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
A) is responsible for making sure that the parties perform the contract.
B) will make payment once the transaction has been completed.
C) will make payment when Lapland presents the proper documents.
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
A) is responsible for making sure that the parties perform the contract.
B) will make payment once the transaction has been completed.
C) will make payment when Lapland presents the proper documents.
D) none of the above.

Quizplus · Accepted Answer

As a letter of credit acts as a guarantee of payment, First State Bank will only make payment when Lapland presents the proper documents. The bank is not responsible for making sure that the parties perform the contract, and payment is made before the transaction is completed.