Martin Exporting requests ABC Bank to add its own guarantee of payment to a letter of credit,which creates a(n)________.
A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) unconfirmed letter of credit

Question

Quizplus · Accepted Answer

When a bank adds its own guarantee of payment to a letter of credit, it becomes a confirmed letter of credit. This means that the seller/beneficiary will receive payment from both the issuing bank (Martin Exporting's bank) and the confirming bank (ABC Bank), reducing the risk of non-payment. This is different from an unconfirmed letter of credit, where the seller/beneficiary only has the guarantee of payment from the issuing bank. Although the letter of credit may also be irrevocable, this is not the best choice as it does not specifically refer to the added guarantee from ABC Bank. An advised letter of credit just means that the issuing bank has informed the seller's bank about the letter of credit, but it does not necessarily have any added guarantees of payment.

Martin Exporting Requests ABC Bank to Add Its Own Guarantee