Q.Which instrument is issued by a bank on behalf of an importer, guaranteeing that payment will be made to the exporter once the specified documents and conditions are fulfilled?
(A) Bill of Exchange
(B) Global Depository Receipt
(C) Letter of Credit
(D) External Commercial Borrowing

This instrument is a bank-backed guarantee arranged by the importer's own bank, not an instrument the exporter itself draws up or a capital-raising tool.

A Letter of Credit is a formal guarantee issued by a bank on behalf of an importer (the applicant), assuring the exporter (the beneficiary) that payment will be made once the exporter presents the specific documents named in the credit -- such as the bill of lading, invoice and insurance certificate -- within the stated time and exactly as required. Going through the options: (A) a Bill of Exchange is a negotiable instrument drawn by the exporter itself, directing the importer to pay a sum of money -- it is not something a bank issues on the importer's behalf, so it is incorrect. (B) a Global Depository Receipt is a share-based certificate used to raise equity capital internationally, entirely unrelated to guaranteeing payment for a single trade transaction, so it is incorrect. (C) exactly matches the description -- a bank's guarantee, issued on the importer's behalf, to pay once specified documents are presented -- making it the correct option. (D) an External Commercial Borrowing is a long-term foreign-currency loan raised by a company, not a payment guarantee for a specific trade shipment, so it is incorrect.

Students sometimes mix up the Letter of Credit (issued by the importer's bank, protecting the exporter) with the Bill of Exchange (drawn by the exporter, used to collect payment) because both instruments appear together in every international trade transaction; always ask 'who issues/draws it and on whose behalf' to tell them apart.