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

Tarvo Ltd in Country A agrees to sell machinery to Belmar SA in Country B. Belmar's bank issues a documentary credit in Tarvo's favour, and Tarvo's own bank in Country A adds nothing further but passes on the credit to Tarvo. Which party is the 'beneficiary' of the documentary credit?

Tarvo Ltd is the beneficiary. In a documentary credit the beneficiary is the seller in whose favour the credit is issued, who receives payment on presenting conforming documents. Belmar is the applicant, and the banks are the issuing bank and the advising bank.

  1. ATarvo Ltd, the seller who is entitled to be paid if it presents conforming documentsCorrect
  2. BBelmar SA, the buyer who asked for the credit to be opened
  3. CThe issuing bank in Country B, which promises to pay
  4. DTarvo's bank in Country A, which passes on the credit

Explanation

The beneficiary of a documentary credit is the party in whose favour it is opened, normally the seller. Here that is Tarvo Ltd. Belmar is the applicant (the buyer), and the issuing bank is the party that undertakes to pay.

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