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Letter
Of
Credit
Documentary Letter of Credit
A letter of Credit is a
commitment on the part of
buyer bank to pay or accept
draft drawn upon it provided
draft do not exceed a
specified amount.
Factors involved in International
Business
• The exporter are uncertain of the importers
capacity to pay.
• The importer hesitate to pay until goods are
shipped.
• In case of non-payment exporter need legal
course for recovery.
• There should be an intermediately to act
between importers and exporters.
Commercial Bank Role
• It help the exporters and importers of goods.
• It provided the documentary link between
the two parties of trade.
• It give confidence and guarantee on the
payment and shipment activities.
• It brings the confidence between the
importers and exports.
• The importers and exporters bank can
undertake the obligation to pay to the
exports for the purchase made by the
importers and this is usually done
through Letter of credit.
• Letter of Credit is a kind of agreement
for trade in which the commercial
bank remain as the guarantor of the
two parties of the trading.
• Letter of Credit is issued by the importers bank.
• Guarantee Payment to the exporters upto
specified amount provided in the terms and
condition of L/c.
• Letter of Credit is a document issued by
importing country bank in favor of exporting
country bank under international law of trading
known as UNIFORM CUSTOM & PRACTICE.
• Letter of Credit is a kind of cheque issued on
behalf of importers and in favor of exporters to
honor the payment mentioned in the L/c.
Four parties involvement
Account Party 1
The buyer or the importer on whose
account and request the letter of credit
is opened.
Issuing Bank