XXXXXXXXXXwords with the references All of the terms and paperwork necessary to export products and services can be very confusing. Please explain the following: The advantages and disadvantages...

Letter of Credit
Letter of Credit can be defined as the letter given by the bank in which guarantee is given in
respect to the payment from buyer to seller. This letter guarantees that buyer’s payment to seller
will be received on time and for the correct amount. In case, the buyer is not able to make the
payments due on purchase, then the bank will be required to pay the balance or the full amount
of the purchase. These are generally used in the international transactions so as to ensure that the
payment will be received on time. There are various factors like distance, different laws in each
country and difficulty in knowing and interacting with each party that contributes to the
widespread us of letter of credit. The bank also acts on behalf of the buyer by ensuring that
payment to supplier will not be made until the confirmation is received by the bank that goods
have been shipped to buyer.
The advantages of Letter of Credit are listed below:-
1. Purchase without cash: The goods can be purchased by the importer on credit from
foreign suppliers who do not know him or may not rely upon him.
2. Payment after satisfying conditions:The importer is assured that exporter cannot misuse
the letter of credit as the bank guarantees payment only after the dispatch of goods from
supplier’s end.
3. Certainty of Payment: The importer and exporter are unknown parties but the...