19

Transferable credits, back-to-

back credits and assignment
of proceeds

Learning objectives
This chapter provides an overview of the functions of transferable
credits, back-to-back credits and assignment of proceeds.

By the end of this chapter, you should be able to:

‹‹ understand the basic function of a transferable credit, back-to-back

credit and assignment of proceeds;

‹‹ describe the features of these three products;

‹‹ identify the difference between a transferable credit and a back-to-

back credit; and

‹‹ describe the process for an assignment of proceeds.

19.1 Transferable documentary credits

Transferable documentary credits are one of the more common types of
documentary credit. There are a number of similarities with (and differences
to) back-to-back documentary credits, which are reviewed in section 19.2.

In its simplest form, a documentary credit is issued in favour of the seller

(beneficiary), which ships the goods, presents the stipulated documents and
claims payment. This scenario is particularly applicable if the beneficiary
is the manufacturer or producer of the goods. In some cases, however,
an applicant will conduct business with an intermediary trader, agent or
middleman (referred to hereafter as trader) who obtains the goods from
one or more other sources. In this event, the trader will need to buy the
goods or make arrangements for their purchase before supplying them to
the applicant.

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Typically, a trader will operate on narrow margins. It does not carry a stock
of goods and often has limited working capital. A trader will therefore seek
a means of financing the purchases in a manner that does not place a
burden on its own resources.

In the context of a standby letter of credit, the underlying debt obligation

is often sold, necessitating the transfer of the documentary credit to the
new owner of the debt.

Transferable documentary credits were devised as a response to these

needs. The basic idea underlying this feature is that the documentary
credit issued in favour of the trader can be used as a means of paying the
supplier(s) from which the goods are obtained and can act as security for
payment for such goods. It also allows for the transfer of the undertaking
in the documentary credit to the actual seller of the goods.

19.1.1 The basic features of a transferable

documentary credit
To arrange the issuance of a transferable documentary credit, the final
buyer (applicant) instructs its bank to issue a documentary credit in favour
of the trader from which the goods are to be bought (who will become
known as the ‘first beneficiary’), stating that it is transferable. This allows
the trader to request the nominated bank with which the documentary
credit is available for honour or negotiation to transfer it in whole or in
part to the trader’s supplier(s) (who will become known as the ‘second
beneficiary’). When a documentary credit is available with any bank, it must
indicate the name of the bank that is authorised to transfer it.

If an application for the issuance of a documentary credit calls for it to

be issued as ‘divisible’, ‘fractionable’, ‘assignable’ or ‘transmissible’, the
issuing bank should check with the applicant that it simply requires the
documentary credit to be issued as transferable. The bank should explain
that the other terminology used has no meaning in the context of UCP 600.
The definition of transferable credit is contained in UCP 600, sub-article
38(b).

[…]
Transferable credit means a credit that specifically states it is “transferable”.
A transferable credit may be made available in whole or in part to another
beneficiary (“second beneficiary”) at the request of the beneficiary (“first
beneficiary”).
[…]

If the trader is buying from several suppliers, the bank may be requested to
transfer parts of the documentary credit to each such supplier. The value of
the parts of the documentary credit transferred to each supplier represents

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 Transferable documentary credits

the price that the trader is paying for the goods. The balance represents
the trader’s profit or margin.

This arrangement provides a trader’s supplier(s) with security for payment

because part of the documentary credit itself is transferred to the supplier(s).
In this way, each supplier obtains the right to claim payment direct from
the bank at which its portion of the documentary credit is available (against
presentation of complying documents). This means that a supplier obtains
a large measure of control over the payment process, because it is able to
ensure that the stipulated documents are presented within the time limits
established in the transferred documentary credit.

A transferable documentary credit is also a convenient solution for a trader.

It allows a trader to provide its supplier(s) with the security of a documentary
credit without having to use any part of its own banking facilities.

19.1.2 The risks and costs of transferable

documentary credits
A transferable documentary credit can involve extra risks and costs for the
original applicant (the buyer for which the goods are destined). In particular,
it accepts the risk of receiving goods from a third party, whom it may not
know and with whom there may have been no previous business dealings.

Moreover, once a documentary credit is transferred, more parties are

involved. This means that the documents have to be examined and,
possibly, mailed twice before they reach the issuing bank. This increases
the risk of delay, loss and error along the way.

The greater difficulties involved in controlling the operation under a

transferable documentary credit may also increase the risk of fraud. A large
part of this risk ultimately falls on the original applicant, which undertakes
to reimburse the issuing bank provided that a complying presentation has
been made.

Additional costs arise because of the difference between the price paid by
the trader and the price that the trader charges to the applicant.

19.1.2.1 Managing the transferable documentary

credit process
Transferable documentary credits will involve:

‹‹ a first beneficiary (trader) and one or more second beneficiaries

(supplier(s));

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‹‹ more than one set of documents;

‹‹ dealings in possibly more than one country;

‹‹ more than one reimbursement; and

‹‹ a longer chain of banks than are involved in a non-transferable

documentary credit.

As a consequence of these features, a number of challenges may arise,

and a transferring bank and issuing bank should have in place detailed
procedures to manage them.

‹‹ It can prove difficult to monitor advices of amendments to the

transferable documentary credit and the transferred documentary
credit through the chain of the applicant, first beneficiary and one or
more second beneficiaries. The monitoring of the necessary consents
might also cause concern. However, it should be noted that UCP 600,
sub-article 38(f), allows for each transferred credit to be amended
individually, and that the acceptance or rejection of an amendment by
one second beneficiary does not bind any other second beneficiary to
the same course of action.

f. If a credit is transferred to more than one second beneficiary,

rejection of an amendment by one or more second beneficiary does not
invalidate the acceptance by any other second beneficiary, with respect
to which the transferred credit will be amended accordingly. For any
second beneficiary that rejected the amendment, the transferred credit
will remain unamended.

‹‹ The bank of the second beneficiary might dispatch documents directly

to the issuing bank, causing problems for the transferring bank and
first beneficiary.

‹‹ If there are discrepancies in the documents, it may prove difficult to

obtain the second beneficiary’s and first beneficiary’s agreement to an
agreed course of action.

The following steps can be taken to address some of these risks or

problems.

‹‹ The issuing bank can restrict honour or negotiation and transfer to

a single nominated bank. While a beneficiary and applicant may be
reluctant to agree to such an arrangement, the question that the issuing
bank should ask itself is whether it wishes to be exposed to the greater
risk inherent in any alternative arrangement and to what extent, if any,
the applicant would agree to indemnify the bank for doing so.

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‹‹ The transferred credit should clearly indicate the routing instructions

for the documents by showing a full mailing address.

‹‹ The transferring bank can require the first beneficiary to agree on

certain aspects such as the handling of discrepant documents, prior to
providing a request to transfer.

‹‹ The issuing bank should indicate to the applicant the potential for
amendments to be accepted or rejected by different second beneficiaries,
should there be more than one transfer.

19.1.3 Transferable documentary credits and

UCP 600, article 38

UCP 600, sub-article 38(a), gives the transferring bank total control
over the transfer decision, and it attempts to exclude any possibility of the
beneficiary acquiring a legally enforceable right to have the documentary
credit transferred.

a. A bank is under no obligation to transfer a credit except to the extent

and in the manner expressly consented to by that bank.

The justification for this wording is that, when a transferable credit is

issued, there is generally no information available relating to the possible
transfer(s) that may be requested by the beneficiary. The UCP 600 provisions
accordingly protect a nominated bank, or the bank authorised to effect a
transfer, against any possibility of being forced to carry out a transfer that
it may find unacceptable for commercial or other reasons. This position
applies equally to an issuing bank, which may be approached by a first
beneficiary to transfer the documentary credit if the nominated bank or a
bank authorised to transfer has declined to act.

UCP 600, sub-article 38(b), requires the issuing bank to indicate the
name of the transferring bank when the documentary credit is available
with any bank. In all other cases, the bank that is nominated to honour or
negotiate will be deemed to be the transferring bank.

[…]

Transferring bank means a nominated bank that transfers the credit or, in
a credit available with any bank, a bank that is specifically authorized by
the issuing bank to transfer and that transfers the credit. An issuing bank
may be a transferring bank.

[…]

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UCP 600, sub-article 38(d), expressly provides that a transferable

documentary credit can be transferred only once.

d. A credit may be transferred in part to more than one second beneficiary

provided partial drawings or shipments are allowed.

A transferred credit cannot be transferred at the request of a second

beneficiary to any subsequent beneficiary. The first beneficiary is not
considered to be a subsequent beneficiary.

Consequently, the documentary credit cannot be transferred at the request

of a second beneficiary to any subsequent third beneficiary, and so on,
unless specifically authorised in the documentary credit.

ISP98 treats the transfer of a standby letter of credit differently. ISP98,

rule 6.02 (‘When Drawing Rights are Transferable’), applies if a standby
letter of credit is issued subject to ISP98.

a. A standby is not transferable unless it so states.

b. A standby that states that it is transferable without further provision

means that drawing rights:

i. may be transferred in their entirety more than once;

ii. may not be partially transferred; and

iii. may not be transferred unless the issuer (including the confirmer)
or another person specifically nominated in the standby agrees to and
effects the transfer requested by the beneficiary.

In some cases, a first beneficiary may wish to exclude the automatic

application of an amendment received to the transferable credit in its
favour, to the transferred credit in favour of the second beneficiary, pending
issuance of its specific instructions. In this instance, UCP 600, sub-article
38(e), provides as follows.

e. Any request for transfer must indicate if and under what conditions
amendments may be advised to the second beneficiary. The transferred
credit must clearly indicate those conditions.

The first beneficiary is, however, entitled to make this request only if it has
given notice to this effect to the transferring bank.

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Such notice is to be given at the time when the first beneficiary requests that
a transfer be made and before any transfer has taken place. It is to take the
form of an instruction, within the request for transfer, indicating whether
the first beneficiary retains the right to refuse to allow the transferring bank
to advise any amendments to the second beneficiary or that amendments
may be issued to the transferred credit(s) automatically. If the transferring
bank consents to the transfer, it must advise the second beneficiary of the
first beneficiary’s instruction at the time of making the transfer.

The rules and procedures concerning amendments of documentary credits

naturally apply equally to transferable credits (UCP 600, sub-article
38(f)).

f. If a credit is transferred to more than one second beneficiary, rejection

of an amendment by one or more second beneficiary does not invalidate
the acceptance by any other second beneficiary, with respect to which
the transferred credit will be amended accordingly. For any second
beneficiary that rejected the amendment, the transferred credit will
remain unamended.

UCP 600, sub-article 38(g), allows the first beneficiary to request a

number of specific alterations to the original documentary credit terms
when a transferred credit is issued.

g. The transferred credit must accurately reflect the terms and conditions
of the credit, including confirmation, if any, with the exception of:

– the amount of the credit,

– any unit price stated therein,

– the expiry date,

– the period for presentation, or

– the latest shipment date or given period for shipment,

any or all of which may be reduced or curtailed.

The percentage for which insurance cover must be effected may be

increased to provide the amount of cover stipulated in the credit or these
articles.

The name of the first beneficiary may be substituted for that of the
applicant in the credit.

If the name of the applicant is specifically required by the credit to appear

in any document other than the invoice, such requirement must be
reflected in the transferred credit.

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As noted earlier, a nominated bank or a bank authorised to transfer has the

authority to decide whether or not it will accept a transfer request, and if it
will, on what terms.

The listing of permitted alterations in UCP 600, sub-article 38(g), will

usually ensure that all of the relevant parties to the documentary credit are
bound by any alterations that are made within the scope of that provision.
This includes the issuing bank, which is not directly involved in the transfer
process and which therefore does not give its specific consent to the
particular alterations requested by the first beneficiary. In circumstances
under which a documentary credit has been confirmed, the transferred
documentary credit must also bear the confirmation of the confirming
bank.

In the specific context of transferable documentary credits, UCP 600, sub-

article 38(g), provides that, on transfer, the percentage for which insurance
cover must be effected may be increased to provide the amount of cover
stipulated in the original documentary credit or in the UCP. The rationale
for this is that the first beneficiary will usually be buying the goods from a
second beneficiary (or beneficiaries) at a lower price than the sale price that
the first beneficiary is charging to the applicant. Thus a higher percentage
insurance cover will be required under the transferred credit to cover the
amount of insurance required under the original credit.

It is important that the transferring bank obtains the specific instructions

of the first beneficiary in respect of insurance (if an insurance document
is required) and that these instructions are clearly shown in the request
for transfer, together with instructions in relation to the other permitted
alterations.

As may be required by the first beneficiary, and as far as practicable,

confidentiality in the transferred documentary credit should be preserved.
For example, the first beneficiary may not want the name of the applicant
to be divulged to the second beneficiary and vice versa.

When a documentary credit is transferred, the name of the first beneficiary

can be substituted in the transferred documentary credit for that of the
applicant. This provision makes it more difficult for the second beneficiary
(or beneficiaries) to find out to whom the first beneficiary is supplying the
goods. If the second beneficiary (or beneficiaries) obtains this information,
they may be able to avoid the first beneficiary in subsequent transactions
by going direct to the ultimate buyer. However, it is often the case that all
the parties are aware of their existence in the transaction.

If the name of the applicant is specifically required by the transferable

documentary credit to appear in any document other than the invoice, that
requirement must be reflected in the transferred credit, for example where

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the transferable credit requires the transport document to indicate the

name and address of the applicant as notify party.

When the second beneficiary has shipped the required goods or provided
the required services or performance, and presented its documents to the
transferring bank, UCP 600 sub-­article 38(h) allows the first beneficiary
to substitute its own invoice and draft, if any, for those of the second
beneficiary.

h. The first beneficiary has the right to substitute its own invoice and
draft, if any, for those of a second beneficiary for an amount not in excess
of that stipulated in the credit, and upon such substitution the first
beneficiary can draw under the credit for the difference, if any, between
its invoice and the invoice of a second beneficiary.

As the second beneficiary has shipped its goods, or provided its service
or performance, it is entitled to receive honour or negotiation with the
minimum of delay if its documents are complying. Therefore, UCP 600,
sub-article 38(i) places an obligation on the first beneficiary to submit
its substitute documents on first demand. Failure to do so entitles the
transferring bank to present the documents of the second beneficiary
to the issuing bank, without further regard or responsibility to the first
beneficiary.

The term ‘first demand’ is not defined in UCP 600. Therefore, the transferring
bank should, at the time of transfer, indicate to the first beneficiary the
period it will permit for substitution to occur.

i. If the first beneficiary is to present its own invoice and draft, if any,
but fails to do so on first demand, or if the invoices presented by the
first beneficiary create discrepancies that did not exist in the presentation
made by the second beneficiary and the first beneficiary fails to correct
them on first demand, the transferring bank has the right to present the
documents as received from the second beneficiary to the issuing bank,
without further responsibility to the first beneficiary.

When submitting its request for transfer, a first beneficiary may indicate
that honour or negotiation is to occur at the place to which the credit has
been transferred (UCP 600, sub-article 38(j)). Such request is subject to
the consent of the transferring bank.

j. The first beneficiary may, in its request for transfer, indicate that honour
or negotiation is to be effected to a second beneficiary at the place to
which the credit has been transferred, up to and including the expiry date
of the credit. This is without prejudice to the right of the first beneficiary
in accordance with sub-article 38 (h).

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As previously mentioned, one of the risks that can occur with a transferred
credit is that the documents of the second beneficiary by-­ pass the
transferring bank by being sent directly to the issuing bank. UCP 600,
sub-article 38(k), provides a rule regarding the disposal of documents.

k. Presentation of documents by or on behalf of a second beneficiary

must be made to the transferring bank.

19.1.4 An overview of transferable

documentary credit procedures
This section highlights the main steps in a transferable documentary credit
by briefly summarising the progress of a simple transaction, where the
advising bank is the nominated bank, and it does not honour or negotiate.
(Note that the precise details will not be the same in all cases and that the
handling of transferable credits does not always go to plan.)

1. The buyer (applicant) and the seller (trader) conclude a sale contract.
They agree that the buyer will request its bank to issue a documentary
credit, in favour of the trader, which is designated as being ‘transferable’.
They should also agree on the other details of the documentary credit,
including transport documents and other documents to be presented,
expiry date and last date for shipment, etc. The trader will have agreed
another similar sale contract with the supplier(s).

2. The buyer asks its bank to issue an irrevocable transferable documentary

credit.

3. The issuing bank transmits the documentary credit details to the

advising bank.

4. The advising bank advises the documentary credit to the trader (first
beneficiary) and will attach its standard form of request for transfer to
be completed by the trader.

5. The trader requests that the advising bank transfer part of the
documentary credit to a supplier in the same country or in another
country (second beneficiary) from which the goods are to be obtained,
to fulfil its contract with the applicant, by completing the bank’s
request for transfer form.

6. At the request of the trader, the transferring bank makes the transferred
part of the documentary credit available to the second beneficiary by
issuing its advice of transfer.

7. The transferred credit is advised to the second beneficiary.

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 Back-to-back (counter) documentary credits

8. The second beneficiary ships the goods in accordance with the

requirements of the transferred credit.

9. The second beneficiary prepares and collates all of the documents

stipulated in the transferred credit issued in its favour. The documents
will include the second beneficiary’s invoice, together with its draft,
if any. The other stipulated documents will match those stated in the
documentary credit issued in favour of the trader.

10. The second beneficiary sends its documents to the transferring bank
or to the nominated bank mentioned in the transferred credit, which
will send them to the transferring bank.

11. When the transferring bank receives the documents, the trader (first
beneficiary) will be requested to present its own invoice and draft, if
any.

12. The second beneficiary’s invoice and draft, if any, will show the trader’s
sources of supply and the amount that the trader has paid for the
goods. To avoid the applicant obtaining this information, these two
documents are substituted for those of the trader. The invoice and
draft (if any) of the trader, together with all of the other documents,
are sent to the issuing bank.

13. Upon determination of a complying presentation, the trader and the

second beneficiary receive their respective amounts less any charges
that are due to the banks.

19.2 Back-to-back (counter)

documentary credits
In some circumstances, a trader may not be able to use a transferable
credit for the purpose of making payment to its supplier(s). The most
common reason is that the terms of a sale contract between the ultimate
buyer and end supplier may be substantially different, and that authorised
changes allowed under transferable documentary credits (in terms of UCP
600, article 38(g)) may not be sufficient to match these differing needs. In
these circumstances, a back-to-back documentary credit may provide an
acceptable alternative.

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19.2.1 An overview of back-to-back

documentary credit procedures

1. A documentary credit (Credit A) is issued in favour of a trader at the

request of the ultimate buyer (applicant).

2. The trader uses this documentary credit as a means by which to request

a bank (usually the advising bank or confirming bank of Credit A) to
issue a separate documentary credit (Credit B) on its behalf in favour
of the supplier.

When Credit B is issued, it is referred to as a ‘back-to-back’ documentary

credit. This is because the advising or confirming bank of Credit A
issues Credit B on ‘the back of’ Credit A. It is also commonly referred
to as the ‘baby’ credit.

The key elements are as follows.

‹‹ The two documentary credits are entirely separate, and each issuing
bank is liable on its own undertaking. There is therefore no need for
an article in the UCP 600 that refers specifically to the handling of a
back-to-back documentary credit.

‹‹ Documents from Credit B will often be used in part to form the

presentation under Credit A.

‹‹ The trader is obligated to pay the bank that issued Credit B on its
behalf, irrespective of whether proceeds are obtained under Credit
A.

‹‹ Credit A does not provide security to the bank that issued Credit
B; Credit A merely evidences the means of payment that may be
forthcoming to meet the payment obligation under Credit B.
Accordingly, Credit A provides ‘comfort’ to the bank that issued
Credit B, rather than security.

‹‹ However, depending on the assessment of the advising or

confirming bank, Credit A may be considered as part or full security
for the issuance of Credit B. If it forms part of the security, the
advising or confirming bank will look for additional security from
the trader, such as a cash deposit or bank guarantee, to provide the
additional support that it requires for the issuance of the back-to-
back documentary credit.

3. If the transaction is to be completed successfully, and before Credit B

is opened, it is important that the issuing bank ensures that:

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‹‹ the documents stipulated in Credit B mirror the requirements of

Credit A as far as possible; or

‹‹ (if they do not) the trader has provided satisfactory evidence that
the required documents or amended documents are capable of
being submitted outside Credit B; and / or

‹‹ the terms and conditions of Credits A and B match as far as possible,

subject to satisfactory explanation from the trader.

It is essential that Credit B is handled by staff capable of understanding

these basic principles. They must also be able to examine the application
for Credit B against the terms and conditions of Credit A. They will also
need to ask the necessary questions of the trader to ensure that the
documents for presentation under Credit A can be achieved from the
presentation of documents made under Credit B and, independently,
by the trader.

Example

Consider the circumstances that would arise if the issuing bank of Credit
B were unable to make a valid presentation under Credit A.

In this case, the issuing bank of Credit B would be in possession of

documents that are discrepant under Credit A. Therefore, if the trader
were to be unable to pay from its own resources, the issuing bank of
Credit B might have to resort to the sale of the goods and suffer any loss
that would result. A sale of the goods would not normally result in the full
amount to be paid under the documentary credit being recovered.

It is important to note that transport documents stipulated under

documentary credits need not necessarily give title to the underlying
goods, in which case a loss could be substantially higher.

19.2.2 Managing risk under back-to-back

documentary credits

The issuing bank of the back-to-back documentary credit (Credit B) is

exposed to the greatest risk. It should take care to ensure that:

‹‹ the stipulated documents, and terms and conditions, mirror the

requirements of Credit A as far as possible;

‹‹ the trader has given adequate explanations and assurances where there
are gaps;

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‹‹ consideration is given to Credit A being confirmed by it so that it may

control any amendments;

‹ ‹ the trader executes adequate undertakings and other legal

documentation, including a legal assignment of proceeds under Credit
A;

‹‹ the bank holds the original advice of Credit A; and

‹‹ both documentary credit files are marked to identify them as back-to-

back transactions and the two are cross-referenced.

19.3 Comparing transferable and back-

to-back documentary credits
There are some similarities between transferable and back-to-back
documentary credits:

‹‹ both involve a trader;

‹‹ both involve the substitution of documents; and

‹‹ both should be issued so that they expire at the counters of the

nominated bank for the transferred or back-to-back documentary credit,
so that the bank can exercise control not only in the substitution of
documents, but also in handling discrepancies.

The key difference is that the transferred documentary credit derives not
only its existence from the transferable documentary credit from which
it receives its terms and conditions (except for the permitted exceptions
mentioned in UCP 600, sub-article 38(g)), but also its use. In a back-to-back
documentary credit, on the other hand, there are two separate documentary
credits with independent undertakings from the two issuing banks.

It should be noted that UCP 600 provides for the transferring bank to utilise
the second beneficiary’s documents under the transferable credit should
the first beneficiary fail to present substitute documents. This remedy is not
available under a back-to-back transaction, because the two are considered
separate documentary credits.

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19.4 Assignment of proceeds

National law determines the extent and legal effect of an assignment of
proceeds under a documentary credit.

It is possible, in some cases, for the beneficiary (who will be referred to

as the ‘assignor’) to ask the nominated bank or issuing bank to pay part
of the proceeds that are due to it to its own supplier (the ‘assignee’). This
request is worded in the form of an irrevocable instruction. The bank then
writes to the assignee, informing it that the bank has received irrevocable
instructions to make a payment to the assignee out of the documentary
credit proceeds. This communication is referred to as an ‘acknowledgement
of an assignment of proceeds’. The instruction of the beneficiary is also
acknowledged.

The bank should not undertake any payment or guarantee obligation

towards such assignee, and this should be made clear in the bank’s letter
to it. The bank merely acts as an agent for payment of the money received
on behalf of the beneficiary.

The bank should exercise care to word its acknowledgement so as to avoid

any risk that it might be called upon to pay the assignee if it does not have
free use of the proceeds received from performance of the documentary
credit. This situation would arise if, for instance, the proceeds were to be
seized by a creditor of the beneficiary (assignor).

The assignee does not receive the same sort of payment security that
it would have if it were itself the beneficiary of a documentary credit
or a transferred credit. Its entitlement to payment depends, first, on
the beneficiary (assignor) making a complying presentation under the
documentary credit, and secondly, on the nominated or issuing bank
having free use of the proceeds.

UCP 600, article 39, covers assignment of proceeds. It does not grant
a right to the assignee to perform under the credit – that is, to present
documents. It allows a beneficiary to assign its right to receive some, or
all, of the proceeds to a third party, which can be a bank. The beneficiary
may be required to provide an assignment to give security, for example,
for pre-financing or the issue of a back-to-back documentary credit. Such
an assignment may take place whether or not the documentary credit is
transferable, and the procedures to be followed will be governed by the
applicable law.

The fact that a credit is not stated to be transferable shall not affect the
right of the beneficiary to assign any proceeds to which it may be or may
become entitled under the credit, in accordance with the provisions of
applicable law. This article relates only to the assignment of proceeds and
not to the assignment of the right to perform under the credit.

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Questions

1. If a documentary credit that is available with any bank indicates that it

is transferable, which of the following is true?

A. Only the issuing bank may effect a transfer.

B. Any bank may effect a transfer.

C. No bank may effect a transfer pending the issuing bank nominating

a transferring bank.

D. Only the advising bank may effect a transfer.

2. The beneficiary has advised an assignment of proceeds to your bank.

It has instructed you to pay 80 per cent of the value of each invoice
to a named assignee. Which of the following statements is true in this
situation?

A. This allows the assignee to present documents under the

documentary credit.

B. This does not allow the assignee to present documents under the
documentary credit.

C. This allows the assignee or beneficiary to present documents under

the documentary credit.

3. A transferable credit has been confirmed. The beneficiary has provided

its request for transfer. Which of the following is now true?

A. The transferred credit must be confirmed.

B. The transferred credit must not be confirmed without specific

instructions from the first beneficiary.

C. The transferred credit must not be confirmed without specific

instructions from the issuing bank.

D. The transferred credit need not be confirmed.

4. A transferable credit has been confirmed by Bank A. The beneficiary has

submitted its request for transfer to Bank A, which has declined to effect
a transfer. The beneficiary insists that, as a transferring bank that has

398 © The London Institute of Banking & Finance 2017

 Questions

added its confirmation, the confirming bank must agree to its request.
The confirming bank insists that it will not transfer the credit. Is the
confirming bank permitted to take this position?

A. Yes

B. No

5. Which of the following is true of a transferred credit? The expiry date,

latest shipment date and / or period for presentation that appear in a
transferable credit may:

i. be increased.

ii. be reduced.

iii. remain the same.

A. i

B. ii

C. ii and iii

D. i, ii and iii

© The London Institute of Banking & Finance 2017 399

400 © The London Institute of Banking & Finance 2017