Page 230 - International Marketing

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232 International Marketing BRILLIANT'S

stitution issues the letter of credit in favor of traders and other banks to
meet the needs of their customers. In fact, a letter of credit carries a
promise or an undertaking by the issuing banker which is valued and
honoured on a global basis.
Letter of credit is a document issued by the importer's bank in favor of
the exporter, giving him the authority to draw bills up to a particular amount
(as per the contact price) covering a specified shipment of goods and
assuring him of payment against the delivery of shipping documents.
It is also known as commercial letter of credit because it is used in
commercial transaction i.e., sale and purchase of goods.
Definition
1. A Letter of Credit means, "a document issued by a banker
authorising the banker to whom it is addressed to honour the
bills of the person named therein to the extent of certain amount".
2. "An arrangement, however, named or described whereby a bank
(the issuing bank) acting at the request and in accordance with
the instructions of a customer (the applicant of the credit), is to
make payment to or to the order of a third party (the beneficiary)
or is to pay, accept or negotiate bills of exchange drawn by the
beneficiary or authorize such payments to be made or such drafts
to be paid, accepted or negotiated by another bank, against
stipulated documents and compliance with stipulated terms and
conditions." - International Chamber of Commerce
3. "Documentary credit(s) and standby letter(s) of credit" mean any
arrangements, however named or described, whereby a bank
(the issuing bank) acting at the request and on the instructions
of a customer (the applicant) or on its own behalf:
(i) Is to make payment to or to the order of a third party (the
beneficiary) or is to accept and pay bills of exchange (drafts)
drawn by the beneficiary; or
(ii) Authorizes another bank to effect such payment or to ac-
cept and pay such bills of exchange; or
(iii) Authorizes another bank to negotiate against stipulated
document(s) provided the terms and conditions of the credit
are complied with. - The Uniform Customs and Practice
(1993) revision (USP 500)
Parties to a Letter of Credit
1. Applicant/Importer: Importer is the opener on whose behalf of
account the letter of credit is issued by his bank.