A REPORT ON LETTER OF

CREDIT
Practical Implication of Letter of Credit
Submitted To:
Pallabi Siddiqua
Associate Professor
University of Dhaka
Department of Finance

Submitted By:
Group-08
Section- A
Department of Finance
University of Dhaka

Submission Date: 21st January, 2020

Group Profile

Group No: 08

ID No. Name Remarks

24-126 Shariful Islam

24-144 Sabiha Farhana

24-150 Md. Ashikuzzaman Abir

24-178 Raiyan Mridha

24-194 Md. Jamilur Reza Efty

Letter of Transmittal

21 January, 2020
Pallabi Siddiqua
Associate Professor
Department of Finance
Faculty of Business Studies
University of Dhaka.

Madam,
Subject: Submission of a report on “Letter of Credit”
We are pleased to submit the report on “Letter of Credit” that you asked for as a part of our BBA
course. We are also gratified that you gave us the opportunity to work on Letter of Credit. We
tried our best to work carefully and sincerely to make the report informative.

The study we conducted enhanced our knowledge to make an executive report. The report has
given us an exceptional experience that might have immense uses in the future endeavors. We
sincerely hope that it would be able to fulfill your expectations.

We have put our sincere effort to give the report a presentable shape and make it as precise as
possible. We cordially thank you for providing us with the unique opportunity.

Sincerely yours,

Md. Ashikuzzaman Abir

On behalf of Group-08
Contents
Contents..............................................................................................................................V
Executive Summary............................................................................................................VI
Introduction.........................................................................................................................0
Origin of the report...........................................................................................................0
Purpose of the Study:........................................................................................................0
Objectives of the Report:...................................................................................................0
Specific Objectives:..........................................................................................................0
Methodology:...................................................................................................................0
Limitations of the Report:..................................................................................................1
Introduction of Letter of Credit..............................................................................................2
Parties of Letter of Credit......................................................................................................3
Importance of Letter of Credit...............................................................................................4
Letter of credit advantages for the seller.............................................................................4
Letter of credit advantages for the buyer.............................................................................4
Types of Letter of Credit.......................................................................................................4
Law and Practice of Letter of Credit in Bangladesh.................................................................6
Foreign Exchange Transaction...........................................................................................6
Import Principles of Bangladesh......................................................................................10
Process of Letter of Credit in Bangladesh.............................................................................12
Duties and Responsibilities.................................................................................................14
Applicant.......................................................................................................................14
Beneficiary.....................................................................................................................15
Issuing Bank..................................................................................................................15
Advising Bank................................................................................................................17
Confirming Bank............................................................................................................17
Reimbursing Bank:.........................................................................................................18
Conclusion.........................................................................................................................19
Executive Summary
Banking occupies one of the most important positions in the modern economic world. It is
necessary for trade and business. Modern banking is one of the results of Industrial Revolution
and the child of economic necessity. Every country has a central bank which is the “apex
institution” in the banking structure of a country and it acts as the leader of the money market,
supervising, controlling and regulating the activities of commercial banks and other financial
institutions. And a commercial bank is a profit seeking business firm, dealing in money and
credit. One of the major activities of commercial banks is to use letter of credit in international
trade.

In the report, we showed all the relevant information regarding usage of letter of credit in
international trade by commercial bank. Real processing of letter of credit from issuing bank to
exporter’s bank and all the pertinent relationship regarding importer’s and exporter’s rights and
obligations have been portrayed here in details through our academic knowledge and real
experience.
Introduction

Origin of the report

Therefore, for the B.B.A. program we are assigned to prepare a report on “Letter of Credit” to
know every important things about letter of credit and for practical knowledge we also had to
visit in bank from which we will get to know more realistic and detailed information regarding
Letter of credit apart from our academic knowledge. The report was prepared under the
supervision of Pallabi Siddiqua, Associate Professor of Department of Finance, University of
Dhaka. We are very much thankful to her for assigning us with such type of work that can be
practically done.

Purpose of the Study:

The purpose of the report is to solve the requirements and gather some practical knowledge
about law and practice of banking. And know all about letter of credit. Through that we will be
able to know about letter of credit.

Objectives of the Report:

Primary Objective:
The primary objective of the report is the completion of our course F-209. And submit the term
paper to complete our course.

Specific Objectives:
To gather knowledge about basic concepts of law and practice of banking and also analyze
different terms of law and practice of banking. And main the point is letter of credit and to
acquire practical knowledge.
Methodology:
To complete the report, we used some primary and secondary data. The primary data sources are:

 Use Bangladesh Bank’s rules and regulations.

 Use of theoretical data from textbooks referred by our course teachers.
 Implementing the theoretical and practical knowledge.

The secondary data sources are:

 Gathering data from the websites.

 By Visiting to the bank and collecting data.

Limitations of the Report:

On the way of making report, we have faced some challenges that have been termed as the
limitations of the study. There were a few problems but especially there was a lack of
information about letter of credit and some of ours required data is not available. Finally, what
we get from different website, magazines, through the data we tried our best to complete your
requirements.
Introduction of Letter of Credit
A letter of credit (LC), also known as a documentary credit or bankers’ commercial credit,
or letter of undertaking (LoU), is a payment mechanism used in international trade to provide
an economic guarantee from a creditworthy bank to an exporter of goods. Letters of credit are
used extensively in the financing of international trade, where the reliability of contracting
parties cannot be readily and easily determined. Its economic effect is to introduce a bank as
an underwriter, where it assumes the credit risk of the buyer paying the seller for goods.

The letter of credit has been used in Europe since ancient times. Letters of credit were
traditionally governed by internationally recognized rules and procedures rather than by national
law. The International Chamber of Commerce oversaw the preparation of the first Uniform
Customs and Practice for Documentary Credits (UCP) in 1933, creating a voluntary framework
for commercial banks to apply to transactions worldwide.

In the late 19th century and early 20th century, travelers commonly carried a circular letter of
credit issued by a relationship bank, which allowed the beneficiary to withdraw cash from other
banks along their journey. The type of letter of credit was eventually replaced by traveler's
checks, credit cards and automated teller machines.

Although letters of credit first existed only as paper documents, they were regularly issued
by telegraph in the late 19th century, and by telex in the latter half of the 20th century. Beginning
in 1973 with the creation of SWIFT, banks began to migrate to electronic data interchange as a
means of controlling costs, and in 1983 the UCP was amended to allow "tele transmission" of
letters of credit. By the 21st century, the vast majority of LCs were issued in electronic form and
entirely "paperless" LCs were becoming more common.
Parties of Letter of Credit
Applicant:
The applicant is the person or company who has requested the letter of credit to be issued; that
will normally be the buyer.

Beneficiary:

The beneficiary is the person or company who will be paid under the letter of credit; that will
normally be the seller. 

Issuing Bank:

The Issuing Bank is the bank that issues the credit, usually following a request from an
Applicant.

Negotiating Bank:

Nominated bank means the bank with which the credit is available or any bank in the case of a
credit available with any bank.

Advising Bank:

The advising Bank is the bank that will inform the Beneficiary or their Nominated Bank of the
credit, send the original credit to the Beneficiary or their Nominated Bank, and provide the
Beneficiary or their Nominated Bank with any amendments to the letter of credit.

Conforming Bank:

Confirming Bank is a bank other than the issuing bank that adds its confirmation to credit upon
the issuing bank's authorization or request thus providing more security to beneficiary.

Paying Bank:

The bank which pays the bill of exporter on behalf of the importer. It can be issuing bank or
conforming bank.
Importance of Letter of Credit
The process works both in favor of both the buyer and the seller. The instrument is designed to
reduce the risk taken by each party. The Seller gets assured that if documents are presented on
time and in the way that they have been requested on the LC the payment will be made and
Buyer on the other hand is assured that the bank will thoroughly examine these presented
documents and make sure that they meet the terms and conditions stipulated in the LC.

Letter of credit advantages for the seller

 The seller has the obligation of buyer's banks to pay for the shipped goods;

 Reducing the production risk, if the buyer cancels or changes her order.

 The opportunity to get financing in the period between the shipment of the goods and
receipt of payment (especially, in case of deferred payment).

 The seller is able to calculate the payment date for the goods.

 The buyer will not be able to refuse to pay due to a complaint about the goods.

Letter of credit advantages for the buyer

 The bank will pay the seller for the goods, on condition that the latter presents to the bank
the determined documents in line with the terms of the letter of credit;
 The buyer can control the time period for shipping of the goods;
 By a letter of credit, the buyer demonstrates her solvency;
 In the case of issuing a letter of credit providing for delayed payment, the seller grants a
credit to the buyer.
 Providing a letter of credit allows the buyer to avoid or reduce pre-payment.
Types of Letter of Credit
Several categories of LC's exist which seek to operate in different markets and solve different
issues. An example of these include:

Import/export:

The same credit can be termed an import or export letter of credit depending on whose
perspective is considered. For the importer it is termed an Import LC and for the exporter of
goods, an Export LC.

Revocable/ Irrevocable:

 Whether a LC is revocable or irrevocable determines whether the buyer and the issuing bank are
able to manipulate the LC or make corrections without informing or getting permissions from the
seller.

Confirmed/Unconfirmed:

 An LC is said to be confirmed when a second bank adds its confirmation (or guarantee) to honor
a complying presentation at the request or authorization of the issuing bank.

Restricted/ Unrestricted:

Either the one advising bank can purchase a bill of exchange from the seller in the case of a
restricted LC or; the confirmation bank is not specified, which means that the exporter can show
the bill of exchange to any bank and receive a payment on an unrestricted LC.

Deferred / Usance:

A credit that is not paid/assigned immediately after presentation, but after an indicated period
that is accepted by both buyer and seller. Typically, seller allows buyer to pay the required
money after taking the related goods and selling them.

At Sight: 

A credit that the announcer bank immediately pays after inspecting the carriage documents from
the seller.

Red Clause:
Before sending the products, seller can take the pre-paid part of the money from the bank. The
first part of the credit is to attract the attention of the accepting bank. The first time the credit is
established by the assigner bank, is to gain the attention of the offered bank. The terms and
conditions were typically written in red ink, thus the name.

Back to Back:

A pair of LCs in which one is to the benefit of a seller who is not able to provide the
corresponding goods for unspecified reasons. In that event, a second credit is opened for another
seller to provide the desired goods. Back-to-back is issued to facilitate intermediary trade.
Intermediate companies such as trading houses are sometimes required to open LCs for a
supplier and receive Export LCs from buyer.

Standby Letter of Credit:

Operates like a Commercial Letter of Credit, except that typically it is retained as a "standby"
instead of being the intended payment mechanism. In other words, there is a LC which is
intended to provide a source of payment in the event of non-performance of contract. There is a
security against an obligation which is not performed. If you present the bank with demands of
non-payment it is not a guarantee - trigger isn't non-payment - it is presented by documentation.

Law and Practice of Letter of Credit in Bangladesh

According to the Dutch Bangla Bank Limited, which is a bank of Bangladesh, follows three
regulation of Bangladesh bank regarding letter of credit. Those are-

1. Foreign exchange transaction 2018(section 2)

2. Export principle of Bangladesh
3. Import principal of Bangladesh

Export principle and import principle of Bangladesh is changed after every 3 years.
Foreign Exchange Transaction
18.General:

ADs may not issue, advise, notify or confirm any LC, authority to purchase, guarantee or similar
undertaking covering imports into Bangladesh the implementation of which would involve a
payment in Taka to a non-resident account or a payment in foreign currency except in
accordance with the instructions prescribed hereunder.

LC covering imports: AD should establish LCs against specific authorization only on behalf of
their own customers who maintain accounts with them and are known to be participating in the
trade. Payments in retirement of the bills drawn under LCs must be received by the ADs by debit
to the account of the concerned customer or by means of a crossed cheque drawn on the drawee's
other bank. These restrictions shall not apply to import of articles for the private use of the
importer as permitted in the IPO.

19. Terms on which LCs may be opened

(I) Documentary Credits: All LCs and similar undertakings covering imports into Bangladesh
must be documentary LCs and should provide for payment to be made against full sets of
onboard (shipped) bills of lading, air way bills, railway receipts, truck receipts, post/courier
parcel receipts showing dispatch of goods covered by the credit to a destination in Bangladesh.
All LCs/similar arrangements must specify submission of signed invoices and certificates of
origin. If any particular LCAF requires submission of any other document or the remittance of
exchange at certain periodical intervals or in any other manner, the LC/similar arrangement
should incorporate those instructions of the LCAF.

(ii) LCs requiring prior permission:

It is not permissible to open clean or revolving LC or LC with realization clause (except EPZ/EZ
companies). Applications for opening such LCs should be referred to Bangladesh Bank with full
particulars.
(iii) Transferable LC: The ADs may open transferable LCs for imports into Bangladesh under
cash LCAF without reference to Bangladesh Bank. They may also allow without reference to
Bangladesh Bank amendments that do not violate foreign exchange regulations and IPO in force.

(iv) Opening of LC for imports from countries banned by the competent authority:

It is not permissible to open import LCs in favor of beneficiaries in countries from which
imports into Bangladesh are banned by the competent authority.

20. Verification of import price etc:

Before opening of LC or issuing LCAF, the AD shall have to take usual and reasonable
cautionary measures to ensure that both the exporter and importer are bonafide businessperson of
the goods concerned, the exporting country is the usual exporter of the goods concerned and the
price of the goods concerned is competitive in terms of prevailing price in the international
market on the date of contract and/or similar imports in contemporary period. ADs are advised to
verify the above, if needed, with the help of concerned Bangladesh Mission abroad.

21. Import through land ports:

Following instructions are to be followed by ADs while importing through land ports:

(a) only one port of entry (land port) is to be mentioned specifically in the LC/purchase contract
(as the case may be);

(b) ADs shall have to send copies of LC and subsequent amendments(s) if any, including other
relevant information to the land port authority;

(c) specimen signatures of the officials working in the import-export desks of the concerned AD
bank, contact phone and fax nos. of the ADs are to be sent to all the land ports;

(d) ADs through their agents or representatives shall collect certified invoices and bill of entries
evidencing entry of goods into Bangladesh from the concerned land ports;

(e) LCs/purchase contracts shall contain inter alia the following payment terms instead of
reimbursement authority/debit authority: "Upon receipt of documents complying with credit
terms, we shall effect payment as per instructions of Negotiating Bank/Collecting Bank";
(f) LC covering value more than USD 5000(USD 10,000 in case of coal import) or equivalent
should be sent through SWIFT or other similar arrangements to the advising bank; (g) NOC(if
any) shall contain name of the officials along with P.A. nos. and official seal.
22. Period of opening of LCs

LC covering import of goods into Bangladesh against valid LCAF should be opened within the
period, if any, prescribed in the current IPO.

23. Firm contracts and credit reports

(a) LCs to be opened only against firm contracts

AD should, before opening an LC, see documentary evidence that a firm order for the goods to
be imported has been placed and accepted. While opening an LC, the AD should ensure that full
description of the goods to be imported are given in each credit along with the unit price of the
merchandise.

(b) Credit Reports of the foreign suppliers

The ADs should also obtain confidential report on the exporters from their branches or
correspondents abroad or in their discretion, satisfy themselves as to the standing of the exporter
by consulting standard books of reference issued by international credit rating agencies
acceptable to the ADs in all cases where the amount of LC/contract exceeds USD 10,000 (Ten
Thousand) against proforma invoices issued directly by foreign suppliers and USD 20,000
(Twenty Thousand) against indents issued by local agents of the foreign suppliers. Head Offices/
Principle Offices of all ADs shall maintain a central database of collected reports and allow their
ADs to use the relevant credit reports of the foreign suppliers stored in the said database. Such
reports should be obtained by the ADs themselves and the reports if submitted by the importers
should not be accepted. The ADs may also, at their discretion and in their own interest, verify the
standing of the beneficiaries even in cases where the value of the credit is lower than the limits
mentioned above. Credit report may remain valid for a period of maximum twelve months from
the date of issuance if no adverse report comes to the notice of the AD. Moreover, credit report
of the same supplier collected for one importer may be used for other importers within the same
validity. 24. Approved method.

24. Approved methods of payment

LC may be established providing for payment to the country of origin of goods or any other
country except those countries from which imports are prohibited. The LC may provide for
payment or reimbursement in any freely convertible foreign currency, in the currency of the
country of the beneficiary or of the country of origin/shipment of goods, or by way of credit to
the non-resident Taka account of the concerned bank abroad. Payments for imports under barter
agreements or under foreign Loans/Grants can be made only in the manner specified for the
concerned barter/loan/grant.

Import Principles of Bangladesh

According Import to the Principles of Bangladesh there are some regulations regarding LC.
There are:
 Import against LCA Form- Unless otherwise specified, all import transactions through
a bank (LCs. bank drafts, remittances etc.) shall require LCA forms irrespective of the
source of finance.
 Import through LC-Unless otherwise directed import shall be affected only through
opening irrevocable LC:
Provided that each consignment of quickly perishable food goods worth US dollar 50,000 (Fifty
Thousand) via Teknaf Customs Station, essential food goods and raw materials used in industry
worth US Dollar 10,000 (Ten Thousand) and capital machinery irrespective of price limit via
other custom land stations can be imported against LCA Form without LC: Provided further that
the conditions stated in sub-para (6) shall be uniformly applicable and importers shall be
registered with authorized dealer bank for importation without LC.
 Import against LCA Form without opening of Letter of Credit: import against LCA
Form may be allowed without opening of Letters of Credit in the following cases:
(a) Import of books, journals, magazines and periodicals on sight draft or usance bill basis;
(b) In case of import of raw materials and capital machinery by the registered industrial
importers for the use in their own factories, irrespective of any price ceiling, and in case of
import of any importable item by the commercial importers by making payment from
Bangladesh, of maximum 2,00,000 (two lac) US dollar per annum, however, for import from
Myanmar,~
 in case of import of rice, pulse, maize, beans, ginger, garlic, soyabin oil, palm oil, onion
and fish goods, valued not exceeding 50,000 (fifty thousand) US dollar in a single
consignment, and in case of other goods, valued not exceeding 30,000 (thirty thousand)
US dollar in a single consignment; and
 in case of import of rice under public sector, valued not exceeding 2.00 (two) million US
dollar in a single consignment without LC, and in their case the ceiling of maximum
2,00,000 (two lac) US dollar per annum, shall not be applicable.
(c) import of goods for which there are specific procurement procedures for Import under
commodity aid, loan and grant without opening any LC; and
(d) import of "international chemical references" through back drafts by recognized
pharmaceutical industry on the approval of Director, Drugs Administration for the purpose of
quality control of their products.

Import against import permits and in special cases, against clearance permit (for clearance
of goods on payment of fine)+In the following cases, neither LCA Form nor opening of LC
shall be necessary; but import permit (IP) or clearance permit (CP) shall have to be
obtained by the importer, such as:~
(a) import of books, journals, magazines, periodicals and scientific and laboratory equipments
against surrender of UNESCO Coupons;
(b) import under Pay-As-You-Earn-Scheme.in the following cases only on the basis of clearance
of the Bangladesh Bank, such as:-
(I) new or not exceeding ten years old plant and machinery of permissible specification;
(ii) new or not exceeding five-year-old motor cars;
(iii) cargo or passenger vessel of steel or wooden bodies, including refrigerated vessel of any
capacity either new or not exceeding fifteen years old:
Provided that in case of ocean going old ships, not exceeding twenty five years old shall be
importable;
(iv) import of plant and machinery for export-oriented industrial units with the clearance of the
competent sanctioning authority, wherever necessary;
(v) trawlers and other fishing vessels, either new or not exceeding twenty five years old:
Provided that for import under there scheme the sanctioning authority of such import shall
forward a copy of sanction letter to the Chief Controller and the importer shall apply to the CCI
& E along with necessary papers for prior permission;
(c) import of item by passenger coming from abroad in excess of the permissible limiting of
quantity or value as per the relevant baggage rules, provided the import of the said item is
permissible under the relevant baggage rules;
(d) import of samples, advertising materials and gift goods above the ceiling prescribed as per
paragraph 12 of their Order;
(e) import of only drugs and herbal medicines under bonus system subject to the condition that it
shall be obligatory on the part of the importers concerned to pass on the benefit to the consumers.
The Director, Drugs Administration shall devise appropriate procedure in their behalf;
(D import of capital machinery and spare parts, as share of capital of the foreign share-holder for
an approved joint venture or 100% foreign investors industrial unit already set up or to be set up;
and
(g) import of any other goods, not specifically exempted from permit.
Time limit for opening of LC-
(a) Unless otherwise specified, for import under cash foreign exchange, letter of credit shall have
to be opened by all importers within 180 (one hundred and eighty) days from the date of issue or
registration of LCA Form: Provided that the time limit mentioned above may be extended by the
Chief Controller of import and Export up to such period as maybe deemed fit; (I)) For import
under foreign aid or grant and barter or STA, LC shall have to Be opened with in such time limit
as may be notified by the Chief Controller.

Process of Letter of Credit in Bangladesh

There are many steps of creating of letter of credit in Bangladesh. Every importer or exporter has
to abide by the following rules. Here we are describing the process as an importer.

Open a bank account

The importers must have a bank account on their bank. Since we work with the IFIC so here we
refer IFIC as an issuing bank of importer. So, the importers must have a IFIC account. They
don’t need to open extra account for import. Any kinds of account he can use. To open the bank
account, the importer must maintain the formalities of IFIC. Having opened the account, he can
use it for letter of credit.

Request

The importer has to send request to its issuing bank to open a letter of credit against the exporter.

Insurance

The importer must have insurance against the goods or products 110% of its value. It is
compulsory for every importer of Bangladesh.

Credit Rating

After receiving the request and checking the insurance document, the issuing bank will or IFIC
will check the credit rating of the exporter using D&B. A popular website which calculate and
shows the credit rating of the exporter. If the credit rating is not good then the issuing bank IFIC
will inform it to its importer. If the importer wants to import the product even if having seen the
low credit rating the issuing bank retain more margin for the client. And if the importer does not
want to import then issuing bank or IFIC do not open letter of credit.

Margin

After notifying about the exporter’s credit rating, if the importer wants to import then the issuing
bank or IFIC determine the margin of amount that they will retain. It depends on the relationship
of customer. If the relationship is good then the bank retains low margin but in case of new
customer the bank retains 100%. That means 100% margin of the product.

Open letter of credit

After retaining the margin, the issuing bank IFIC issue letter of credit.

Swift

Having issued the LC, the issuing bank IFIC send the documents of LC through SWIFT. Most of
the banks are the member of RMA (relationship management arrangement). So, issuing bank
search for the negotiating bank into they then it sends the document using swift. If IFIC doesn’t
find the negotiating bank then it will send it through other bank which has the relationship with
the negotiating bank under RMA.

Receiving Documents

Receiving documents of LC from issuing bank, negotiating bank confirms the seller or exporter.

Shipment

After confirming the exporter ships the goods to the buyer or importer and send its documents or
voucher to its negotiating bank.

DHL or FEDx

The negotiating bank sends the document using DHL or FEDx. The issuing bank or IFIC collects
those documents from there.

Giving Document to the Importer

The issuing bank gives the documents to the importer to release the goods. If there is any margin
due then the importer pays that and take the documents to release the goods from the customs.

C&F Agent

Everybody cannot release the goods from the port only the clearing and forwarding agent of
Bangladesh can release the product from the port. These C&F agents work as an agent of
importer. So, importer gives the document to the C&F agent and they agent release the product
from the customs.

Duties and Responsibilities

Applicant

Applicant is the buyer of the goods or services supplied by the seller.

Letter of credit is opened by the issuing bank as per applicant’s request. However, applicant does
not belong one of the parties to a letter of credit transaction.
There is because of the fact that letters of credit are separate transactions from the sale or other
contract on which ther may be based.
Beneficiary

Beneficiary is the seller of the goods or the provider of the services in a standard commercial
letter of credit transaction.
Letter of credit is opened by the issuing bank in favor of the beneficiary.
Beneficiaries will be eligible to receive payment under both commercial and standby letters of
credit, as long as they make complying presentations.

Issuing Bank
Issuing Bank is the bank that issues a letter of credit at the request of an applicant or its own
behalf.
Issuing bank undertakes to honor a complying presentation of the beneficiary without recourse.
Which means that issuing banks must pay the letter of credit amount to the beneficiaries, if
complying presentation has been made.
Nominated Bank:
Nominated bank is the bank with which the credit is available or any bank in the case of a credit
available with any bank.
Nominated banks play a key role determining whether or not the documents are presented within
the allowed period or not.
Advising Bank

Advising bank is the bank that advises the credit at the request of the issuing bank.
An advising bank that is not a confirming bank advises the credit and any amendment without
any obligation to honor.
By advising the credit or amendment, the advising bank signifies that it has satisfied itself as to
the apparent authenticity of the credit or amendment and that the advice accurately reflects the
terms and conditions of the credit.

Confirming Bank

Confirming bank is the bank that adds its confirmation to a credit upon the issuing bank’s
authorization or request.
Confirming bank may or may not add its confirmation to a letter of credit. The decision is up to
confirming bank only.
However, once it adds its confirmation to the credit confirming is irrevocably bound to honor or
negotiate as of the time it adds its confirmation to the credit.
Even if the issuing bank fails to honor, confirming bank must pay to the beneficiary.
Reimbursing Bank:

Reimbursing Bank shall mean the bank instructed and/or authorized to provide reimbursement
pursuant to a reimbursement authorization issued by the issuing bank.
Reimbursing Bank is the settlement bank between the issuing bank and the nominated bank or
the confirming bank.
If letter of credit currency is USD, reimbursing bank is usually located in US. If letter of credit
currency is EUR, reimbursing bank is generally located in Germany.
Conclusion
Letters of credit are indispensable for international transactions since they ensure that payment
will be received. Using documentary letters of credit allows the seller to significantly reduce the
risk of non-payment for delivered goods, by replacing the risk of the buyer with that of the
banks. In modern business transactions over the borders are must. So, every student who want to
spend her carrier in business sector must gather the knowledge of lc. So, we would like to thank
our course teacher for appointing the topic on us, and enable us to gather further knowledge on
LC.
ATTACHMENT
(SWIFT copy of Letter of Credit)