imported>Doug Williamson |
imported>Doug Williamson |
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| (LC or sometimes LOC).
| | The owner of shares in a company. |
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| 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.
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| Letters of credit are frequently used in international trade to make funds available in a foreign location.
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| ==== Letter of credit contrasted with documentary collection ====
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| Letters of credit are often contrasted, from the perspective of a seller, with an alternative structure of [[documentary collection]]s.
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| A letter of credit is a ''direct'' obligation of a bank to pay (against specified documents).
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| A documentary collection means a bank ''collecting'' payment from the buyer (by presenting documents to the buyer).
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| A letter of credit therefore gives superior protection to the seller against credit risk or delayed cash flow, or both.
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| For this reason letters of credit are more expensive to arrange.
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| Compared with documentary collections (DCs), letters of credit (LCs) are used for larger transactions, and a larger total value of transactions.
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| LC and DC indicative data is summarised below.
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| =====Average transaction sizes (US exports)=====
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| LCs: US$ 0.5 - 1 million
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| DCs: US$ 0.1 - 0.2 million
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| =====Proportion of world trade in goods=====
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| LCs: 10 - 15%
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| DCs: 1 - 2%
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| == See also == | | == See also == |
| * [[Advising bank]] | | * [[Common stock]] |
| * [[Bank payment obligation]] | | * [[Company]] |
| * [[Clean letter of credit]] | | * [[Equity]] |
| * [[Commercial risk]] | | * [[Equity capital]] |
| * [[Condition]] | | * [[Ordinary shares]] |
| * [[Confirmed letter of credit]] | | * [[Preference shares]] |
| * [[Confirming bank]] | | * [[Reserves]] |
| * [[Credit]] | | * [[Security]] |
| * [[Deferred payment letter of credit]] | | * [[Share]] |
| * [[Documentary collection]]
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| * [[Documentary credit]]
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| * [[Irrevocable letter of credit]]
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| * [[Issuing bank]]
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| * [[LOC backed]]
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| * [[Revocable letter of credit]]
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| * [[Standby letter of credit]]
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| * [[Term letter of credit]]
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| * [[Time letter of credit]]
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| * [[Trade finance]]
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| * [[Uniform Customs and Practice for Documentary Credits]]
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| * [[Usance letter of credit]]
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| ==External link==
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| [http://voxeu.org/article/trade-finance-around-world Trade finance around the world, Centre for Economic and Policy Research, 2016]
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| __NOTOC__
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| [[Category:Manage_risks]]
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| [[Category:Risk_frameworks]]
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| [[Category:Trade_finance]]
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