Documentary LC business

 

 

Documentary LC business

International trade involves various risks. These include political risks such as conversion and transfer risk, payment embargos and moratoriums as well as purchasing/acceptance and credit risk. So that the contracting parties can protect themselves against these risks, there are a variety of instruments, including the classic irrevocable documentary letter of credit. Here, the opening bank and, if required, the confirming bank each give the beneficiary a commitment to pay subject to correct presentation of pre-defined documents. As evidence of delivery of the goods to the importer, the bank checks only that the relevant delivery documents comply with the terms of the LC. The goods and their shipment are checked by the bank solely on the basis of the documents; there is no actual on-site inspection by the bank of the quality of the goods or their shipment. The utmost attention must therefore be paid to the make-up and presentation of the documents.

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