Accounting Multiple Choice Question – 19 February 2025

‘A document issued by a bank on behalf of a customer, authorising a person to draw money to a specified amount from its branches or correspondents, usually in another country, when the conditions set out in the document have been met.’

The statement above is the definition of which ONE of the options below?

Select ONE answer:

1. Bill of exchange
2. Export guarantee
3. Banker’s draft
4. Letter of credit

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct == > This is a letter of credit. A bill of exchange is drawn by one party on another (not necessarily by a bank). An export guarantee is insurance against defaults on exports. A banker’s draft is a cheque drawn by a bank on one of its own bank accounts.

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