Category Credit

How Letter of Credit Functions?

What is letter of credit and how it works? How letter of credit functions? Typical scheme of activities associated with the letter of credit looks as follows:
1. Buyers and sellers sign the contract, which states that payment for the goods will take place in the form of a letter of credit.
2. The buyer asks his bank – the bank issuing the letter of credit – a request for a letter of credit in favor of the seller (beneficiary). Then bank accepts instructions of the buyer.
3. Issuing bank (in other words: opening) a letter of credit sends request to another bank (usually located in the country of the seller) for advising (transfer) of the content of the letter of credit, or for its validation...

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