4 A BFM LETTER OF CREDIT
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What is a Letter of Credit (LC) in international trade?
A Letter of Credit is a written undertaking by a bank (issuing bank) on behalf of the buyer (applicant) to pay the seller (beneficiary) a specified amount, provided the seller presents documents that comply with the terms and conditions of the LC.
What is the maximum credit period allowed under a usance LC for imports into India?
RBI permits usance LCs up to 180 days from shipment date.
Who are the primary parties involved in a Letter of Credit transaction?
The primary parties are the applicant (importer/buyer), the issuing bank, the beneficiary (exporter/seller), and the advising bank; additionally, a confirming bank and negotiating bank may be involved.
What is a deferred payment LC and how does it differ from an acceptance LC?
Deferred payment LC has no draft drawn; acceptance LC requires bill of exchange.
What is the role of the issuing bank in an LC transaction?
The issuing bank opens the LC at the request of the applicant (importer) and undertakes to honour compliant documents presented by the beneficiary, thereby substituting its creditworthiness for that of the buyer.
Which article of UCP 600 deals with the examination of documents by banks?
Article 14 of UCP 600 governs examination of documents.
What is an advising bank in the context of a Letter of Credit?
The advising bank is typically located in the beneficiary's country and is responsible for authenticating and transmitting the LC to the beneficiary without any payment undertaking of its own.
What is the maximum number of banking days allowed for a bank to examine LC documents under UCP 600?
Maximum 5 banking days from the day of presentation.
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