10. Trade Finance, Payments, Insurance and Foreign-Exchange Risk

Introduction and Context

International trade creates a fundamental timing problem. An exporter may incur production, packing, transport and compliance costs long before receiving payment, while an importer may be expected to pay before receiving or inspecting the goods. Distance, different legal systems, limited knowledge of the counterparty, currency volatility and political risk intensify this problem. Trade finance provides the instruments and institutions that bridge this gap.

Payment terms are therefore not merely commercial clauses. They distribute credit risk, liquidity risk, documentary risk, transport risk and foreign-exchange risk between the parties. A logistics manager, freight forwarder or EXIM professional must understand these relationships because cargo release, document handling, customs clearance, insurance claims and bank settlement are closely connected.

The principal international payment methods are advance payment, open account, documentary collection and documentary credit, commonly called a letter of credit (LC). Each method offers a different balance between security, cost, speed and commercial attractiveness. Alongside these methods, exporters and importers use export credit, bank guarantees, cargo insurance and foreign-exchange hedging to control specific risks.

Learning Objectives

After studying this chapter, the learner should be able to:

1. Compare advance payment, open account, documentary collection and letters of credit.

2. Explain the roles of banks, carriers, freight forwarders, insurers and customs intermediaries in trade finance.

3. Apply the main principles of the Uniform Customs and Practice for Documentary Credits (UCP 600).

4. Distinguish documentary compliance from physical compliance of goods.

5. Evaluate export credit, guarantees and cargo-insurance arrangements.

6. Identify foreign-exchange exposures and select suitable controls.

7. Detect discrepancy, fraud, sanctions and operational risks in international transactions.

8. Recommend an integrated payment and risk-management structure for a trade transaction.

The Architecture of Trade Finance

Trade finance is the provision of funding, payment assurance and risk mitigation for transactions involving the movement of goods or services across borders. It may be short term, such as financing inventory in transit, or longer term, such as financing capital-equipment exports. It may be provided by commercial banks, export-credit agencies, insurers, fintech platforms or specialist finance companies.

A transaction typically involves five related flows:

• the physical flow of goods;
• the documentary flow of invoices, transport documents, certificates and customs records;
• the payment flow between buyer, seller and banks;
• the risk-transfer flow through insurance, guarantees and hedging; and
• the information flow through enterprise systems, banks, carriers and government platforms.

A weakness in one flow can disrupt the others. For example, a correctly manufactured shipment may remain unpaid because the bill of lading contains an inconsistent date. Conversely, a compliant document set may produce payment even though the buyer later discovers that the goods are defective; an LC normally deals with documents, not the physical condition of goods.

The central decision is the allocation of trust. The more the exporter trusts the importer, the more payment may be deferred. The less trust exists, the more the exporter will seek advance payment, a bank undertaking or credit insurance. The importer, however, generally prefers payment after shipment or inspection. Negotiating payment terms is therefore a commercial and risk-pricing exercise.

Four Principal Payment Methods

Advance payment

Under advance payment, the importer pays before the exporter dispatches the goods. It provides the exporter with maximum payment protection and working-capital support. It is common where the exporter has strong bargaining power, the goods are customized, the buyer is new, or the destination presents significant political or credit risk.

The importer bears the principal risk: the exporter may delay shipment, fail to perform or deliver goods that do not meet the contract. The importer can reduce this risk through a performance bond, escrow arrangement, inspection condition, refund guarantee or staged payment. Advance payment is commercially less attractive to buyers and may reduce the exporter’s competitiveness.

Open account

Under open account terms, the exporter ships the goods and agrees to receive payment at a later date, such as 30, 60 or 90 days after shipment or invoice. The importer obtains trade credit and often prefers this method. The exporter bears buyer default, insolvency, transfer and political risks.

Open account can support long-term relationships and supply-chain competitiveness, but it requires disciplined credit assessment. Controls may include credit limits, written sales contracts, retention of title where enforceable, trade-credit insurance, factoring, forfaiting and foreign-exchange hedging. The date from which credit runs must be stated clearly because shipment date, invoice date, bill-of-lading date and date of acceptance can differ.

Documentary collection

In a documentary collection, the exporter’s bank sends commercial and transport documents to the importer’s bank with instructions to release them against payment (documents against payment, or D/P) or against acceptance of a time draft (documents against acceptance, or D/A). Banks transmit and handle documents but generally do not provide an independent payment undertaking.

D/P offers the exporter greater control than open account because the buyer may need the documents to obtain the goods. However, the buyer may refuse payment, leaving the exporter with storage, return, disposal or resale problems. Under D/A, the importer receives documents after accepting a future payment obligation; the exporter therefore bears a credit risk similar to open account unless the accepted bill is avalised or otherwise guaranteed.

Collections are governed internationally by the Uniform Rules for Collections (URC 522), where incorporated into the transaction. Banks are agents for collection and are not normally responsible for the buyer’s default or for examining the commercial quality of the documents in the manner required under an LC.

Documentary letters of credit

A documentary LC is a bank’s undertaking to pay the beneficiary, usually the exporter, against presentation of documents that comply with the credit’s terms. It separates the exporter’s right to payment from the importer’s personal credit, subject to the issuing bank’s creditworthiness, country risk and documentary compliance.

The issuing bank opens the credit at the importer’s request. The advising bank authenticates and advises it to the exporter. A nominated bank may examine documents, pay, accept or negotiate depending on the credit. A confirming bank adds its own independent undertaking at the exporter’s request or under the credit structure. Confirmation can reduce issuing-bank and country risk but increases cost.

An LC is attractive where parties lack an established relationship, the exporter requires bank-backed payment, or the importer needs assurance that payment will occur only against specified documents. It is more expensive and administratively demanding than open account or collection. Its protection is also conditional: a discrepancy can justify refusal or delay, and the bank does not guarantee the physical quality of the goods.

Comparing Payment Methods

The methods can be assessed using four questions: Who finances the transaction? Who bears non-payment risk? What controls access to the goods? How costly and operationally complex is the method?

Advance payment is strongest for the exporter and weakest for the importer. Open account reverses that position. Documentary collection creates an intermediate position but does not generally create a bank payment undertaking. An LC transfers much of the payment risk to the issuing bank, provided that the exporter presents complying documents and the bank is able to perform.

A practical decision should consider counterparty history, bargaining power, product uniqueness, country and sanctions risk, transaction value, shipment frequency, cash-flow requirements, legal enforceability and the cost of risk mitigation. A large first shipment to a new buyer in a high-risk market may justify an irrevocable confirmed LC. Repeated shipments to a financially strong strategic customer may support open account protected by credit insurance and a credit limit.

Applying UCP 600 Principles

UCP 600 is a set of rules issued by the International Chamber of Commerce for documentary credits. It applies when the credit expressly states that it is subject to UCP 600. It is not itself a law and does not replace the sales contract, but it standardizes banking practice.

Several principles are central.

Independence principle. An LC is separate from the underlying sale contract. Banks deal with documents and not with goods, services or performance. A dispute between buyer and seller does not automatically suspend the bank’s obligation to honour a complying presentation.

Strict but practical documentary compliance. The presentation must comply with the credit, UCP 600 and applicable international standard banking practice. Banks do not normally investigate the actual goods. Minor typographical issues may or may not matter depending on whether they create inconsistency or non-compliance; exporters should not rely on informal notions of “substantial compliance.”

Reasonable examination period. A bank has a maximum of five banking days following the day of presentation to determine whether a presentation complies. The documents must be examined as a set, and discrepancies must be identified in a refusal notice in the manner required by the rules.

Expiry and presentation. The credit specifies an expiry date and usually a place for presentation. Transport documents may also be subject to a presentation period, such as 21 calendar days after shipment, unless the credit provides otherwise. A shipment made on time can still result in non-payment if documents are presented late.

Transport documents. The credit may prescribe a bill of lading, sea waybill, air waybill or multimodal transport document. The document must reflect the required shipment, consignee, notify party, ports, freight terms and apparent condition. A “clean” transport document generally indicates no notation of apparent defect in the goods or packaging; it does not prove hidden quality.

Amendments. An amendment normally requires the agreement of the relevant parties. An exporter should not ship on the assumption that an amendment will be accepted. Operational teams must control versions so that the commercial invoice and transport documents correspond to the operative credit.

Discrepancy and waiver. If documents do not comply, the issuing bank may refuse to honour. The applicant may instruct the bank to waive discrepancies, but waiver is discretionary and does not remove all legal or sanctions concerns. A beneficiary should review a draft LC before shipment and seek an amendment where a condition is impossible, ambiguous or commercially unacceptable.

The most frequent discrepancies include inconsistent descriptions, incorrect quantities, late presentation, missing certificates, unauthorized partial shipment, incorrect insurance coverage, stale transport documents, wrong beneficiary or applicant details, and signatures or endorsements that do not meet the credit’s requirements. A discrepancy checklist and four-eye review are basic controls.

Export Credit, Guarantees and Supply-Chain Finance

Export credit may take the form of pre-shipment finance, post-shipment finance, invoice discounting, factoring, forfaiting or support from an export-credit agency. Pre-shipment finance funds raw materials and production. Post-shipment finance bridges the period between dispatch and collection. Factoring generally involves the sale or administration of short-term receivables, while forfaiting commonly concerns the purchase without recourse of medium-term receivables evidenced by instruments or bank obligations.

A bank guarantee is an undertaking to pay the beneficiary if the applicant fails to perform a specified obligation. A payment guarantee protects against non-payment; an advance-payment guarantee protects the buyer’s advance; a performance guarantee protects against failure to perform; and a bid bond supports tender obligations. A demand guarantee may be payable upon a compliant demand without the beneficiary first proving the underlying breach, depending on its wording and governing rules.

Guarantees must be examined for amount, expiry, claim conditions, governing law, jurisdiction, reduction mechanism, sanctions language and the identity of the guarantor. An apparently strong guarantee may be ineffective if it is issued by an unacceptable institution, expires before the claim period or contains ambiguous demand requirements.

Supply-chain finance arrangements, including approved-payables finance, allow a financier to pay a supplier early while the buyer pays at maturity. These arrangements can improve supplier liquidity without changing the buyer’s payment date. They require transparent accounting, clear assignment rules, cyber controls and careful assessment of whether financing is being used to conceal buyer distress.

Cargo Insurance and Risk Transfer

Cargo insurance protects the insured interest against specified transit risks. The insured may be the seller, buyer, carrier or another party with an insurable interest. The sales contract and chosen Incoterm determine who is generally responsible for arranging insurance, but contractual allocation does not eliminate the need to verify coverage.

Important insurance questions include:

• What goods and journey are covered?
• When does cover attach and terminate?
• Are transshipment, storage, war and strikes included or excluded?
• What is the insured value and currency?
• Is the policy on an all-risks basis subject to exclusions, or on named-perils terms?
• What deductible, claims procedure and evidence requirements apply?

Institute Cargo Clauses are widely used in marine insurance practice, but the exact policy wording governs. “All risks” does not mean every loss is covered. Ordinary leakage, inherent vice, poor packing, delay, insolvency of a carrier and certain political events may be excluded unless specially covered.

The claimant should promptly notify the insurer and carrier, mitigate loss, preserve packaging and evidence, obtain survey reports where appropriate, and reserve rights against responsible parties. A logistics provider should not assume that the carrier’s liability is equivalent to full cargo insurance; carrier liability may be limited by contract, convention or tariff.

Insurance documents also matter under an LC. The credit may require coverage for a stated percentage of the invoice value, risks, currency, voyage and claims-paying bank. An insurance certificate that does not satisfy the credit can create a payment discrepancy even where the shipment is properly insured in substance.

Foreign-Exchange Risk and Its Control

Foreign-exchange risk arises when the value of a receivable, payable, asset or liability changes because exchange rates move. Transaction exposure occurs when a contracted foreign-currency cash flow has not yet settled. Translation exposure affects the reporting value of foreign operations. Economic exposure concerns the longer-term effect of currency movements on competitiveness, prices and margins.

Consider an exporter that will receive USD 500,000 in 90 days while its costs are in domestic currency. If the dollar depreciates before receipt, the domestic-currency value of the receivable falls. An importer with a USD payable faces the opposite problem if the dollar appreciates.

Common controls include:

• Natural hedging: matching foreign-currency revenues with foreign-currency costs or borrowing.
• Forward contract: fixing an exchange rate for a future purchase or sale of currency. It provides certainty but removes the benefit of favourable movements.
• Currency option: purchasing the right, but not the obligation, to exchange at a specified rate. Options preserve upside potential but require a premium or structured pricing.
• Currency swap: exchanging cash flows in different currencies, usually for a longer period.
• Leading and lagging: accelerating or delaying payments when commercially and contractually appropriate.
• Currency clause: allowing price adjustment within agreed exchange-rate bands.

A sound policy begins by identifying exposures by currency, amount, maturity and probability. The firm should distinguish committed exposures from forecast exposures, establish hedge ratios and authority limits, document counterparty limits, and measure hedge effectiveness. Hedging should protect margins rather than become speculative trading.

The quoted exchange rate, value date, settlement instructions, bank charges and possibility of early termination must be checked. A forward hedge can itself create a loss if the underlying shipment is cancelled; cancellation, rollover and replacement costs should be understood before execution.

Fraud, Sanctions and Discrepancy Risk

Trade-finance fraud exploits the separation between documents, goods and money. Examples include duplicate financing of the same invoice, fictitious shipments, manipulated bills of lading, forged inspection certificates, altered bank-account instructions, over-invoicing, undervaluation, phantom warehouses and collusion among parties.

Business-email compromise is particularly dangerous. Fraudsters may impersonate a supplier or bank and request that payment be redirected to a new account. A change in bank details should be independently verified through a known telephone number or secure channel, not through the email thread containing the request.

Documentary controls should include segregation of duties, maker-checker approval, authenticated bank messages, verified counterparties, sanctions screening, vessel and port screening, duplicate-invoice detection, unusual-route analysis and reconciliation among purchase orders, invoices, transport documents and customs declarations. Digital documents reduce handling time but do not automatically establish authenticity.

Sanctions and export-control obligations may apply to the goods, technology, parties, beneficial owners, vessel, route, bank and end use. A bank may refuse a transaction even when the documents appear compliant if processing would create sanctions or regulatory exposure. Compliance cannot be delegated entirely to a freight forwarder or bank; responsibility must be allocated and monitored across the organization.

Ethically, trade-finance professionals must avoid false descriptions, dual invoicing, misclassification, concealment of beneficial ownership and manipulation of customs values. Commercial pressure does not justify submitting inaccurate documents. Accurate records, audit trails, whistle-blower protection and escalation procedures are governance requirements, not administrative luxuries.

Digital Trade and Emerging Practice

Electronic bills of lading, bank portals, application programming interfaces, distributed-ledger platforms and digital trade documents can reduce courier time, improve visibility and support automated document checking. Optical character recognition and machine-learning tools can identify inconsistent names, dates, quantities and currencies. Analytics can flag unusual shipment routes, repeated discrepancies, rapid changes in beneficiary accounts and abnormal pricing.

Automation must be governed carefully. Poorly structured master data can reproduce errors at scale, while artificial intelligence may misread handwritten endorsements, abbreviations or legally significant clauses. Access control, encryption, authentication, data retention, system resilience and human review remain essential. Legal recognition of electronic transferable records also varies by jurisdiction and instrument, so digital adoption requires legal as well as technical assessment.

Current practice is moving toward interoperable platforms, paperless trade, real-time sanctions screening, embedded finance in logistics systems and more integrated environmental, social and governance (ESG) checks. These developments may lower transaction costs, but they also increase dependence on data quality, cyber-security and platform governance.

Illustrative Case Study: Selecting a Payment and Risk Structure

Background

Meridian Components, an Indian manufacturer, receives an order from Northstar Machinery, a new distributor in a foreign market. The order is worth USD 800,000, requires customized production, and will be shipped in two lots over four months. Meridian’s costs are mainly in Indian rupees. Northstar requests 60-day open-account terms. The destination country has moderate political risk, and Meridian has no previous payment history with the buyer.

Situation and problem

Open account would help Northstar’s cash flow, but Meridian would finance production and bear the risk of delayed payment or default. A full advance payment may cause Northstar to choose another supplier. Meridian must also protect its margin against a possible fall in the dollar and ensure that insurance and transport documents support its financing arrangements.

Analysis

The customized nature of the goods reduces Meridian’s ability to resell them if Northstar defaults. The first transaction also lacks behavioural credit information. A documentary collection would improve control over documents but would not guarantee payment, especially if Northstar refuses the documents. A confirmed LC would provide stronger payment assurance, but bank charges and documentary discipline would be higher.

Approach and solution

The parties agree that Northstar will pay 20 percent in advance, with the balance covered by an irrevocable LC available by deferred payment at 60 days from the shipment date. The LC is confirmed by a bank acceptable to Meridian. It permits two partial shipments, specifies a realistic presentation period, and requires documents that Meridian can obtain without ambiguity. Meridian arranges cargo insurance for the required risks and value, while the freight forwarder receives a document checklist before booking.

Meridian hedges a defined portion of the expected dollar receipt using forward contracts, retaining a smaller unhedged portion to accommodate changes in shipment timing. It obtains pre-shipment finance against the purchase order and monitors Northstar’s credit limit. Both parties establish a callback procedure for any change in bank-account information.

Before shipment, Meridian’s bank reviews the draft LC. The parties amend an initially impractical requirement for a certificate issued by an authority unavailable in the exporting country. After each shipment, a separate team checks invoice descriptions, quantities, dates, transport documents, insurance and certificates against the operative LC.

Outcome

The first shipment is presented without discrepancy and the exporter receives payment at maturity. The second shipment is delayed by production constraints, so the parties amend the shipment and expiry dates before dispatch. The hedge is rolled forward at a documented cost. Northstar receives financing support without requiring Meridian to accept unsecured exposure for the entire order.

Learning points

The case demonstrates that payment terms should be designed as a package. A blended structure can balance buyer competitiveness and exporter protection. Early review of the LC is less costly than correcting discrepancies after shipment. Insurance, hedging, finance and document controls must be coordinated; treating them as separate administrative activities creates avoidable gaps.

Common Mistakes and Best Practices

Common mistakes include accepting an LC without checking operational feasibility, confusing an advising bank with a confirming bank, shipping before an amendment is effective, assuming insurance covers delay, ignoring presentation deadlines, failing to reconcile currency exposure, and treating a carrier’s liability as cargo insurance. Another frequent error is allowing sales staff to approve credit terms without finance, compliance and logistics input.

Best practice is to establish a transaction-risk matrix covering buyer, bank, country, currency, goods, route, documents and technology. Contracts should specify payment method, applicable rules, Incoterms, governing law, currency, interest, insurance, inspection, dispute resolution and sanctions responsibilities. Standardized document templates, pre-shipment reviews, authorized signatory lists and exception reporting reduce operational risk.

Management should measure more than payment cost. Useful indicators include discrepancy rate, days sales outstanding, overdue receivables, insurance-claim recovery, hedge coverage, bank-fee variance, fraud alerts, document cycle time and concentration by buyer, bank and country. Periodic post-transaction reviews convert individual errors into organizational learning.

Chapter Summary

Trade finance links the physical movement of goods with documentary, payment and risk-transfer systems. Advance payment protects the exporter but burdens the importer; open account benefits the importer but exposes the exporter; documentary collection provides document control without a general bank payment undertaking; and an LC creates an independent bank obligation subject to documentary compliance. UCP 600 emphasizes independence, examination of documents, presentation deadlines and the consequences of discrepancies.

Export credit supports production and receivables, while guarantees protect against non-performance or non-payment. Cargo insurance transfers specified transit risks but does not cover every loss or replace careful packing and claims management. Foreign-exchange exposure should be identified and controlled through natural hedges, forwards, options, swaps and contractual mechanisms. Fraud prevention requires verified parties, consistent documents, sanctions screening, segregation of duties and secure communication. Effective EXIM management integrates commercial terms, banking, logistics, insurance, compliance, technology and governance into one risk-based decision.

Key Terms

Advance payment: Payment made by the importer before shipment or performance.

Open account: Trade credit in which goods are shipped before payment is due.

Documentary collection: Bank-handled transmission of documents against payment or acceptance without a general bank payment undertaking.

Documents against payment (D/P): Collection arrangement in which documents are released against immediate payment.

Documents against acceptance (D/A): Collection arrangement in which documents are released against acceptance of a future payment obligation.

Letter of credit: A bank undertaking to honour a complying documentary presentation.

Applicant: The party, usually the importer, that requests issuance of an LC.

Beneficiary: The party entitled to present documents under an LC, usually the exporter.

Advising bank: Bank that authenticates and communicates an LC to the beneficiary.

Confirming bank: Bank adding its independent payment undertaking to an LC.

UCP 600: ICC rules governing documentary credits when incorporated into the credit.

Discrepancy: A difference or defect causing presented documents not to comply with the credit or applicable rules.

Export credit: Finance supporting production, shipment or receivables arising from exports.

Performance guarantee: A guarantee supporting the beneficiary against the applicant’s failure to perform.

Cargo insurance: Insurance covering specified loss or damage to goods during transit.

Transaction exposure: Exchange-rate risk affecting a contracted foreign-currency cash flow.

Forward contract: Agreement to exchange currency at a fixed rate on a future date.

Natural hedge: Reduction of currency risk by matching foreign-currency inflows and outflows.

Sanctions screening: Checking parties, goods, vessels, banks and routes against applicable restrictions.

Business-email compromise: Fraudulent manipulation of electronic communications to redirect funds or obtain information.

Review Questions

Short Answer Questions

1. Why does open-account trade generally create greater risk for the exporter than for the importer?

2. Distinguish D/P from D/A documentary collection.

3. What is the independence principle in documentary credits?

4. State two differences between cargo insurance and carrier liability.

5. What is transaction exposure in foreign exchange?

Long Answer Questions

1. Compare advance payment, open account, documentary collection and letters of credit in terms of risk, cost, control and commercial suitability.

2. Explain the main UCP 600 principles relevant to an exporter preparing an LC presentation.

3. Discuss the role of export credit, factoring, forfaiting and guarantees in managing trade-finance needs.

4. Explain how a company can design a foreign-exchange risk-management policy for import and export transactions.

5. Analyse the governance and ethical controls required to prevent documentary fraud and sanctions violations.

Analytical / Application Questions

1. A new buyer requests 90-day open-account terms for customized machinery from a politically uncertain market. Recommend a payment and risk-mitigation structure and justify each element.

2. An exporter’s documents contain a late presentation, an inconsistent goods description and an insurance certificate in the wrong currency. Analyse the likely consequences and propose corrective actions.

3. An importer must pay EUR 1 million in 120 days while its revenues are in domestic currency. Compare a forward, an option and a natural hedge, including the trade-offs involved.

22. Multiple Choice Questions with Answers

Question 1

Which payment method generally gives the exporter the strongest protection against buyer non-payment before shipment?

A. Open account

B. Documents against acceptance

C. Advance payment

D. Unconfirmed documentary collection

Correct Answer: C. Advance payment

Question 2

Under a documentary letter of credit, the bank’s primary examination concerns whether the documents comply with the credit, not whether the goods are physically satisfactory. Which principle does this illustrate?

A. The independence principle

B. The natural hedge principle

C. The insurable-interest principle

D. The open-account principle

Correct Answer: A. The independence principle

Question 3

In a D/P documentary collection, when should the collecting bank normally release documents to the importer?

A. When the importer promises to pay in 90 days

B. After immediate payment

C. When the carrier confirms cargo quality

D. After the exporter waives all claims

Correct Answer: B. After immediate payment

Question 4

What is the principal additional protection provided by confirmation of an LC?

A. A guarantee that the goods are defect-free

B. An independent undertaking from the confirming bank

C. Automatic exemption from sanctions rules

D. A reduction in customs duty

Correct Answer: B. An independent undertaking from the confirming bank

Question 5

An exporter will receive USD after 90 days but has domestic-currency costs. Which event creates a loss if all else remains equal?

A. The dollar appreciates against the domestic currency

B. The dollar depreciates against the domestic currency

C. The shipment is insured

D. The buyer accepts the invoice

Correct Answer: B. The dollar depreciates against the domestic currency

Question 6

Which instrument normally fixes an exchange rate for a future currency transaction but may remove the benefit of favourable exchange-rate movements?

A. Forward contract

B. Cargo policy

C. Performance guarantee

D. Documentary collection

Correct Answer: A. Forward contract

Question 7

A bank guarantee designed to protect a buyer if an exporter fails to perform is best described as a:

A. Payment guarantee

B. Performance guarantee

C. Currency option

D. Confirmed LC

Correct Answer: B. Performance guarantee

Question 8

Why can an apparently insured shipment still produce an LC discrepancy?

A. Insurance is never relevant to documentary credits

B. The insurance document may fail to meet the credit’s specified risks, value or currency

C. Cargo insurance automatically cancels the LC

D. Banks examine only the physical cargo

Correct Answer: B. The insurance document may fail to meet the credit’s specified risks, value or currency

Question 9

Which control most directly addresses a request received by email to change a supplier’s bank account?

A. Accepting the request if the email domain looks familiar

B. Delaying customs clearance indefinitely

C. Independent verification through a trusted communication channel

D. Replacing the commercial invoice

Correct Answer: C. Independent verification through a trusted communication channel

Question 10

A company matches foreign-currency receipts with foreign-currency payments to reduce its net exposure. This is an example of:

A. Natural hedging

B. Forfaiting

C. Documentary acceptance

D. Cargo surveying

Correct Answer: A. Natural hedging