Question

What may happen in a foreign exchange transaction if the details in the bill of lading do not agree with the letter of credit?

Answer 1

Explanation :

1. Letter of credit : refers to a letter being issued by the banks as a promise of payment to a transaction between buyer and seller.
The main purpose of letter of credit is international transactions. Letter of credit is obtained by buyer in his own country from banks.

2. Bill of lading : refers to document of title for goods transported into the country by transportation entity. The bills of landing entitles the receiver to take possession of goods from shipper. The bill of landing is used by seller to receive payment from his own Bank for goods sold.

Effect that may happen when the letter of credit do not agree with the bill of landing are as follows.

• There will be difference in the purchase account book and the foreign exchange payment account in the buyers entity ,which will be reconciled at the end of the year.
• If the quantity of goods shipped are lower than the amount specified in the letter of credit, then the shipper will write the amount of goods imported on the documents by himself.