For Bangladesh banking context, always say: “Subject to Bangladesh Bank guidelines,

Import Policy Order, UCP 600, ISBP, AML/CFT rules and our bank’s internal credit policy.”
UCP 600 is the ICC framework used for documentary credits, and it emphasizes that banks
deal with documents, not goods/services; UCP 600 also provides a standard five banking
days document examina on period a er presenta on. Bangladesh foreign exchange rules
also require AD banks to observe AML/CFT compliance and repor ng rou nes in cross-
border trade transac ons.

A. Basic Back-to-Back LC Ques ons

1. What is a Back-to-Back LC?

Answer:
A Back-to-Back LC is an import LC opened by an exporter’s bank in favour of a raw material
supplier, against the security of an export/master LC received from a foreign buyer. It is
commonly used in export-oriented industries, especially garments, to import fabrics,
accessories or other inputs needed to produce export goods.

2. Why is it called “Back-to-Back”?

Answer:
It is called Back-to-Back because one LC is opened on the strength of another LC. The first
one is the Master LC/export LC, and the second one is the Back-to-Back import LC. The
export LC supports the import LC.

3. Who are the par es involved in a Back-to-Back LC?

Answer:
The main par es are:

1. Foreign buyer/applicant of master LC

2. Exporter/beneficiary of master LC

3. Exporter’s bank/Back-to-Back LC issuing bank

4. Raw material supplier/beneficiary of Back-to-Back LC

5. Supplier’s bank/advising or nego a ng bank

6. Some mes confirming bank, nominated bank, freight forwarder, insurer and C&F
agent
4. What is the difference between Master LC and Back-to-Back LC?

Answer:
The Master LC is the export LC received by the exporter from the foreign buyer. The Back-to-
Back LC is the import LC opened by the exporter’s bank to import raw materials. Master LC is
the source of export proceeds, while Back-to-Back LC creates payment liability for imported
inputs.

5. Is Back-to-Back LC a funded or non-funded facility?

Answer:
Ini ally, it is a non-funded con ngent liability because the bank gives an undertaking to pay
in future if documents comply. However, if export proceeds do not arrive on me and the
bank has to pay the supplier, it may become a funded liability or forced loan.

6. What is the main security for opening a Back-to-Back LC?

Answer:
The main security is the valid Master LC or export contract. Addi onal securi es may include
margin, charge documents, personal/corporate guarantee, lien on export documents, lien on
imported goods, insurance, and approved credit limit.

B. Documenta on Ques ons

7. What documents do you check before opening a Back-to-Back LC?

Answer:
I check:

1. Valid Master LC/export contract

2. Exporter’s import registra on/export registra on, if applicable

3. Trade licence, TIN, VAT/BIN

4. Bond licence, if required

5. Proforma invoice/indent from supplier

6. Insurance cover note, if required

7. LCAF or regulatory import documents, if applicable

8. Credit approval/sanc on limit

10. CIB status, if applicable

11. Past export performance and overdue posi on

12. Incoterms, shipment date, expiry date, value, goods descrip on and country risk

8. What are the major points you verify in the Master LC?

Answer:
I verify:

1. LC authen city

2. Issuing bank and country risk

3. LC amount

4. Expiry date and place of expiry

5. Latest shipment date

6. Goods descrip on

7. Tenor/payment terms

8. Reimbursement clause

9. Transferability, if relevant

10. Restric ve clauses

11. Documents required

12. Whether the LC is workable and free from contradictory clauses

9. Why is LC authen ca on important?

Answer:
Authen ca on confirms that the LC is genuine and properly transmi ed through banking
channels, usually SWIFT. Without authen ca on, the bank may open a Back-to-Back LC
against a fake or doub ul export LC, crea ng serious payment and fraud risk.

10. What documents are usually required under a Back-to-Back LC?

1. Commercial invoice

2. Packing list

3. Bill of lading/airway bill/truck receipt

4. Cer ficate of origin

5. Insurance document, if applicable

6. Beneficiary’s cer ficate

7. Inspec on cer ficate, if required

8. Bill of exchange/dra , if usance LC

9. Other documents as per LC terms

C. Opera onal and Technical Ques ons

11. What is the normal flow of a Back-to-Back LC transac on?

Answer:
First, the exporter receives a Master LC from the foreign buyer. Then the exporter applies to
the bank for opening a Back-to-Back LC to import raw materials. The bank checks the Master
LC, credit limit, documents, compliance and value addi on. A er opening the Back-to-Back
LC, raw materials are shipped. The exporter manufactures goods and exports them. Finally,
export proceeds are received and used to se le Back-to-Back LC liability.

12. What is value addi on in Back-to-Back LC?

Answer:
Value addi on means the difference between export value and import/raw material cost. It
shows how much domes c value the exporter adds through produc on, labour, overhead
and profit. Banks check value addi on to ensure the export proceeds will be sufficient to
cover import liability and other costs.

13. Why should Back-to-Back LC value be lower than Master LC value?

Answer:
Because the exporter needs to cover manufacturing cost, overhead, profit, bank charges,
freight/insurance if applicable and possible exchange rate fluctua on. If Back-to-Back LC
value is too high compared with Master LC, the export proceeds may not be enough to repay
the liability.

14. What is usance Back-to-Back LC?

Answer:
A usance Back-to-Back LC is payable a er a certain period, such as 90, 120 or 180 days from
shipment date, acceptance date or bill of lading date. It gives the exporter me to
manufacture and export goods before paying the raw material supplier.

15. What is sight Back-to-Back LC?

Answer:
A sight Back-to-Back LC is payable immediately or within a short me a er compliant
documents are presented. It creates faster payment pressure on the issuing bank and
customer, so the bank must be more careful about liquidity and export proceeds.

16. What is acceptance under usance LC?

Answer:
Acceptance means the issuing bank accepts the dra or payment obliga on a er finding
documents compliant, or a er the applicant accepts discrepancies. A er acceptance, the
bank becomes commi ed to pay on maturity.

17. What is maturity date?

Answer:
Maturity date is the future date on which payment under the usance LC becomes due. It is
calculated based on the tenor men oned in the LC, such as 120 days from bill of lading date
or acceptance date.

18. What is the difference between LC opening date, shipment date and expiry date?

Answer:
LC opening date is when the LC is issued. Shipment date is the last date by which goods must
be shipped. Expiry date is the last date for presenta on of documents under the LC. These
dates must be consistent with the Master LC and produc on cycle.
D. UCP 600 and Document Checking Ques ons

19. What is UCP 600?

Answer:
UCP 600 means Uniform Customs and Prac ce for Documentary Credits, issued by the ICC. It
provides standard rules for documentary credit opera ons interna onally. It is important
because LC transac ons involve different countries, banks and laws, so UCP 600 creates
common opera ng rules.

20. Under UCP 600, do banks deal with goods or documents?

Answer:
Banks deal with documents, not goods. So the bank checks whether the presented
documents comply with the LC terms. The bank does not physically verify the quality,
quan ty or actual condi on of the goods.

21. How many days does a bank get to examine documents under UCP 600?

Answer:
Under UCP 600 prac ce, banks have a maximum of five banking days following the day of
presenta on to examine documents and decide whether they comply.

22. What is discrepancy?

Answer:
A discrepancy is any mismatch or non-compliance between the presented documents and
the LC terms, UCP 600, ISBP or banking prac ce. Examples include late shipment, expired LC,
wrong goods descrip on, inconsistent invoice value, missing cer ficate, incorrect consignee
or late presenta on.

23. Give five common discrepancies in Back-to-Back LC documents.

Answer:

1. Late shipment

2. Late presenta on

3. Invoice value exceeds LC value

4. Goods descrip on mismatch

6. Missing cer ficate of origin

7. Packing list inconsistent with invoice

8. Insurance document not as per LC terms

24. What will you do if documents are discrepant?

Answer:
I will iden fy and record the discrepancies, inform the applicant/customer, obtain disposal
instruc on, and act as per UCP 600, bank policy and regulatory requirements. If the
applicant accepts the discrepancies and the bank is sa sfied, documents may be accepted. If
not, the bank may refuse documents within the permi ed meframe.

25. What is the risk if discrepant documents are accepted casually?

Answer:
The bank may lose protec on under LC terms and may face payment risk if the exporter
later fails to realise export proceeds. It can also create audit objec ons, regulatory issues,
customer disputes and financial loss.

E. Risk Management Ques ons

26. What are the major risks in Back-to-Back LC?

Answer:
Major risks are:

1. Export LC cancella on or amendment risk

2. Buyer non-payment risk

3. Issuing bank/country risk

4. Shipment delay risk

5. Document discrepancy risk

6. Over-invoicing or under-invoicing risk

7. Exchange rate risk

8. Forced loan risk

10. AML/sanc ons risk

11. Customer performance risk

27. What is forced loan in Back-to-Back LC?

Answer:
Forced loan occurs when the bank has to pay the Back-to-Back LC liability but export
proceeds are not received in me. The unpaid liability is converted into a loan against the
customer, which increases credit risk and classified loan risk.

28. How do you reduce forced loan risk?

Answer:
I reduce forced loan risk by checking the customer’s export performance, Master LC quality,
buyer reputa on, shipment schedule, value addi on, credit limit, overdue posi on and
repayment source. I also monitor shipment, document submission, export bill nego a on
and export proceeds realiza on closely.

29. What is buyer risk?

Answer:
Buyer risk is the risk that the foreign buyer may cancel the order, delay payment, reject
documents or become insolvent. In Back-to-Back LC, buyer risk is serious because the bank’s
import payment depends on export proceeds.

30. What is country risk?

Answer:
Country risk means risk arising from poli cal, economic, foreign exchange, sanc ons or
banking restric ons in the buyer’s or supplier’s country. For example, payment may be
delayed due to foreign exchange shortage, sanc ons or instability.

31. What is sanc ons screening?

Answer:
Sanc ons screening means checking the applicant, beneficiary, buyer, supplier, vessel, port,
country and related par es against sanc ons lists. It is necessary to avoid dealing with
prohibited par es or restricted jurisdic ons. Bangladesh foreign exchange rules also require
AD banks to follow AML/CFT standards and repor ng rou nes in cross-border transac ons.

32. What AML red flags may appear in Back-to-Back LC?

Answer:

1. Unusual high value compared with customer profile

2. Repeated amendments without clear reason

3. Over-invoicing or under-invoicing

4. Unrelated third-party payment

5. Goods inconsistent with customer business

6. High-risk country involvement

7. Frequent change of supplier or beneficiary

8. Mismatch between shipment route and trade logic

9. Shell company involvement

10. Pressure to bypass normal documenta on

F. Regulatory and Compliance Ques ons

33. What regulatory instruc ons must be followed?

Answer:
A Foreign Trade Officer must follow Bangladesh Bank foreign exchange guidelines, Import
Policy Order, Export Policy, Customs/Bond rules, AML/CFT rules, sanc ons requirements,
UCP 600, ISBP, bank’s internal credit policy and approved sanc on terms. For Bangladesh
trade transac ons, AD banks must also observe repor ng requirements and AML/CFT
standards.

34. What is the role of an AD bank?

Answer:
An AD bank is authorised to handle foreign exchange transac ons. In Back-to-Back LC, the
AD bank opens the import LC, checks documents, reports transac ons, ensures regulatory
compliance and monitors export proceeds realiza on.
35. Why is EXP repor ng important?

Answer:
EXP repor ng is important because it records export transac ons and helps monitor
realiza on of export proceeds. It also supports Bangladesh Bank repor ng, foreign exchange
control and audit trail.

36. What is IMP repor ng?

Answer:
IMP repor ng records import payments and helps regulators monitor import transac ons,
foreign currency ou low and se lement against shipping documents.

G. Prac cal Scenario Ques ons

37. Master LC shipment date is 30 June. Customer requests Back-to-Back LC shipment date
28 June. Will you allow?

Answer:
I will check produc on lead me, import shipment route, raw material arrival date and
export shipment deadline. Normally, Back-to-Back LC shipment date should allow enough
me for raw materials to arrive, produc on to complete and goods to be exported before
Master LC shipment date. If ming is unrealis c, I will not allow without proper jus fica on
and approval.

38. Master LC is restricted to another bank. Can you open Back-to-Back LC?

Answer:
I will be cau ous. If the Master LC is restricted to another bank for nego a on/payment, our
bank may not control export proceeds. Before opening Back-to-Back LC, we need
amendment, assignment of proceeds, NOC, or proper arrangement ensuring export
proceeds will come through our bank.

39. Customer wants Back-to-Back LC for 95% of Master LC value. What will you say?

Answer:
I will not accept it automa cally. A very high Back-to-Back LC value reduces value addi on
and may not leave enough margin for produc on cost, bank charges and profit. I will check
approved value addi on, product cos ng, bank policy, regulatory requirement and customer
performance before recommending approval.
40. Supplier presents discrepant documents, but customer urgently needs goods. What
will you do?

Answer:
I will not release documents casually. I will list discrepancies, obtain customer’s wri en
acceptance and ensure approval from appropriate authority. If required, I will obtain
indemnity or other security. The decision must follow UCP 600, bank policy and risk
approval.

41. Export proceeds are delayed but Back-to-Back LC maturity is today. What ac on will
you take?

Answer:
I will check whether export bill has been realised or is in pipeline. I will contact the export
department, customer and correspondent bank. If payment is due to the supplier, the bank
may have to se le the LC liability. If customer cannot arrange funds, the liability may be
converted into forced loan as per approval and bank policy.

42. Master LC is amended. What should you check?

Answer:
I will check whether the amendment affects value, shipment date, expiry date, goods
descrip on, documents, payment terms, buyer, des na on or reimbursement. Then I will
assess whether corresponding amendment is needed in the Back-to-Back LC.

43. Can Back-to-Back LC be opened against a sales contract instead of Master LC?

Answer:
It may be possible subject to bank policy, customer limit, buyer credibility, export
performance and regulatory permission. However, risk is higher than a confirmed/export LC
because a sales contract does not give the same banking undertaking as an LC.

44. What will you check in the proforma invoice?

Answer:
I will check supplier name, applicant name, goods descrip on, quan ty, unit price, total
value, country of origin, shipment terms, Incoterms, payment terms, shipment date, port of
loading/discharge and consistency with Master LC requirements.
45. What will you check in the insurance cover note?

Answer:
I will check insured amount, currency, goods descrip on, voyage, risk coverage, validity,
name of insured party and whether insurance is required based on Incoterms. For CIF/CIP,
supplier usually arranges insurance; for FOB/CFR, applicant may need to arrange it.

H. Accoun ng and Monitoring Ques ons

46. What entries are passed at LC opening?

Answer:
At LC opening, usually a con ngent liability is created. The bank records LC liability and
contra liability. Charges, commission, VAT and margin may also be recovered from the
customer’s account according to bank policy.

47. What happens when documents are accepted?

Answer:
When documents are accepted under usance LC, the bank records acceptance liability. The
maturity date is calculated, and the bank monitors payment due date.

48. What happens on maturity?

Answer:
On maturity, payment is made to the supplier or reimbursing bank. If export proceeds are
available, the liability is se led. If not, the customer must pay from own sources or the bank
may create forced loan as per approval.

49. Why is follow-up important a er opening Back-to-Back LC?

Answer:
Because opening LC is not the end of the transac on. The officer must monitor shipment,
document arrival, acceptance, maturity, export produc on, export shipment, export bill
submission and export proceeds realiza on. Weak follow-up may create overdue bills and
forced loan.

50. What MIS should a Foreign Trade Officer maintain?

1. Back-to-Back LC outstanding

2. Accepted bills maturity schedule

3. Overdue import bills

4. Export bills pending realiza on

5. Customer-wise exposure

6. Buyer-wise exposure

7. Supplier-wise exposure

8. LC expiry and shipment schedule

9. Forced loan posi on

10. Discrepant document status

I. Promo on-Level Analy cal Ques ons

51. Why should we promote you as a Foreign Trade Officer?

Answer:
I believe I should be promoted because I understand both the opera onal and risk sides of
Back-to-Back LC. I do not only open LCs mechanically; I check Master LC workability,
customer capacity, value addi on, compliance, documenta on, maturity and export
proceeds realiza on. I also understand that trade finance requires accuracy, regulatory
knowledge, customer service and risk control together.

52. What is the most important quality of a Foreign Trade Officer?

Answer:
Accuracy with risk awareness. A small mistake in LC terms, shipment date, document
checking or maturity calcula on can create financial loss. So a Foreign Trade Officer must be
detail-oriented, compliant, customer-focused and able to iden fy risk early.

53. How do you balance customer service and compliance?

Answer:
I support the customer by giving fast and clear service, but I never bypass compliance. I
explain requirements clearly, help the customer correct documents and process transac ons
efficiently within regulatory and bank policy framework.

54. What mistake should a Back-to-Back LC officer never make?

Answer:
An officer should never open a Back-to-Back LC without properly checking the Master LC,
credit approval, value addi on, expiry/shipment dates, compliance status and repayment
source. Opening LC without repayment visibility can expose the bank to forced loan and
regulatory risk.

55. What would you improve in our Back-to-Back LC process?

Answer:
I would improve maturity monitoring, automated alerts, discrepancy tracking, customer-
wise exposure repor ng and follow-up of export proceeds. I would also strengthen checklist-
based processing so that every LC is checked consistently before issuance.

Very Strong Closing Answer for Interview

Ques on: What is your overall understanding of Back-to-Back LC?

Answer:
Back-to-Back LC is not just an import LC; it is a complete export-linked trade finance cycle.
The bank opens an import LC against a Master LC so the exporter can procure raw materials
and complete export produc on. As a Foreign Trade Officer, my responsibility is to ensure
that the Master LC is genuine and workable, the Back-to-Back LC terms are consistent, the
value addi on is acceptable, documents are compliant, AML/CFT rules are followed, and
export proceeds are realised on me. My focus is to protect the bank while suppor ng the
exporter’s business smoothly and professionally.