The concept of letter of credit and bill of exchange essay

The Advising bank advises or confirms the letter of credit and forward the original to the Seller Beneficiary.

is bill of exchange required for lc at sight

Nevertheless, at least for the start, the latter option seems more preferable. Although this document is prepared by the seller, it has an equivalent effect with a check written from the buyer to the seller.

Definitions 1.

Bill of exchange format in word for export

The need for an international uniform law governing not only financial aspects but also generally commercial transactions is even more apparent nowadays where trade attempts to be conducted through the Internet. Parties to a Letter of Credit Beneficiary It is important to note that the letter of credit transaction is actually a separate contract from the sales contract between the buyer and the seller. There are two types of drafts - sight draft and time draft — and both are used in letter of credit transactions. The seller in such an occasion will represent the draft for payment on maturity or might even discount it with the bank for an immediate payment. Standby Letter of Credit Whereas a commercial letter of credit is a payment mechanism for a particular international trade transaction, a standby letter of credit serves as a secondary or back-up means of payment. Then again, are those electronic instruments capable of satisfying the legal requirements set out in the various statutory provisions of different jurisdictions so as to represent valid negotiable instruments? The beneficiary may direct the issuing bank to pay another bank named by the beneficiary. Because merchants the buyers usually retained their assets in banks in a number of trading cities, a shipper of goods the seller could obtain immediate payment from a banker by presenting a bill of exchange signed by the buyer who, in so doing, had accepted liability for payment when due. Negotiability One of the most essential characteristics of a negotiable instrument, whether a bill of exchange or a promissory note, is that of negotiability. But what is a signature? The issuing bank's obligation to its customer, the buyer, is to examine thoroughly all of the documents to insure that they meet all the terms and conditions required by the letter of credit.

The difference lies on that promissory notes are prepared by the importer promising to give a direct payment to the seller on a future specified due day. However, there is a generally accepted format that permeates all Letter of Credit transactions, and that framework will be explained here.

All of this assumes that the letter of credit is in order and that the documents are present and acceptable to the issuing bank.

Letter of exchange definition

A bearer bill effectively can be negotiated by physical delivery. The purpose of this essay though, would not be to examine the impact of electronics in commerce in general, but to scrutinize the impact of the attempts to launch electronic alternatives to the traditional paper based financial instruments. Advance Payment - The buyer pays up front and trusts that the seller will forward the goods. Standby Letter of Credit - This is a secondary payment device. International Trade finance International trade finance deals with money lent to sellers, i. The banks involved in the transaction act only in a fiduciary capacity to collect the payment but make no guaranties. Negotiation means the giving of value for Draft or documents by the nominated bank. Warranty of Title A warranty of title confirms that the title to the goods being conveyed from the seller to the buyer is valid, and that the seller indemnifies the buyer and the bank.

They can also be used for any situation where a future payment needs to be guaranteed.

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Understanding a Draft / Bill of Exchange in a Letter of Credit Tr