letter of credit ( lc)
DESCRIPTION
this presentation is about letter of credit , how it works , procedure and related examples.TRANSCRIPT
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Letter of Credit ( LC)
Reza bizmark 5229030 mai 522xxxx
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Definition
In a simple explanation a letter of credit is a promise to pay. Banks issue letters of credit as a way to ensure sellers that they will get paid as long as they do what they've agreed to do. Letters of credit ( LC , L/C ,LOC) are common in international trade because the bank acts as an uninterested party between buyer and seller
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Definition
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Component
Issuing bank
beneficiary
Advising bank
Applicants
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Where it works
1- international trade : Lc’s used in international trade transactions of significant value , mostly for deal between
supplier in one country and customer in another. ( exporters , importers )
2- Land development process: they also used in land development process to ensure that approved public
facilities will be built ( streets , sidewalks….. contracts )
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How it works
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How it works
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Example :
The steps mentioned in the example
A business called the InCosmetika from time to time imports goods from a business called ACME, which banks with the ABC Bank. InCosmetika holds an account at the Commonwealth Bank. InCosmetika wants to buy $500,000 worth of merchandise from ACME, what steps should be taken to get a LC ?
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1-InCosmetika goes to The Commonwealth Bank and requests a $500,000 letter of credit, with ACME as the beneficiary.
2-The Commonwealth Bank can issue a letter of credit either on approval of a standard loan underwriting process or by InCosmetika funding it directly with a deposit of $500,000 plus fees which are typically between 1% and 8% of the face value of the letter of credit.
3-The Commonwealth Bank sends a copy of the letter of credit to the ABC Bank, which notifies ACME that payment is available and they can ship the merchandise InCosmetika has ordered with the full assurance of payment to them.
4-On presentation of the stipulated documents in the letter of credit and compliance with the terms and conditions of the letter of credit, the Commonwealth Bank transfers the $500,000 to the ABC Bank, which then credits the account of ACME for that amount.
Steps ( generally )
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Types of LC
Stand by
• Revocable • Irrevocable -confirmed• -non confirmed
Documentary
• Back to back • Deferred Payment (Usance)• Red Clause• Revolving• Transferable• Assignment of Proceeds
Special LC’s
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Samples
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