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In: Operations Management

Suppose an importer's bank issues a letter of credit to the seller in a foreign country....

Suppose an importer's bank issues a letter of credit to the seller in a foreign country. The letter of credit often states that it is available "against your draft at sight" when accompanied by a set of additional documents. a. Why will the seller-instead of the buyer--be presenting a sight draft? b. Why is the bank requiring a set of additional documents?

Solutions

Expert Solution

a) If the Seller conforms to the letter of credit, the seller must be paid by the bank hence the seller is required to present a sight draft.

Also, the issuing bank provides a guarantee to the seller that if compliant documents are presented, the bank will pay the seller the amount due and to examine the documents, and only pay if these documents comply with the terms and conditions set out in the letter of credit.

b) The bank requires an additional set of documents as it is the basis of payments and proofs in the letter of credit situatuation. also basically parties of letter of credit deal in documents and not in goods.

keosha answered 2 years ago
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