ship monster cables from Port of Oakland to Bangkok,Thailand under an irrevocable letter of credit.The Thai buyer's bank issued the letter of credit with the instruction that the monster cables be placed aboard the George Mason on November 25,2013.The loading brokers loaded the monster cables on board the ship on November 26,2013 at 0100 hours (i.e.1 am).On the manifest the broker wrote placed on board November 25,2013.The confirming bank refuses to pay due to the fraud.Is the confirming bank obligated to pay to beneficiary or holder of the letter of credit.
(29) The type of credit that allows the use of one credit instead of many to be used with the maximum amount available during a certain period of time is called:
(28) The rule that usually prevails for interpreting documents that are submitted to a bank for payment under a letter of credit is commonly called the:
(43) The bank that is responsible for inspecting the documents to be sure they are in order,remitting payment to the seller,and negotiating the documents to the buyer is called:
(39) The holder of a banker's acceptance may convert it to cash immediately at a discount rate,sell it on the discount market,or hold it until it matures,provided the buyer's account has sufficient funds to cover the transaction.
(39) The U.S.Export-Import Bank is the largest U.S.export financing agency that can provide:
(38) Most documentary discrepancies that occur in a letter of credit transaction are:
(43) The U.S.government agency that provides guarantees on loans or credit terms made by U.S.commercial banks or U.S.exporters to foreign buyers of U.S.made merchandise called:
(35) A holder in due course rule,where a purchaser of an acceptance,or any negotiable instrument,takes it free from most disputes that may arise between the drawer and drawee and is regulated under the Uniform Customs and Practice for Documentary Credits.
(30) Compare and contrast the documentary letter of credit with the standby letter of credit.
(35) How are a red clause and a revolving letter of credit similar as compared to a red clause and a back-to-back letter of credit?
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