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    Question

    Which of the following is the primary purpose of a

    Letter of Credit (LC) in trade finance?
    A Providing a short-term loan Correct Answer Incorrect Answer
    B Ensuring payment security in international trade Correct Answer Incorrect Answer
    C Guaranteeing performance in a construction contract Correct Answer Incorrect Answer
    D Increasing working capital for MSMEs Correct Answer Incorrect Answer
    E Reducing foreign exchange risk Correct Answer Incorrect Answer

    Solution

    A Letter of Credit (LC) is a financial instrument used in international trade to guarantee that a buyer’s payment to a seller will be received on time and for the correct amount. If the buyer fails to make a payment, the bank that issued the LC covers the amount.

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