Importance of letter of credit in the export and import finance
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This topic is covered in our NCERT solutions. You can refer to the same following the below mentioned path.
Business Studies- NCERT solutions- Chapter 12 named as 'International Business-II'- Short answer- ques 11
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My speech.
A letter of credit is issued by the bank of an importer guaranteeing to honour a draft of a certain amount drawn on it by the exporter. It is an important document because, in international transactions, there is always a risk of the importer defaulting on payment once the goods are received. Thus, to minimise the risk of such defaults, the exporter often demands a letter of credit. A letter of credit enables the exporter to assess the creditworthiness of the importer. It is the most appropriate and secure method of payment for settling an international transaction.
Business Studies- NCERT solutions- Chapter 12 named as 'International Business-II'- Short answer- ques 11
.....................................................................
My speech.
A letter of credit is issued by the bank of an importer guaranteeing to honour a draft of a certain amount drawn on it by the exporter. It is an important document because, in international transactions, there is always a risk of the importer defaulting on payment once the goods are received. Thus, to minimise the risk of such defaults, the exporter often demands a letter of credit. A letter of credit enables the exporter to assess the creditworthiness of the importer. It is the most appropriate and secure method of payment for settling an international transaction.
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