Professional Documents
Culture Documents
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÷ was incorporated on 14th November 1927 by a
group of public spirited entrepreneurs at Thrissur, the cultural capital of
Kerala with a capital of Rs.11, 000 and 7 employees. It became a
Scheduled Commercial Bank in the year 1977.
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ATMs
Internet banking.
Debit cards.
RTGS and NEFT.
A letter of credit is basically a document issued by a bank guaranteeing a
client's ability to pay for goods or services. A bank or finance company
issues a letter of credit on behalf of a buyer, authorizing the seller to obtain
payment within a specified timeframe once the terms and conditions
outlined in the letter of credit are met. The letter of credit acts like an
insurance contract for both the buyer and seller and practically eliminates
the credit risk for both parties, while at the same time reducing payment
delays. A letter of credit provides the seller with the greatest degree of
safety when extending credit. It is useful when the buyer is not well known
and when exchange restrictions exist or are possible.
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In International trade, the buyer and the seller who are located in
different countries may not know each other and hence many times the
problem of Buyer¶s Creditworthiness hampers the trade between the
buyer and the seller. The main objectives of the buyer and the seller in
any international trade and contradictory in terms of Buyer will always
try to delay the payment while the seller would like to receive funds at
the earliest.
To mitigate this problem, Seller always request Buyer to arrange for a
Letter of Credit to be issued by Buyer¶s Bank. Upon issuance of Letter
of Credit, the Buyer¶s bank replaces its own Creditworthiness to that of
the Buyer, it undertakes to reimburse the Seller for the value of the
Letter of Credit ³Irrevocably´ provided two underline conditions are
fulfilled by the Seller:
1.All the documents stated in the LC are presented;
2.All the terms and conditions of the LC are complied with
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1. Applicant.
2. Beneficiary.
3. Issuing bank.
4. Advising bank.
5. Confirming bank.
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1. The beneficiary is assured of payment as long as it complies
with the terms and conditions of the letter of credit. The letter of
credit identifies which documents must be presented and the data
content of those documents. The credit risk is transferred from the
applicant to the issuing bank.
2. The beneficiary can enjoy the advantage of mitigating the
issuing bank¶s country risk by requiring that a bank in its own
country confirm the letter of credit. That bank then takes on the
country and commercial risk of the issuing bank and protects the
beneficiary.
3. The beneficiary minimizes collection time as the letter of
credit accelerates payment of the receivables.
4. The beneficiary¶s foreign exchange risk is eliminated with a
letter of credit issued in the currency of the beneficiary¶s country.
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1.Since all the parties involved in Letter of Credit deal with the
documents and not with the goods, the risk of Beneficiary not shipping
goods as mentioned in the LC is still persists.
What is the process of this letter and how many parties are involved in
this process.
By availing this facility what are the benefits and drawbacks.
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The report consist data from the secondary source gathering through
books, Journals and websites.
LC consists of four parties and the whole process contains lots
of time and money value.
As international trade becomes more and more rationalized, the use of
commercials has diminished; but the use of the standby has enjoyed something
of a boom, for it accomplishes much that security interests, surety ship
arrangements, and other credit enhancing devices accomplish and does it with
significantly lower transaction costs.
The rules that govern letter of credit transactions(UCP 500) have been under
review for the past three years and an updated set of rules (UCP 600) is
introduced on 1July 2007
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Paucity of time and resources was the major constraints.
Whole report considered the secondary research and some aspects cannot be
judged because of non presence of primary data.
For exporter the letter of credit has presented difficulties in meeting the
compliance requirements necessary for the payment to be triggered.
The analyses of problems concerning the strict compliance lead to the result that
still today, about 100 years after letters of credit became a common method to
pay, problems exist.
There are some points which are not included because of less information
provided by the bank.
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Letter of credit is very old and traditional way of financing the trade, which now a
days is not as popular as the factoring is, so banks should follow some ways to
promote it.
UCP 600 Rules should be practiced by banks to improve the conditions of letter of
credit.
The analyses of problems concerning the strict compliance lead to the result that
still today, about 100 years after letters of credit became a common method to pay,
problems exist. Because the term strict compliance have different interpretation in
different countries.