Page 236 - International Marketing

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238 International Marketing BRILLIANT'S

stricted or open or general credit if a specified bank is designated to pay,
accept, or negotiate the credit, it is termed as restricted or special credit.
Advantages of Letter of Credit
(A) Advantages to Exporter
1. Guarantee of payment: In case of Advantages of Letter of
foreign trade, there is a greater risk as the Credit
exporter and importer do not know each other.
Moreover, there are other risks as well. With (A)Advantages to
the opening or issuing of letter of credit, the Exporter
exporter is assured of the payment. 1. Guarantee of payment
2. Availability of advance: An 2. Availability of advance
exporter can get advance financial 3. No risk of dishonor of
assistance under packing credit to finance bill
purchase of raw materials and its conversion 4. No risk of loss due to
into finished products and other expenses. fluctuation
3. No risk of dishonor of bill: Under 5. No risk of exchange
the letter of credit, the bill drawn on the restrictions
importer is accepted by the negotiating (B)Advantage to
banker. Therefore, there is no risk of being Importer
dishonoured. 1. Facilitates Import
4. No risk of loss due to fluctuation: 2. Assurance of complia-
Under letter of credit, the exporter is assured nce of rules
to make payment in the local currency. 3. No risk in import
Therefore, he does not run the risk of 4. Facility of advance
fluctuation in foreign rates. payment
5. No risk of exchange restrictions:
The issuing banker examines carefully the restrictions imposed by the
importing country before opening letter of credit. The exporter is saved
from the botheration and risks of foreign exchange restrictions.
(B) Advantage to Importer
1. Facilitates Import: It is very difficult to import goods as the exporter
does not know the importer. The issuing banker guarantees the payment
to the exporter and he readily agrees to export the goods. In the absence
of letter of credit, the exporter may be reluctant to export goods.
2. Assurance of compliance of rules: The issuing banker opens
the letter of credit only when it is satisfied that all the requirements of
foreign exchange rules of the country of importer have been properly
complied with.