Describe The Kinds Of Letter Of Credit.

7 Answers

Haider Imtiaz Profile
Haider Imtiaz answered
1. Revocable letter of credit: A revocable L.C can be cancelling or modified without the consent of all the parties. The issuing bank can inform the advising bank for any change in the L.C. The seller can face the problems of obtaining payment directory form the buyers.  2. Irrevocable letter of credit: Irrevocable credit cannot be altered or modified without the consent of all the parties i.e. The opener, the opening bank, the confirming bank and the bank beneficiary. This type of L.C is issued under terms and conditions of sales contract.  3. Confirmed L.C: The confirm letter of credit has the protection of credit standing of the importers as well as the importer's bank. The exporter's bank gives undertaking to honor the draft. The seller gets double assurance of payments form the issuing and advising bank.    4. Unconfirmed L.C: In case of an unconfirmed L.C the bank through whom the credit is negotiated, the advising bank does not give any guarantee to the exporter that the bill drawn will be honored by the issuing bank. The unconfirmed L.C is a commitment of the issuing bank to honor the draft.  5. Documentary L.C: A documentary L.C is one which provides for bills to be accompanied by the documents of title to goods. Such as bill of lading, invoice and the marine insurance policy of insurance etc.    6. Clean letter of credit: If there is no condition attach to the bill and the issuing bank makes payment up to a limit of credit, the letter of credit is called clean or open letter of credit. It is payable to the exporter according to his will.  7. Fix Letter of credit: The amount of this type of letter of credit remains the same within a fix period. When the original fixed amount is used fresh credit is necessary. In other words, a fixed L.C. Is that which is available for a fixed total amount payable in one or more than one drafts.    8. Revolving L.C: The amount of this L.C. Is automatically renewed or received when the certain conditions are fulfilled is called a revolving letter of credit.
manish pant Profile
manish pant answered
Letter of Credit  also known as Documentary Credit. It is a widely used term to make payment secure in domestic and international trade. The document is issued by a financial organization at the buyer request.
Nouman Umar Profile
Nouman Umar answered
There are various kinds of letter of credit. The types of them are irrevocable credit, revocable credit, confirmed credit, unconfirmed credit documentary credit, clean letter credit, fixed credit and revolving credit.

Irrevocable letter of credit: Irrevocable letter of credit is one in which the issuing bank gives a lasting understanding to accept and in due course to pay bills drawn upon it. The only condition is that the exporter fulfills the terms and conditions stipulated in the letter relating to documents. The irrevocable letter of credit gives a complete protection to the exporter as it is guaranteed not by a foreign bank.

Revocable letter of credit: Revocable letter of credit as the same signifies is one which can be modified or cancelled by the issuing bank at any time without any obligation on its part. As revocable letters of credit are subject to cancellation without notification therefore they are not usually acceptable to the businessmen.

Confirmed letter of credit: The confirmed letter of credit is that which has the protection of the credit standing of the importer's as well as the exporter's bank. The exporter's bank which confirms the letter of credit takes the liability of paying agents in case the issuing bank falls to make payment to the exporter. The confirmed letter of credit is useful when the financial strength and standing of the issuing bank in the foreign country is known to the exporter. The issuing bank does not enjoy a good reputation. The issuing bank is not well reputed. The political conditions in the issuing bank's country are unsettled.
Anonymous Profile
Anonymous answered
I m a trader and do not want to disclose my buyer and seller. In this case how to protect my interest?
Anonymous Profile
Anonymous answered
• A letter of credit is the most commonly used form of secure payment.
O It is a document issued by a financial institution at the buyer's request and instructions.
O It spells out the terms under which the seller will be paid.
 Pay the seller a certain amount when it produces documents according to the instructions.
O It acts as an escrow account.
• A letter of credit is the preferred method of payment in trade with areas outside of Western Europe, Canada, and the United States.
O Because it offers independent assurance to the both exporter and buyer.
• A letter of credit is a critical document, so it is imperative that the seller issue clear guidelines to the buyer on how to open a letter of credit.

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