Suppose That an Issuing Bank Pays on Documents That Are

question 49

Multiple Choice

Suppose that an issuing bank pays on documents that are conforming to the requirements of the letter of credit, but the seller has shipped worthless goods to the buyer. Which of the following statements, if any, are true?

• A) As long as the documents strictly comply with the letter of credit requirements, the bank will not have to reimburse the buyer.
• B) If there is fraud in the transaction, the bank will have to reimburse the buyer and seek its remedies against the seller.
• C) The strict compliance principle insulates the bank from liability, since it assures the bank that the underlying contract between the buyer and seller is entirely independent from the letter of credit contract.
• D) A and C.

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Definitions:

Net Income

The remainder of a company's revenue after deducting all expenditures and taxes, known as net profit.

Consolidated Financial Statements

Consolidated Financial Statements present the financial position and performance of a parent company and its subsidiaries as a single entity, merging their individual statements into one comprehensive document.

Subsidiary

A company that is completely or partially owned and controlled by another company, known as the parent company.

Parent Company

A company that owns more than 50% of the common stock of another entity.