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What is letter of credit? What are the different parties involved in a LC?
Letter of Credit is a non fund based lending which is very regularly found in international trade. This facility is given when the exporter and importer are unknown to each other. In this case, the importer applies to his bank (Issuing Bank) in his country to open a letter of credit in favour of exporter whereby the importers’ bank undertakes to pay the exporter on fulfilling the terms and conditions specified in the letter of credit.
Following are the parties involved in a letter of credit :
1) Importer
2) Issuing Bank, Bank of Importer
3) Advising Bank, which is in Exporter’s country, which notifies the exporter about opening of letter of credit.
4) Confirming Bank, confirms the letter of credit in case the exporter is not satisfied about the security offered by the importer.
5) Exporter, who is the beneficiary
6) Negotiating Bank, whom the exporter submits the documents.
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