imported>Doug Williamson |
imported>Doug Williamson |
| Line 1: |
Line 1: |
| (LC or sometimes LOC).
| | Unobservable inputs for the asset or liability. |
|
| |
|
| A promise document issued by a bank or another issuer to a third party to make a payment on behalf of a customer in accordance with specified conditions.
| |
|
| |
|
| Letters of credit are frequently used in international trade to make funds available in a foreign location.
| | ==See also== |
| | | *[[IFRS 13]] |
| | | *[[Fair value]] |
| | |
| ==== Letter of credit contrasted with documentary collection ====
| |
| Letters of credit are often contrasted, from the perspective of a seller, with an alternative structure of [[documentary collection]]s.
| |
| | |
| A letter of credit is a ''direct'' obligation of a bank to pay (against specified documents).
| |
| | |
| A documentary collection means a bank ''collecting'' payment from the buyer (by presenting documents to the buyer).
| |
| | |
| | |
| A letter of credit therefore gives superior protection to the seller against credit risk or delayed cash flow, or both.
| |
| | |
| For this reason letters of credit are more expensive to arrange.
| |
| | |
| | |
| Compared with documentary collections (DCs), letters of credit (LCs) are used for larger transactions, and a larger total value of transactions.
| |
| | |
| =====Average transaction sizes (US exports)=====
| |
| LCs: US$ 0.5 - 1 million
| |
| | |
| DCs: US$ 0.1 - 0.2 million
| |
| | |
| =====Proportion of world trade in goods=====
| |
| LCs: 10 - 15%
| |
| | |
| DCs: 1 - 2%
| |
| | |
| | |
| == See also == | |
| * [[Advising bank]] | |
| * [[Bank payment obligation]] | |
| * [[Clean letter of credit]]
| |
| * [[Commercial risk]]
| |
| * [[Condition]]
| |
| * [[Confirmed letter of credit]]
| |
| * [[Confirming bank]]
| |
| * [[Credit]]
| |
| * [[Documentary collection]]
| |
| * [[Documentary credit]]
| |
| * [[Irrevocable letter of credit]]
| |
| * [[Issuing bank]]
| |
| * [[LOC backed]]
| |
| * [[Standby letter of credit]]
| |
| * [[Trade finance]]
| |
| * [[Uniform Customs and Practice for Documentary Credits]]
| |
| | |
| | |
| ===Other links===
| |
| [http://voxeu.org/article/trade-finance-around-world Trade finance around the world, Centre for Economic and Policy Research, 2016]
| |
| | |
| [http://www.treasurers.org/node/5279 Letters of credit and supply chain finance, Will Spinney, ACT 2009]
| |
| | |
| [[Category:Manage_risks]]
| |
| [[Category:Risk_frameworks]]
| |
| [[Category:Trade_finance]]
| |
