Documentary Credit
An LC requiring specific documents before funds release, common in trade.
Detailed Description
Documentary Credit
What is the main purpose of documentary credit?
The main purpose is to mitigate risks associated with international trade, ensuring sellers receive payment and buyers only pay when goods are shipped and documents are presented.
What are the key parties involved in a documentary credit transaction?
The key parties are the applicant (buyer), beneficiary (seller), issuing bank, advising bank, and negotiating bank.
What is the difference between a revocable and an irrevocable letter of credit?
A revocable letter can be amended or canceled without the seller's consent, while an irrevocable letter cannot be changed or canceled without agreement from all parties.
What is a confirmed letter of credit?
A confirmed letter of credit involves a second bank that adds its guarantee to the LC, providing additional security to the seller.
What are some disadvantages of using documentary credit?
Disadvantages include significant costs, complexity of the process, and potential delays in payment and shipment due to documentation requirements.