Q.A written undertaking by the importer's bank to pay the exporter on presentation of specified documents is called a ____.

In export trade the exporter wants assurance of payment before shipping. That assurance is provided when the buyer's bank steps in with a written promise to pay against documents.

The defining feature in the question is a bank's undertaking to pay against documents. Checking each option:

(A) Bill of exchange — incorrect; this is an order drawn by the exporter on the importer to pay, not a bank's own promise.

(B) Letter of credit — correct; it is the importer's bank's written undertaking to pay the exporter a stated sum on presentation of the specified documents within the stated time. …

Students mix up the letter of credit (a bank's promise to pay) with the bill of exchange (the exporter's order to the importer to pay). Ask 'who is pro …