APICS Certified in Logistics, Transportation and Distribution (CLTD) — Question 68

A manufacturing company agrees to export tools to a Chinese company using a letter of credit (L/C). Which of the following entities guarantees the payment for the tools?

Answer options

• A. A bank
• B. The Chinese company
• C. A credit insurance company
• D. A beneficiary

Correct answer: B

Explanation

The Chinese company is the buyer and is ultimately responsible for making the payment for the tools, hence it guarantees the payment. A bank facilitates the letter of credit but does not guarantee payment; it simply acts as an intermediary. A credit insurance company provides coverage for risks but does not guarantee payment in this context. A beneficiary is the party receiving the payment, which does not offer any guarantee.