Description: Most of the trade in the world is carried out internationally. In order to facilitate this a business requires trade agreements with their partners and counterparts. At the riskier end, trade can be completed on open account terms, where the risk of the seller bares the risk of not being paid. A letter of credit (LC) mitigates against the risk.
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A letter of credit is relevant when there is an exporter and an importer requiring pre-payment or confirmation of payment in order for goods to be shipped. A letter of credit is an instrument from a bank, which guarantees buyers payment to a seller if certain criteria are met. If the buyer cannot pay for the trade received, due to the agreed contract with a letter of credit, the bank will cover the remaining price. Letters of credit are fundamental components of international trade. They are governed univer
A confirmed letter of credit, is a second letter obtained by the borrower, from a second bank. The second bank promises to pay the seller if the first bank fails to do so.
A transferable letter of credit allows the first beneficiary to transfer some or all of the credit to another party, which creates a secondary beneficiary. ... an alternative option to advance payments.