Letter Of Credit

Letter of Credits

Introduction

Globalization has increased the interaction of the countries through selling and buying of goods and services. These transactions requires certain instruments which can make import and export an easily way for countries. There are various documents which needed while you are making international transactions among them Letter of credit is the important document which is issue to the seller for payment. Furthermore, sellers prefer this document more than any other documents.

Thesis Statement

In relation to other payment instruments commonly used in the operations of international trade, such as collections (UCP 522), the payment orders, transfers, etc Letter of Credits offer greater certainty as to the risk of default.

Discussion

Letter of Creditor

The letter of credit is an independent payment instrument contract which gave rise to the relationship between the negotiating parties, i.e. the contract commonly called international sales. This has the legal basis in the Uniform Customs and Practice for Documentary Credits Related - UCP 600 of ICC (International Chamber of Commerce), this independent payment instrument contract are popularly in the international trade known collectively as “the brochure 600” (Bellardine, 2009).

Legally, under the provisions of the UCP 600, a loan is any operation by which a bank, acting for and on behalf of a client, undertakes to:

Pay a third party.

Accept and pay or discounting bills of exchange.

Authorize another bank to pay, accept or discount the letters.

The obligations of the bank may be subject to the delivery of a commercial document (bill of lading, commercial invoice), Customs (Certificate of Origin) or technical (quality certification), and may vary according to the instructions of who ordered the opening of such credit.

Parties of Letter Of Credit

Originator: is the importer or buyer of the goods, and then the person requesting the opening of documentary credit and instructs the issuing bank on the conditions for doing so. It is the ultimate obligor to pay, and shall reimburse the issuing bank such sums or expenses anticipated this.

Issuing Bank: the bank on which rests the principal obligation towards the beneficiary, and that will open the documentary credit in favor of it. Work on demand and on the instructions of the payer (Byrne, 2007).

Beneficiary: the exporter or vendor of goods, and who has the right to charge based on compliance with the conditions imposed on credit. Is the recipient of the document that supports credit, and who then receive a payment guarantee provided it is in a position to submit the documentation required deadlines.

Correspondent Bank: according to the responsibility you have, will be called if the paying bank must give money to the beneficiary view to the fulfillment of its obligations (payment at sight), the negotiating bank charge if discounting letter/s to the beneficiary against complying their (deferred payment), if he accepts the acceptor bank/s letter/s of the recipient at maturity or advising bank itself acts notifying the beneficiary of the opening credit in your favor. The customs and traditions make the correspondent bank may invest the figure of more than one subject, having different responsibilities (for example, may ...