Question

Write Detailed Summary on International Trade Keeping in Mind Complete Phenomena of Discussing Letter of Credit in Answer.

Answer 1

International trade, commercial transactions between countries. Items widely traded include consumer goods such as television sets and clothing; capital goods such as machinery; and raw materials and food. Many transactions include services such as travel services and fees for international patents (see services industry). International trade transactions are facilitated by international financial flows, in which the private banking system and the central banks of trading nations play an significant role.

Letter of credit is the type of payment term used by importers and exporters.Letters of credit (LCs) are one of the most reliable instruments available to foreign traders. LC is the responsibility of the issuer, on behalf of the seller, to make payment to the exporter, provided that the terms and conditions set out in the LC have been met, as evidenced by the submission of the relevant documents.

It is the bank's guarantee that the purchaser's payment to the seller will be paid on time and for the appropriate amount, thereby minimizing potential risks. If the seller is unable to make payment on the purchase, the bank may be expected to pay the full or partial amount of the transaction. Due to the complexity of international relations, including factors such as distance, contradictory laws in each region, and difficulties in understanding the reputation of each party personally, the use of letters of credit has become a critical feature of international trade. The letter of credit is generally a negotiable instrument, the issuing bank pays the beneficiary or any bank appointed by the beneficiary.

If a letter of credit is transferable, the beneficiary may delegate the right to draw to another person, such as a corporate parent or a third party. Banks usually allow a guarantee of securities or cash as collateral to grant a letter of credit. Banks often charge a processing fee, usually a percentage of the amount of the letter of credit. LC is useful when it is difficult to obtain accurate credit information about a foreign buyer, but the exporter is comfortable with the creditworthiness of the international bank of the buyer. The LC also secures the customer as there is no payment obligation until the goods have been shipped or delivered as agreed or as guaranteed.