CAIIB · Bank Financial Management · Module A — International Banking
CAIIB BFM Unit 4 — Documentary Letters of Credit: Free MCQs with Explanations
By Swarnakshi Jha (ex-banker) · Updated 29 October 2026 · Paper II of the December 2026 cycle (Saturday 12 December 2026)
This is the free practice page for CAIIB BFM Unit 4 — Documentary Letters of Credit (Module A — International Banking). The CAIIB Mock Centre holds 349 questions on this unit alone, every one with a why-right / why-wrong explanation; below are the facts examiners keep returning to, five practice questions with explanations, and the traps that cost marks.
BFM · Module A349 MCQs in the Mock Centre5 free belowPaper on 12 December
Key facts examiners test from this unit
Why LCs exist, the ICC rules and the parties — an LC swaps the buyer's promise for a bank's promise, paid against documents under the ICC's UCP 600.
Types of letters of credit — the type of LC decides when, how and to whom the bank pays.
How an LC works — documents move first and money follows; EDPMS and IDPMS track each export and import until closed.
Changed since the textbook
Export realisation period back to 9 months (5 Jun 2026). Notification FEMA 23(R)/(8)/2026-RB amended the 2015 export regulations, replacing "fifteen months" with "nine months" for realising and repatriating export value, with effect from 5 June 2026. Source: CorpLaw Updates
ICC decides not to revise UCP 600 or ISBP 821 (March 2026). After its March 2026 meeting the ICC Banking Commission decided against revising UCP 600 or ISBP 821 and adopted a 2026–27 action plan: working groups on digital trade and hybrid presentation, UCP clarification and interpretation, transport and document practice, and SBLC rule alignment, plus a revived ISBP education project. Most national committees opposed revision. Source: DocCredit World
5 free practice questions — tap an option
Five practice questions from this unit. Answers lock on the first tap, exactly as in the exam, and an explanation opens underneath. The Mock Centre has all 349 questions on this unit, from easy to tough, with caselets and key-in numericals, why every other option is wrong and the exam tip — and tracks your score and revision dates.
Question 1 of 5
The issuing bank's scrutiny of the documents is:
Why (a): The textbook says the buyer's bank scrutinises the documents independently of the scrutiny already carried out by the exporter's bank. (b) is wrong: Negotiation by another bank does not oblige the issuing bank to accept discrepant documents. (c) is wrong: The issuing bank must examine every presentation itself. (d) is wrong: Every stipulated document is checked, not just the invoice amount.
Question 2 of 5
Can the parties exclude parts of UCP 600 from a credit?
Why (b): The textbook says Article 1 leaves open the possibility of excluding any part of UCP 600, as long as the exclusion is stipulated in the credit. (a) is wrong: Article 1 expressly allows exclusions. (c) is wrong: The ICC plays no part in individual credits. (d) is wrong: Exclusions are possible in any credit subject to UCP 600.
Question 3 of 5
Under UCP 600, the beneficiary's and applicant's addresses shown in the documents:
Why (d): The textbook says addresses need no longer be as stated in the credit but must be within the same country, and contact details such as phone and fax numbers may be disregarded. (a) is wrong: An exact match is no longer required. (b) is wrong: The address must be in the same country as in the credit. (c) is wrong: Contact details are disregarded.
Question 4 of 5
When is the foreign currency liability under a usance import bill crystallised?
Why (b): The textbook says usance bills are crystallised into rupees on the due date. (a) is wrong: Documents under a usance LC are released against acceptance, and payment falls due later. (c) is wrong: The LC opening date has nothing to do with crystallisation. (d) is wrong: Crystallisation does not wait for payment: if the importer has not paid by the due date, the bank converts the liability into rupees on that date.
Question 5 of 5
The commercial invoice spells 'machine' as 'mashine'. Under international standard banking practice, is this a discrepancy?
Why (a): Under ISBP, a misspelling or typing error that does not affect the meaning of a word or the sentence in which it occurs does not make a document discrepant; 'mashine' for 'machine' is such an error. (b) is wrong: Exact word-for-word matching is not required for typing errors. (c) is wrong: It is not a discrepancy, so no reserve is needed. (d) is wrong: Invoices are examined; this error simply does not matter.
0 of 5 answered.
Traps in this unit
The advising bank authenticates; it does not pay.
UCP 600 approved 25 October 2006, in force 1 July 2007.
The applicant is not one of the three who must agree to an amendment.
Practise all 349 questions on Unit 4. The free CAIIB demo opens Units 1–2 of every paper with full explanations; the BFM Online Mock Centre unlocks all 7,600+ BFM questions, the full-length papers with caselets and key-ins, module mocks and Smart Revision for 18 months (₹1,499).
Independent study aid — not affiliated with, endorsed by, or sponsored by the Indian Institute of Banking & Finance (IIBF). Exam pattern, dates, fees and passing criteria are set by IIBF — always confirm the current rules at iibf.org.in. CAIIB content follows rules and developments up to IIBF's cut-off of 30 June 2026 (where a rule changed later, the update box says so); verify from official sources before relying on them in practice.