imported>Doug Williamson |
imported>Doug Williamson |
| Line 1: |
Line 1: |
| (LC or sometimes LOC).
| | The value of a currency in terms of real purchasing power. |
|
| |
|
| 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.
| | It is calculated by comparing the price of a hypothetical market basket of goods in two different countries, translated into the same currency at the prevailing exchange rate. |
|
| |
|
| | | It is useful in measuring the price competitiveness of domestic goods in international markets. |
| | |
| ==== 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 are used for larger transactions, and a larger total value of transactions.
| |
|
| |
|
|
| |
|
| == See also == | | == See also == |
| * [[Advising bank]] | | * [[Currency]] |
| * [[Bank payment obligation]] | | * [[Exchange rate]] |
| * [[Clean letter of credit]] | | * [[Real]] |
| * [[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://www.treasurers.org/node/5279 Letters of credit and supply chain finance, Will Spinney, ACT 2009]
| |
|
| |
|
| [[Category:Manage_risks]] | | [[Category:Manage_risks]] |
| [[Category:Risk_frameworks]]
| |
| [[Category:Trade_finance]]
| |
The value of a currency in terms of real purchasing power.
It is calculated by comparing the price of a hypothetical market basket of goods in two different countries, translated into the same currency at the prevailing exchange rate.
It is useful in measuring the price competitiveness of domestic goods in international markets.
See also
