CAIIB · BFM

LETTER OF CREDIT

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What is a Letter of Credit (LC) in the context of international trade?

A Letter of Credit is a written undertaking by a bank (issuing bank) on behalf of the buyer to pay the seller a specified amount, provided the seller presents documents that comply with the terms and conditions of the LC.

What is the full form of UCP as applicable to Letters of Credit?

Uniform Customs and Practice for Documentary Credits

Which international rules govern the operation of Letters of Credit?

Letters of Credit are governed by the Uniform Customs and Practice for Documentary Credits (UCP 600), issued by the International Chamber of Commerce (ICC), which became effective on July 1, 2007.

Which edition of UCP is currently in force for documentary credits?

UCP 600, effective from 1 July 2007

What is the difference between a revocable and an irrevocable Letter of Credit?

A revocable LC can be amended or cancelled by the issuing bank without prior notice to the beneficiary, whereas an irrevocable LC cannot be amended or cancelled without the consent of all parties involved. Under UCP 600, all LCs are deemed irrevocable unless expressly stated otherwise.

What is the maximum validity period typically allowed for an export LC under FEMA?

One year from the date of issue

Who are the primary parties involved in a Letter of Credit transaction?

The primary parties are the applicant (buyer/importer), the issuing bank (buyer's bank), the beneficiary (seller/exporter), and the advising bank (seller's bank that advises the LC to the beneficiary).

Who is the applicant in a Letter of Credit transaction?

The importer or buyer who requests LC issuance

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