General Knowledge - Basic General Knowledge - Discussion

Letter of Credit L/c also known as Documentary Credit is a widely used term to make payment secure in domestic and international trade. The document is issued by a financial organization at the buyer request. Buyer also provide the necessary instructions in preparing the document.

The International Chamber of Commerce (ICC) in the Uniform Custom and Practice for Documentary Credit (UCPDC) defines L/C as:

An arrangement, however named or described, whereby a bank (the Issuing bank) acting at the request and on the instructions of a customer (the Applicant) or on its own behalf :

Is to make a payment to or to the order third party (the beneficiary) or is to accept bills of exchange (drafts) drawn by the beneficiary.

Authorised another bank to effect such payments or to accept and pay such bills of exchange (draft).

Authorised another bank to negotiate against stipulated documents provided that the terms are complied with.

A key principle underlying letter of credit (L/C) is that banks deal only in documents and not in goods. The decision to pay under a letter of credit will be based entirely on whether the documents presented to the bank appear on their face to be in accordance with the terms and conditions of the letter of credit.

Letter of Credit is sent by the importer's bank to the exporter's bank. Exporter's bank will pay the invoice amount to the exporter on behalf of declaration of importer's bank. importer's bank will pay to the exporter's bank after a fix time--invoice amount+ interest for the fix time+ postal charges on behalf of the importer.

importer's bank will receive the same amount from the importer, after fix time (means it is assume that after fix time, importer surely consume and / or sell the goods.) then the importer will pay the same amount after fix time.

this is the term of the L/C

Letter Of Credit:

Letters of credit are often used in international transactions to ensure that payment will be received. Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped.

A letter of credit takes the form of an authorisation of payment sent by the importer's bank to the exporter's bank , and is cashed like a cheque .


Laissez Faire is a French term meaning "leave alone", The leading advocate of Laissez Faire was the English economists ADAM SMITH,who held that if the state allowed the economic force a free play , the 'invisible hand' of supply and demand would guide individual economic behavior towards the collective interest of all.

Gold is one of the safest assets and so less risky compared to shares.

When the economic condition of the country deteriorates, the market values of shares fall as well and investors buy gold by selling shares. And when economic conditions improve investors switch to shares from gold.

The gold market is negatively correlated to share market.

Laissezfaire: In economics, laissez-faire means allowing industry to be free of state intervention, especially restrictions in the form of tariffs and government monopolies. The phrase is French and literally means "let do", though it broadly implies "let it be" or "leave it alone."

The LC could be 'irrevocable' or 'revocable'. An irrevocable LC cannot be changed unless both the buyer and seller agree. Whereas in a revocable LC changes to the LC can be made without the consent of the beneficiary

A letter of credit takes the form of an authorization of payment sent by the importer's bank to the exporter's bank and is cashed like A CHEQUE.

@All.

It is paper which guarantees the person (i.e, the exporter) gets paid immediately by the person (who imports the stock).

Can anyone explain it briefly that is the relation between question and answer..........