What are the
parties involved in LC? Describe
A letter
written by one bank or financial institutions to another bank or financial
institution authorizing the latter to accept cheques, drafts, hundies, or bill
of exchange of a specified person within the limit of the amount is called letter
of credit.
The parties
of letter of credit are:
1. Buyer/importer/applicant/accountee
The party/customer who apply for opening of a letter of credit to import
good is known as buyer. In other words, an applicant is a party on whose
request the credit is issued.
2. Seller/exporter/beneficiary/shipper
The party who expert goods to the buyer against the letter of credit is
known as seller, in other words, the beneficiary is a party in whose favor a
credit is issued through issuing bank.
3. Bank: Many banks may involve even in
a single letter of credit. The bank can classified as:
- Issuing bank: The bank that issue a credit at the request of an applicant or on its own behalf bank is called issuing bank.
- Advising bank/corresponding bank: The bank, usually a foreign correspondent bank of the issuing bank, which advise the credit at the request of the issuing bank, is called advising bank.
- Negotiating bank: The bank which makes the payment or commits to make the payment to beneficiary is called negotiating bank.
- Reimbursing bank: The bank which provides the reimbursement to the claiming bank as per the authority provides is called reimbursement bank. This bank does not concern about the term and conditions of the letter of credit.
- Nominated bank: Nominated banks means the bank with which the credit is available or any bank in case of credit available with any bank.
- Collecting bank: The bank which collects the fund from the issuing bank or reimbursing bank as mentioned in letter of credit is called collecting bank.
- Confirming bank: The bank that adds its confirmation to a credit upon the issuing bank authorization or request is called confirming bank.
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