Rashid Kaskar Mukhtar Kasmani Irfan Khan Samad Khan Naqeeb Sakharkar Mohammed Adil

Roll No. 15 Roll No. 16 Roll No. 19 Roll No. 21 Roll No. 32 Roll No. 40

. Project Submitted To Prof .Vardharajan

 Negotiability

Letters of credit are usually negotiable. The issuing bank is obligated to pay not only the beneficiary, but also any bank nominated by the beneficiary. A revocable letter of credit may be revoked or modified for any reason, at any time by the issuing bank without notification. The beneficiary has the right to transfer or assign the right to draw, under a credit only when the credit states that it is transferable or assignable.

Revocability

Transfer and Assignment

Sight and Time Drafts

All letters of credit require the beneficiary to present a draft and specified documents in order to receive payment. A draft is a written order by which the party creating it, orders another party to pay money to a 3rd party. The standby letter of credit serves as a secondary payment mechanism. A bank will issue a standby letter of credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract between the beneficiary.

Standby Letter of Credit

Advantages & disadvantages of letter of credit

Advantages of Letter of Credit: 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 banks 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 beneficiarys foreign exchange risk is eliminated with a letter of credit issued in the currency of the beneficiarys country.

Disadvantages of Letter of Credit. 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. 2.The Letter of Credit as a payment method is costlier than other methods of payment such as Open Account or Collection

3.The Beneficiarys documents must comply with the terms and conditions of the Letter of Credit for Issuing Bank to make the payment. 4.The Beneficiary is exposed to the Commercial risk on Issuing Bank, Political risk on the Issuing Banks country and Foreign Exchange Risk in case of Usage Letter of Credits

PURPOSE OF LETTER OF CREDIT

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 Buyers 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 Buyers Bank. Upon issuance of Letter of Credit, the Buyers bank replaces its own Creditworthiness to that of the Buyer, it undertakes to reimburse the Seller for the value of the Letter of Credit Irrevocably 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

Documents Necessary for Letter of Credit

Commercial Documents Financial Documents Official Documents certificate, Shipping Documents Transport Documents : Invoice, Packing list.

Following are some documents which are essential for letter of

: Bill of exchange, Mutually acc

: Embassy legalization, License Origin certificate.

: Insurance certificate, transpor legal documents.

: Bill of lading, lorry or truck rec Railway receipt, CMC receipt, Delive

 Revocable letter of credit

: Just like the name says the LC can be the agreement of the

revoked by the Issuing Bank without

beneficiary.
Irrevocable letter of credit

: Can not be cancelled or amended without all

the parties agreement.

Standby letter of credit does not get paid from its demand payment from the Bank by forwarding the copy of the invoice that was not paid and supporting documentation.

: Guarantee of payment. If the beneficiary customer it can then

If I pay, will you ship the goods?

If I ship goods, will you pay?

Importer

Exporter

Ok, Ill ask my bank to open a L/C

Great!

Documentary Credits like a Letter of Credit or L/C is the most preferred form of payment for goods in international trade as it solves issues of mutual mistrust by using banks as arbiters.

Using a Letter of Credit

Common problems associated with the letters of credit process are listed below.

Documents required by the credit are missing.

Documents required to be signed are not signed.

The credit amount is exceeded.

The credit has expired or the documents are presented late.

Shipment was short or late.

"

Sellers may have one or more of the following problems:

The shipment schedule cannot be met weather extremes. mechanical or IT breakdown border crossing delayed The stipulations concerning freight costs are unacceptable; The price becomes too low due to exchange rates fluctuations; The quantity of product ordered is not the expected amount; The description of product is either insufficient or too detailed; which effects the customs classification and the tariff applied The stipulated documents are difficult or impossible to obtain." export permits. permit for hazardous materials. permission for the truck to cross some int'l border

Sample Letter of Credit

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