Question

A draft, an instrument normally used in international commerce to effect payment, is also known as a letter of credit. True False

Answer 1

Answer:

False

Explanation:

A draft is an instrument used in international trade issued by an exporter that instructs an importer to make a payment at a specific time.

It is also called a bill of exchange.

On the other hand a letter of credit is issued by a bank in behalf on an importer.

The letter of credit instructs the bank to make payment to the exporter when he presents relevant documents.

For example if an exporter ships goods the importer raises a letter of credit with terms that funds will be released when the exporter produces an invoice that shows importer has received goods.

So a letter of credit is different from a draft