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ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment

Kestrel Ltd, an exporter, is concerned about the credit risk of the foreign issuing bank. It asks for a confirmed irrevocable credit. What does confirmation by a bank in Kestrel's own country add?

Confirmation adds the confirming bank's own undertaking to pay against complying documents, alongside the issuing bank's. This reduces the seller's exposure to the foreign bank's credit and country risk. The seller must still present complying documents.

  1. AIt makes the confirming bank liable to pay if complying documents are presented, in addition to the issuing bank's liabilityCorrect
  2. BIt transfers the credit to a third party so that Kestrel need not present documents
  3. CIt makes the buyer jointly liable to the confirming bank for the goods' quality

Explanation

A confirming bank adds its own independent undertaking to honour complying documents, giving the seller a second bank to rely on. It does not remove the need to present documents, so the second option is wrong. It also does not relate to goods quality, so the third is wrong.

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