Question

The document containing the guarantee of a bank to honour drafts drawn on it by an exporter is

(a) Letter of hypothetication

(b) Letter of credit

(c) Bill of lading

(d) Bill of exchange

Answer 1

A letter of credit is issued by the bank of an importer guaranteeing to honour a draft of a certain amount drawn on it by the exporter. On the other hand, a bill of lading is issued by a shipping company as a token of acceptance of goods received for shipment. A bill of exchange states the amount that the importer needs to pay to the bearer of the bill.

Hence, the correct answer is option (b).