imported>Doug Williamson |
imported>Doug Williamson |
| Line 1: |
Line 1: |
| (LC or sometimes LOC).
| | Society for Worldwide Interbank Financial Telecommunications. |
| | |
| 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.
| |
| | |
| | |
| | |
| ==== 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.
| |
| | |
| LC and DC indicative data is summarised below.
| |
| | |
| =====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 == | | == See also == |
| * [[Advising bank]] | | * [[ISO currency codes]] |
| * [[Bank payment obligation]] | | * [[AUD]] |
| * [[Clean letter of credit]] | | * [[Business identifier code]] |
| * [[Commercial risk]] | | * [[CAD]] |
| * [[Condition]] | | * [[Category 3 messages]] |
| * [[Confirmed letter of credit]] | | * [[EUR]] |
| * [[Confirming bank]] | | * [[GBP]] |
| * [[Credit]] | | * [[HKD]] |
| * [[Deferred payment letter of credit]] | | * [[JPY]] |
| * [[Documentary collection]] | | * [[Member-administered closed user group]] |
| * [[Documentary credit]] | | * [[MT940]] |
| * [[Irrevocable letter of credit]] | | * [[Society for Worldwide Interbank Financial Telecommunications]] |
| * [[Issuing bank]]
| | * [[Standardised corporate environment]] |
| * [[LOC backed]] | | * [[SWIFTNet]] |
| * [[Revocable letter of credit]] | | * [[Treasury counterparty]] |
| * [[Standby letter of credit]] | | * [[USD]] |
| * [[Term letter of credit]] | | * [[CertICM]] |
| * [[Time letter of credit]] | |
| * [[Trade finance]]
| |
| * [[Uniform Customs and Practice for Documentary Credits]]
| |
| * [[Usance letter of credit]]
| |
| | |
|
| |
|
| ==External link==
| |
| [http://voxeu.org/article/trade-finance-around-world Trade finance around the world, Centre for Economic and Policy Research, 2016]
| |
|
| |
|
| | ===Other links=== |
| | [http://www.treasurers.org/node/5006 Bank connectivity with SWIFT, Will Spinney, ACT 2009] |
|
| |
|
| __NOTOC__
| | [[Media:Apr15TTtreasuryinsider17.pdf| Implementing SWIFT, The Treasurer, April 2015]] |
|
| |
|
| [[Category:Manage_risks]] | | [[Category:Cash_management]] |
| [[Category:Risk_frameworks]]
| |
| [[Category:Trade_finance]]
| |
