American Bankers Association Exam CRCM Topic 4 Question 90 Discussion

Actual exam question for American Bankers Association's CRCM exam

Question #: 90
Topic #: 4

[All CRCM Questions]

Issuing Bank, a foreign bank, maintains an account with First National Bank, a U.S. bank. Issuing Bank issues a letter of credit in favor of ABC, InC. , a U.S. corporation. The letter of credit contains a boycott provision. The letter of credit provides that any negotiating bank may obtain reimbursement from Issuing Bank's account at First National Bank by certifying that the conditions of the letter of credit have been met. Issuing Bank does not send First National Bank a copy of the letter of credit. May First National Bank reimburse negotiating banks for the letter of credit when it contains a boycott provision?

AYes. First National Bank did not know of it, so it may reimburse a negotiating bank.

BNo. First National Bank is under a duty to determine the underlying conditions of any letter of credit it pays.

CNo. First National Bank should request a copy of the letter of credit at the time of its payment and then refuse to pay once it is aware of the provision.

DYes, provided ABC Company is not a participant in the boycott.

Show Suggested Answer

Suggested Answer: D

by Salina at Jun 19, 2024, 03:00 AM

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Vivan

17 days ago

Wait, so First National Bank can just reimburse the negotiating banks without even seeing the letter of credit? That sounds like a recipe for disaster. Option C is the way to go.

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Rikki

21 days ago

Haha, this question is a real brain-teaser. First National Bank should just tell Issuing Bank, 'Sorry, but your letter of credit is not welcome here. We don't do boycotts!'

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James

1 months ago

I agree with Brice. It's not enough for First National Bank to just act on the certifications from the negotiating banks. They need to review the letter of credit itself.

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Eleni

9 days ago

A) Yes. First National Bank did not know of it, so it may reimburse a negotiating bank.

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Glen

17 days ago

A) Yes. First National Bank did not know of it, so it may reimburse a negotiating bank.

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Maynard

2 months ago

But what if the bank didn't know about the boycott provision? Should they still reimburse the negotiating bank?

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2 months ago

I think First National Bank should request a copy of the letter of credit before reimbursing.

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