CHAPTER 1

OPENING

1.1. Background
Letter of credit is a bank service provide to the public to facilitate and facilitate the flow of
goods. Both domestic goods flow (between islands) and the flow of goods between countries
(import exports). In principle the letter of credit is a statement from the top bank customer
request, namely an importer to provide and pay a certain amount of money for the benefit of a
party, namely an exporter. Credit letter are usually referred to as documented loans.
Undocumented credit means that the bank is only responsible for documents and is not
responsible for commodities shipped. Is it according to what is written in the document.
Therefore bank officers do not deal with items shipped.
A letter of credit can accommodate and resolve difficulties or obstacles from the importer as
a buyer or exporter as a seller. Therefore a letter of credit becomes a guarantee or provision for
the smooth payment and delivery of goods in accordance with the agreement made by exporter
and importer.
Letter of credit can provide benefits, both to exporters and importers. Exporters are
guaranteed to receive payment, if they are able to show the shipping document according to what
is stated in the letter of credit. The bank is obliged to check the completeness of documents
recorded in the credit letter, but is not responsible for the physical conditional of the goods. Not
only that in the letter of credit item has several items such as CIF ( Cost, Insurance, and Freight).
CIF stands for Cost, Insurance, And Freight is the last, eleventh of 11th term in terms of the
delivery terms (terms of delivery) the CIF term only applies to the transportation of goods by
using sea transportation modes and river and lake waters only. CIF is defined the terms of goods
where the seller submits the goods to the buyer until the goods have been placed on board at the
loading port designated by buyer or procures the delivery goods (for chain- string sale sales).
However, the seller is responsible for handling transportation from the loading port to the
destination port, and goods insurance. Seller risk will be obliged to insure the goods from the
port of loading to the port of destination, but the risk of the item being damaged, lost is on the
buyer side. The seller is only responsible for opening the goods insurance without risking the
trip since the goods are placed on board ( on board).
Basic the issuance of L/C is a sales contract that has been mutually agreed upon, then
ratified by signing by each party between seller and buyer. The opening of L/C is a guarantee for
repayment of goods which will be sent by the exporter. Conversely, the opening of L/C is
guarantee for importer to obtain shipments of goods in accordance with the contract. Fund latter
of credit cannot be disbursed if there is no submission of shipping documents. This matter to
facilitate payment of payments, secure the funds provided by the importer, and guarantee the
completeness of shipping document, as well as the risks can be transferred to the relevant bank.
Letter of credit is divided into several types, namely is general and specifically. The letter
of credit generally classified as revocable L/C, Irrevocable L/C, sight (payment)L/C, and
acceptance L/C. whereas L/C are classified accordingly specifically are standby L/C transferable
L/C, back to back L/C, revolving L/C, and ref clause L/C.

1.2.Formulation of the problem

1. What is the letter of credit ?
2. What the difference between FOB and CIF ?
3. What is the difference between a revocable and an irrevocable latter of credit ?

1.3. PURPOSE
1. The purpose of the letter of credit
2. The purpose of the difference between FOB and CIF
3. The purpose of the revocable and an irrevocable latter of credit