Letters of credit – Knowing the different typesGenerally the international traders need help of financial intermediaries like banks
Letters of credit – Knowing the different types(Yumpu)
Generally the international traders need help offinancial intermediaries like banks for guaranteeing payments and also theassurance of delivering goods on time. Letters of credit usually accomplishtheir goal by playing the role of a substitute to the credit of the bank tothat of the client mainly for facilitating trade. Such a letter is issued by abank to guarantee full payment and timely payment to the seller. Under acircumstance where the buyer is not able to make such a payment, the bank willeither cover the entire amount or the remaining amount on the buyer’s behalf.This letter is granted against a pledge of cash or securities as collateral.Banks also collect a fee which is a percentage of the total amount of letter ofcredit.
