GENERAL KNOWLEDGE

Detailed explanation-1: -A Letter of Credit is a contractual commitment by the foreign buyer’s bank to pay once the exporter ships the goods and presents the required documentation to the exporter’s bank as proof. As a trade finance tool, Letters of Credit are designed to protect both exporters and importers.

Detailed explanation-2: -What’s the difference between export and import letters of credit? An import letter of credit is issued by the buyer’s financial institution, which means the bank will pay the exporter if the buyer does not pay on time. An export letter of credit is an import letter of credit received by the seller’s bank.

Detailed explanation-3: -A letter of credit is issued by the bank of an importer guaranteeing to honour a draft of a certain amount drawn on it by the exporter. It is an important document because, in international transactions, there is always a risk of the importer defaulting on payment once the goods are received.