Question

In which of the following forms of export financing does a bank assume a financial obligation?

A) with an L/C but not a documentary collection
B) with a documentary collection but not an L/C
C) neither an L/C nor a documentary collection requires a bank to assume financial obligation
D) with either an L/C or a collection letter
E) with both an L/C and a documentary collection

Answer 1

A bank assumes a financial obligation with a Letter of Credit (L/C) but not with a documentary collection in export financing.

Step-by-step explanation:

In the context of export financing, a bank assumes a financial obligation when dealing with a Letter of Credit (L/C). An L/C is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated in the L/C are met. On the other hand, a documentary collection involves the bank in the role of an intermediary to facilitate the transaction, but it does not issue any guarantee of payment. Therefore, the correct answer to the question is that a bank assumes a financial obligation with an L/C but not a documentary collection.