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letter of credit

QUESTION ONE:
How useful are letters of credit as financial instruments for Irish importers and exporters.

QUESTION TWO:
1} Prepare a diagram with brief supporting notes to explain how documentary collections operate.

2} Explain D/P and D/A

3} Explain "Protest for Non-Payment''

Solution Preview

How useful are letters of credit as financial instruments for Irish importers and exporters.

A letter of credit is basically a document issued by a bank guaranteeing a client's ability to pay for goods or services. A bank or finance company issues a letter of credit on behalf of an importer or buyer, authorizing the exporter or seller to obtain payment within a specified timeframe once the terms and conditions outlined in the letter of credit are met. The letter of credit acts like an insurance contract for both the buyer and seller and practically eliminates the credit risk for both parties, while at the same time reducing payment delays. A letter of credit provides the exporter or seller with the greatest degree of safety when extending credit. It is useful when the importer or buyer is not well known and when exchange restrictions exist or are possible.

For Irish exporters, a letter of credit is extremely important in terms of ensuring that they will get paid for their exported goods or services and thus, eliminates credit risk. Similarly, a letter of credit ensures Irish importers that they will only have to pay for goods and services received as per desired specification and contract.

BENEFITS TO Irish Exporters:

â?¢ Assures the security of payment from an international bank once the terms of the letter of credit are met.

â?¢ Seller can determine when payment will be satisfied and ship the goods accordingly.

â?¢ Bank bears the responsibility of ...

Solution Summary

How useful are letter of credit as financial instruments for Irish importers and exporters.

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