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JAIIB PPB Unit 32 — Letters of Credit: Free MCQs with Explanations

By Swarnakshi Jha (ex-banker) · Updated 20 September 2026 · Paper 2 of the November 2026 cycle (22 November 2026)

This page is a free slice of our JAIIB PPB question bank for Unit 32 — Letters of Credit (Module B — Functions of Banks). The Mock Centre holds 63 questions on this unit alone, every one with a why-right / why-wrong explanation; below are the facts examiners keep returning to, five of those questions to try, and the traps that cost marks.

PPB · Module B63 MCQs in the Mock Centre5 free belowPaper on 22 November 2026

Key facts examiners test from this unit

  1. LC = the issuer's conditional undertaking (not negotiable itself; its bills are); the trade-trust bridge; parties — applicant, issuing/opening bank, advising (authenticity), confirming (adds undertaking), negotiating (purchases), nominated/paying, reimbursing banks, beneficiary.
  2. UCP 600 (approved 25 Oct 2006; effective 1 Jul 2007): 39 articles + 12-article eUCP; ALL credits irrevocable; 5 banking days for examination; negotiation = 'purchase'.
  3. Species: sight vs acceptance/time (DA), deferred-payment (draftless), confirmed, transferable (once, to second beneficiaries), back-to-back (3 banks), revolving, red clause (pre-shipment advance)/green clause (+warehousing) = anticipatory, standby (default-triggered).

5 free practice questions — tap an option

Five basic questions from this unit. Answers lock on the first tap, exactly as in the exam, and a short explanation opens underneath. The Mock Centre adds the moderate and tough questions, why every other option is wrong, the concept capsule and the exam tip — with your score and revision dates tracked.

Question 1 of 5
An LC is comparable to:
Why (b): An LC is comparable to A BANK'S GUARANTEE — functionally a payment assurance, not a security charge over any asset.
Question 2 of 5
An LC is opened at the request of the:
Why (b): An LC is opened at the request of the APPLICANT — the buyer applies, and his bank issues the credit.
Question 3 of 5
The person entitled to the LC's benefit is the:
Why (b): The person entitled to the LC's benefit is the BENEFICIARY — the seller who draws the bill and presents the documents.
Question 4 of 5
The doctrine of STRICT COMPLIANCE means:
Why (b): The twin doctrines — independence (documents, not goods/underlying contract) and strict compliance — are LC law's foundation; discrepant documents are refused or paid under reserve/indemnity.
Question 5 of 5
A STANDBY letter of credit functions as:
Why (b): SBLCs invert the normal LC: payment happens on non-performance, making them functional guarantees in LC clothing.
0 of 5 answered.

Traps in this unit

Confusable AConfusable BThe difference
Advising bankConfirming bankAuthenticates/advises vs adds its own undertaking
Negotiating bankReimbursing bankPurchases documents vs settles between banks
Practise all 63 questions on Unit 32. The free demo opens a slice of every subject with the same explanations; the PPB Online-only pass unlocks all 3,280 PPB questions, the full and module mocks, Smart Revision and the Readiness Score for one year (₹1,299). Not sure where you stand? Take the free 10-question test first.
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← Unit 31: Contracts of Guarantee and Bank Guarantee · Unit 33: Deferred Payment Guarantee → · All PPB units · JAIIB 2026 guide

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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. Regulatory figures verified as of September 2026; verify from official sources before relying on them in practice.