Fact Pattern 22-B1
First State Bank issues a letter of credit in favor of Oboe Company, an American firm, to facilitate an international sales contract to buy resources from Lapland Mining, Ltd., a Finnish company.
-Refer to Fact Pattern 22-B1. First State Bank must pay Lapland when Lapland
A) enters into the contract with Oboe.
B) verifies that Oboe has the money to pay for the purchase.
C) complies with the terms and conditions of the letter of credit.
D) none of the above.

Question

Fact Pattern 22-B1 
First State Bank issues a letter of credit in favor of Oboe Company, an American firm, to facilitate an international sales contract to buy resources from Lapland Mining, Ltd., a Finnish company.
-Refer to Fact Pattern 22-B1. First State Bank must pay Lapland when Lapland
A) enters into the contract with Oboe.
B) verifies that Oboe has the money to pay for the purchase.
C) complies with the terms and conditions of the letter of credit.
D) none of the above.

Quizplus · Accepted Answer

First State Bank must pay Lapland when Lapland complies with the terms and conditions of the letter of credit. The letter of credit serves as a guarantee of payment to Lapland once they have fulfilled the terms of the sales contract with Oboe. Verification of Oboe's ability to pay is not relevant to when First State Bank must pay Lapland. The entry into the contract is not sufficient to trigger the obligation to pay by the bank.