Letters of credit are a source of financial security for the trade parties. A letter of credit enables payments and offers financial security in international transactions. There are two banks involved in completing the process. An issuing bank from the buyer side and a nominated bank from the seller side. A recourse attached to any […]
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A bank guarantee and a letter of credit, are financial instrument for mitigation of financial risks in trade contracts. Both instruments act as financial security to both parties in certain ways. Financial institutions and banks become facilitators of financial assurance to both parties in trade contracts. A bank guarantee comes with more legal binding to
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There are various payment instruments in international trade. From formal bank cheques to bank guarantees, parties in trade contracts can use several payment methods. A bill of exchange is essentially a payment instrument. A letter of credit can work as a payment instrument but is largely used as means of financial guarantee. Both instruments are
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A bill of exchange is a financial instrument that binds one party to make payment to a second party. It includes the date and amount to be paid. It works similarly to a bank cheque or promissory note. It is often used in international trade by banks or companies, though its popularity has declined in
A bank guarantee is a form of financial insurance offered by the lending bank to both parties in a contract. It covers the payment obligation of the applicant in case of default. It serves as collateral to the beneficiary of the payment. Essentially, it serves as a risk mitigation tool for both parties in the
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You can apply for different types of loans. These loans can be secured or unsecured types of loans can come with fixed or variable interest rates. Some loans can come with similar features, others may offer different characteristics. Revolving credits and term loans come with distinguishing features. Individuals and businesses must understand key differences between
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A revolving credit facility is an established agreement between the borrower and the lender where the line of credit replenishes up to a maximum approved limit. Each time the borrower makes a repayment, its available credit limit increases, and vice versa for drawings. Hence the name, revolving credit facility. Definition It is an established credit
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Borrowers can use several types of loans and facilities offered by banks. Letter of Credit and Line of Credit are also two important types of loan facilities for the borrowers. Unlike a common notion, both offer contrasting features and utilization for the borrowers. Let us discuss some key features and similarities between the two types
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A documentary letter of credit, documentary credit, or a letter of credit is a promise to pay the beneficiary by a financial institution. It serves as a financial guarantee to the beneficiary for the payment if somehow the applicant cannot make the payment on time. It comes with several features and types that help both
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There are several financial instruments used in international trade for payments. These instruments come with different features and offer a varied form of financial security to both parties in trade agreements. A documentary collection is a form of payment where the payment is made on the exchange of trade documents. The exporters (sellers) are the
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