1.

Main payments methods and risk level

Main payments Risk level Reason(s) Risks

methods

Cash Low Cash transactions Theft, loss,

are generally counterfeiting,
considered low- difficulty tracking
transactions.
risk as they are
immediate and
don't involve third-
party
intermediaries

Credit card Moderate The risk carries the Card skimming, data
risk of unauthorized breaches, and
transactions and unauthorized
depends on the transactions.
security measures in
place, such as the
use of EMV chips,
PIN verification, and
cardholder
authentication.

Debit card Moderate The risk carries the Limited spending

risk of unauthorized power, Fraud
transactions and
depends on the
security measures in
place, such as the
use of EMV chips,
PIN verification, and
cardholder
authentication.

Digital wallets Moderate The risk level for Account hacking,

digital wallets phishing scams,
depends on the platform
security of the wallet dependence.
provider and the
user's device.

Checks High Take time to clear, Fraud, forgery,

and the payer must delays, declining
trust that the payee use.
will deposit the
check responsibly.

2, Describe in short LC types.

- Irrevocable LC: This LC cannot be canceled or modified without the consent of all
parties.
 - Revocable LC: This LC type can be canceled or modified by the Bank (issuer) at the
customer's instructions without prior agreement of the beneficiary.
- Deferred payment LC: the payment to the seller is not made when the documents are
submitted, but instead at a later period defined in the letter of credit.
- Red clause LC: the seller can request an advance for an agreed amount of the LC
before the shipment of goods and submittal of required documents.
- Transferable LC: This LC enables the Seller to assign part of the letter of credit to the
other party(ies).
- Revolving LC: A letter of credit that is continually replenished as it is drawn by the
beneficiary.
- Back to back LC: Two letters of credit with identical documentary requirements,
except for the difference in the price as shown by the invoice and draft.
- Stand by LC: A letter of credit that can be drawn against, but only if another business
transaction is not performed
- Advised LC: A letter of credit issued by a bank and forwarded to the beneficiary by a
second bank in his area. The second bank validates the signatures and attests to the
legitimacy of the first bank.
- Confirmed letter of credit: A letter of credit issued by one bank to which a second
bank adds its commitment to pay.

3. Demonstrate the steps in a transaction involving a LC.

Agreement between Buyer and Seller:

● The buyer and seller agree to use a Letter of Credit as the method of
payment for the transaction.
● They negotiate and agree on the terms and conditions of the sale,
including the product or service, quantity, price, and delivery terms.
Opening the Letter of Credit:
● The buyer approaches their bank (issuing bank) to open a Letter of
Credit in favor of the seller.
● The issuing bank and the buyer agree on the terms and conditions of the
LC, including the type of LC (sight or usance), expiry date, and any
specific documentation requirements.
● The issuing bank sends the LC to the advising bank (usually located in
the seller's country) for transmission to the seller.
Advising the Letter of Credit:
● The advising bank verifies the authenticity of the Letter of Credit and
confirms its receipt to the seller.
● The advising bank may also provide additional information to the seller
regarding the terms and conditions of the LC.
Shipment of Goods/Service Delivery:
● The seller prepares and ships the goods or delivers the services
according to the terms specified in the LC.
 ● The seller must ensure that all required documents, such as the
commercial invoice, packing list, bill of lading, and any other
documents stipulated in the LC, are prepared accurately.
Document Presentation:
● The seller submits the required documents to the negotiating bank
(which may be the advising bank or another bank nominated in the LC).
● The documents must comply with the terms and conditions outlined in
the Letter of Credit.
Document Examination:
● The negotiating bank examines the documents to ensure they comply
with the LC's terms. If the documents are in order, the bank forwards
them to the issuing bank.
Payment or Acceptance:
● If the documents meet the LC requirements, the issuing bank makes
payment to the negotiating bank (if it is a sight LC) or accepts a time
draft (if it is a usance LC).
● The negotiating bank then credits the seller's account.
Transfer of Ownership:
● The buyer can claim the goods from the carrier by presenting the bill of
lading or other relevant documents, as specified in the LC.
● The seller has successfully received payment, and the transaction is
complete.
LC Closure:
● The issuing bank informs the buyer that the Letter of Credit has been
utilized and closed.