What are the functions of LC?

A letter of credit is a document sent from a bank or financial institute that guarantees that a seller will receive a buyer’s payment on time and for the full amount. Letters of credit are often used within the international trade industry.

What is the classification of letter of credit?

Types of documents include commercial letters of credit, standby letters of credit, revocable letters of credit, irrevocable letters of credit, revolving letters of credit, and red clause letters of credit.

What are the main characteristics of Transferable LC and back to back LC?

The issuing bank has to designate such an LC as transferable at the time of issuing it. Only then can the beneficiary transfer the credit to a third party. There is only one LC involved in this process. In the case of a back to back LC, the LC is issued by the bank against the primary LC, which acts as collateral.

How many types of letters of credit are there?

There are four types of Letters of Credit and they are given below.

What is the LC process?

An LC contract is an instruction wherein a customer requests the bank to issue, advise or confirm a letter of credit, for a trade transaction. An LC substitutes a bank’s name and credit for that of the parties involved. The bank thus undertakes to pay the seller/beneficiary even if the remitter fails to pay.

What are the advantages and disadvantages of letter of credit?

A letter of credit is highly customizable and effective form which enables new trade relationships by reducing the credit risk, but it can add on to the cost of doing some uncertain business in the form of bank fees or formalities.

What is the difference between LC and standby LC?

A Standby Letter of Credit is different from a Letter of Credit. An SBLC is paid when called on after conditions have not been fulfilled. However, a Letter of Credit is the guarantee of payment when certain specifications are met and documents received from the selling party.

What is the difference between transferable and non transferable LC?

Such transfer of credit must be informed to the issuing bank. It is used when the seller is a middleman who can transfer a part of the credit to the exporter for shipping the goods. When the credit is not transferable, it is non-transferable credit. How does a Running bond work?

Is LC a negotiable instrument?

letter of credit, order from a bank to a bank or other party abroad authorizing payment of money (up to a specified limit) to a person named in the letter. A letter of credit, unlike a bill of exchange (q.v.), is not negotiable but is cashable only by the paying bank.

What are the types of letter?

What are the types of letter writing? Letter writing can be divided into two main types – Formal Letters and Informal Letters. Formal letters are letters that are written for official purposes, whereas informal letters are written about anything you want to let your friends or family know.

Is letter of credit a debt?

Since a letter of credit guarantees a future liability, there’s no actual liability to recognize. As a result, letters of credit are disclosed as a footnote to the balance sheet.

What type of business is a letter of credit used for MCQ?

A letter of credit refers to a bank agreeing to accept and pay on due date. A letter of credit is issued on behalf of an importer.

What are the two main types of letters?

Broadly there are two types of letters – Formal Letters and Informal Letters but the classification of letters are also based on the contents, formalities, the purpose of letter writing etc.