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Introduction

The buyer requests a letter of credit from the issuing bank. The issuing bank offers the LC in favor of the seller in exchange for a specific commission. The issuing bank releases payment when the seller delivers the shipment of goods or services to the buyer. However, if the buyer does not pay, the issuing bank must bear the cost. LC
are also called documentary credit or bank credit. A Letter of Credit (LC) is a document issued by a bank that confirms the seller. On behalf of the buyer, the bank guarantees payment upon delivery of the goods or services. It is a form of negotiable instrument by which the buyer makes an unconditional promise to pay.
A confirmed letter of credit is one in which the advising bank, at the request of the issuing bank, adds confirmation that payment will be carried out. The confirming bank is liable in the same way as the issuer vis-à-vis the bank’s LC. The confirming bank must honor the payment if it is presented by the beneficiary.
If the buyers default, the bank pays the sellers on their behalf. Therefore, a letter of credit is used to mitigate credit risks in international trade. It is a common practice adopted in international trade when there is a significant geographical distance or a lack of trust between the parties.

What is an LC and how does it work?

The buyer requests a letter of credit from the issuing bank. The issuing bank offers the LC in favor of the seller in exchange for a specific commission. The issuing bank releases payment when the seller delivers the shipment of goods or services to the buyer. However, if the buyer does not pay, the issuing bank must bear the cost.
Banks charge specific fees for filing an LC. LCs oblige both the buyer and the seller to fulfill the contractual conditions within a given period. Furthermore, the bank has no control over the quality of the seller’s goods or services shipped to the buyer. Consider the hypothetical example to better understand a letter of credit (LC).
A confirmed LC is one in which the advising bank, at the request of the issuing bank, makes an addition confirming that payment will be made. The confirming bank is liable in the same way as the issuer vis-à-vis the bank’s LC. The confirming bank must honor the payment if it is presented by the beneficiary.
Advising bank The advising bank is responsible for transferring the documents to the issuing bank on behalf of the exporter and is usually located in the country of the exporter. Other parties involved in an LC agreement: Confirming bank The confirming bank provides an additional guarantee to the commitment of the issuing bank.

What is a letter of credit (LC)?

letter of credit (LC) is a letter from the bank that guarantees that payment from the buyer will be received on time for the correct amount to the seller. In case the buyer is unable to pay, the bank pays the seller on behalf of the buyer.
The buyer requests the bank to issue an LC by submitting a written request and relevant documents. The issuing bank contacts the advising bank and formulates a letter of credit for the buyer. As soon as the buyer receives the goods or services, the seller cashes the LC.
Confirmed letter of credit: A confirmed letter of credit involves a bank other than the issuing bank that guarantees the letter of credit. The second bank is the confirming bank, usually the seller’s bank. The confirming bank guarantees payment of the letter of credit in the event of default by the holder and the issuing bank.
The applicant is the buyer in a transaction involving a letter of credit. Since the buyer asks a bank for the credit and approval that makes the transaction go through, they are known as the applicant. They must prove, through their application, that they are a reliable partner.

What is a Confirmed LC?

confirmed letter of credit is a bank letter of credit in which the seller’s or exporter’s payment guarantee is backed by a second bank or confirming bank. In simple terms, in case the first bank does not pay, then the payment will be covered by the second bank.
The confirmation clause is the commitment of a second bank that works in addition to the issuing bank of the first LC . Typically, the seller’s bank acts as the confirming bank and issues the second letter of credit. In large business transactions, the seller may ask the buyer to issue the confirmation LC.
Unconfirmed letters of credit require the support of only one lending bank, which means that a second confirmed letter of credit n is not required. Like a (first) letter of credit, the confirmed or second letter of credit has advantages for both the seller and the buyer by protecting the interests of both.
Confirmation is a security tool for exporters. Confirmation eliminates country risk and the risk of insolvency of the issuing bank. With a confirmed letter of credit, another bank, the confirming bank, usually located in the same country as the exporter, will add its confirmation to the letter of credit.

What is the role of LC in international trade?

LC is an agreement by which the issuing bank can act at the request and instruction of the applicant (importer) or on its own behalf. Under an LC agreement, the issuing bank can make a payment to (or to) the beneficiary (i.e. the exporter).
The advising bank (confirming bank) verifies the authenticity of the LC and sends it to the exporter. After receiving the LC, the exporter must verify the LC to their satisfaction and initiate the process of shipping the goods.
The issuing bank sends the LC to the advising bank. The latter is usually based in the exporter’s country and may even be the exporter’s bank. The advisory bank (confirmation bank) verifies the authenticity of the LC and sends it to the exporter.
The role of international trade in the economy is to find a balance between import and export that maintains the country’s strong economy and high standard of living. . Perhaps the most important role of international trade is to keep the citizens of a country healthy and happy.

What is a Confirmed LC?

confirmed letter of credit is a bank letter of credit in which the seller’s or exporter’s payment guarantee is backed by a second bank or confirming bank. In simple terms, in case the first bank does not pay, then the payment will be covered by the second bank.
The confirmation clause is the commitment of a second bank that works in addition to the issuing bank of the first LC . Typically, the seller’s bank acts as the confirming bank and issues the second letter of credit. In large business transactions, the seller may ask the buyer to issue the LC confirmation.
Confirmation is a security tool for exporters. Confirmation eliminates country risk and the risk of insolvency of the issuing bank. With a confirmed letter of credit, another bank, the confirming bank, usually located in the same country as the exporter, will add its confirmation to the letter of credit.
Unconfirmed letters of credit require the approval of only one lending bank, which means a second confirmed letter of credit is not required. Like a (first) letter of credit, the second confirmed letter of credit has advantages for both the seller and the buyer by protecting the interests of both.

What is a Credit Confirmation Letter (LC)?

Read on to find out: What is a Confirmed Letter of Credit? A confirmed letter of credit is a bank letter of credit in which the seller’s or exporter’s payment guarantee is backed by a second bank or confirming bank. Simply put, if the first bank fails to pay, the second bank will cover the payment.
Confirming bank means the bank that adds its confirmation to a credit with the authorization or request of the issuing bank. As can be seen from the definitions above, the confirming bank adds its commitment to the letter of credit in addition to that of the issuing bank. In this way, the beneficiary receives a second payment guarantee from another bank.
Only irrevocable letters of credit can be confirmed. During the issuance phase of a letter of credit, the issuing bank must authorize or request the potential confirming bank to add its confirmation to the letter of credit. No bank can be forced to add your confirmation to a letter of credit.
Banks charge specific fees for depositing an LC. LCs oblige both the buyer and the seller to fulfill the contractual conditions within a given period. Furthermore, the bank has no control over the quality of the seller’s goods or services shipped to the buyer. Let’s consider the hypothetical example to better understand a letter of credit (LC).

What is the difference between confirmed and unconfirmed letters of credit?

With a confirmed letter of credit, another bank, the confirming bank, usually located in the same country as the exporter, will add its confirmation to the letter of credit.
By default, most letters of credit issued are irrevocable and not confirmed. The issuing bank cannot attach a confirmation to the primary documentary credit. Any letter of credit issued without confirmation from an advising bank is considered an unconfirmed letter of credit.
Borrowers should request a confirmed LC if the seller is not satisfied of the creditworthiness of the bank issuing the letter of credit. origin. LC not confirmed? Unlike the unconfirmed LC, it is a documentary credit where the exporters or sellers do not purchase any additional or secondary collateral from a second bank.
In an unconfirmed LC, the seller only interacts with the buyer’s bank for payment approval. The seller’s bank only pays you after it receives the funds from the buyer’s bank. If it is irrevocable, the buyer cannot cancel or modify the letter of credit once issued.

What is confirmation and how does it work?

In short, it is the full outpouring of the Holy Spirit as once granted to the apostles on the day of Pentecost. Confirmation brings to Catholics a deepening of baptismal grace and unites us more firmly to Christ. It increases the gifts of the Holy Spirit and leaves an indelible mark on the soul like baptism.
The priest, however, performs confirmation. The Western church has proposed a different solution: the temporal separation of the Sacrament of Confirmation from the Sacrament of Baptism, which has been the norm in the United States for over 100 years.
The Effects of the Sacrament of Confirmation The Sacrament of Confirmation confers special graces of the Holy Spirit upon the confirmed person, just as such graces were granted to the Apostles at Pentecost. Like baptism, therefore, it can only be performed once, and confirmation increases and deepens all the graces bestowed at baptism.
1. Confirmation is the culmination of baptism Baptism marked the beginning of your relationship with Christ. Your soul has been permanently changed and you have been filled with the grace of God. Through Confirmation, the Holy Spirit strengthens these graces, gives you more of them and seals them all in you, like a carefully wrapped gift!

How do letters of credit (LC) work?

Banks charge specific fees for filing an LC. LCs oblige both the buyer and the seller to fulfill the contractual conditions within a given period. Furthermore, the bank has no control over the quality of the seller’s goods or services shipped to the buyer. Let’s take the hypothetical example to better understand a letter of credit (LC).
A bank, usually located in the buyer’s country, will issue a letter of credit detailing the buyer’s obligation to the seller. This letter specifies the amount of payment due to the seller, as well as the moment of the transaction at which the seller will pay for the goods.
Unlike this type of LC, there is the stand-by letter of credit which does not have this clause, and which must be activated in case the buyer cannot make the payment. A deferred or usage LC is used to allow deferred payment from the buyer over a specified period of time.
This type of letter of credit (LC) is commonly offered to suppliers. This is a letter of credit, similar to a performance bond or guarantee issued by the bank. Therefore, the beneficiary can claim it by providing the required documents. A list of required documents is also mentioned in the LC. A revolving letter of credit covers multiple transactions within a period.

Conclusion

Advising bank The advising bank is responsible for transferring the documents to the issuing bank on behalf of the exporter and is usually located in the country of the exporter. Other parties involved in an LC agreement: Confirming bank The confirming bank provides additional security to the undertaking of the issuing bank.
There are mainly 6 (six) parties involved in a letter of credit which can be summarized as follows: a ) Initiation: The L/C applicant or the importer/buyer/L/C applicant. b) Opening bank: the bank which opens the letter of credit, i.e. the importer’s bank / the buyer’s bank.
LC is an arrangement by which the issuing bank can act at at the request and on the instructions of the applicant (importer) or on his own initiative. Last name. Under an LC arrangement, the issuing bank can make a payment to (or to) the payee (i.e. the exporter). Using the LC, the importer asks the issuing bank to issue an LC in favor of the exporter. The LC is sent by the issuing bank to the advising bank.

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