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Is differente a transferable letter of credit from a back-to-back letter of credit?

A transferable letter of credit specifically permits a beneficiary (transferor) to transfer all or some of the rights and protection afforded to it under the letter of credit to a third party (transferee), who then becomes a second beneficiary on the letter of credit. Transferable letters of credit are typically used in transactions where the first letter of credit beneficiary is a middleman and the second letter of credit beneficiary is the middleman’s supplier.

A back-to-back letter of credit is a letter of credit (second letter of credit) issued on the basis of an already existing letter of credit (first letter of credit). Generally, the beneficiary on the first letter of credit is the applicant for the second letter of credit. The purpose of structuring the credits in this manner is to secure the payment to be made under the second letter of credit with the payment made under the first letter of credit. However, this structure has not always worked as intended and as a result, banks have experienced many problems with back-to-back letters of credit. Today, back-to-back letters of credit are not offered by many banks and, consequently, are only very rarely used. When available through banks, however, back-to-back letters of credit are used in transactions where the beneficiary on the first letter of credit is a middleman and the beneficiary on the second letter of credit is the middleman’s supplier.

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What S.W.I.F.T. means?

SWIFT is an acronym for the Society for Worldwide International Financial Telecommunication organized under Belgian law as a nonprofit cooperative company. It is an international communications system for messages among its member institutions in most of the countries in the Americas, Europe, Japan, and certain countries in Asia. Its member institutions are banking organizations engaged in transmitting international financial messages (and certain non-banking institutions).

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What is the difference of a standy letter of credit from a documentary letter of credit?

A standby letter of credit is a letter of credit that is issued in favor of the standby letter of credit beneficiary for the purpose of “backing-up” certain specified obligations of the standby letter of credit applicant. A standby letter of credit requires the beneficiary’s presentation of documents which indicate that the letter of credit applicant has not met the obligations which the standby letter of credit backs-up. A standby letter of credit, therefore, is not intended to be drawn upon by the standby letter of credit beneficiary unless the standby letter of credit applicant does not meet its obligations as specified by the standby letter of credit.

A documentary letter of credit (also known as a commercial letter of credit or a merchandise letter of credit) is a letter of credit that is issued for the purpose of making payment to a specified beneficiary if the beneficiary performs as required. Documentary letters of credit are called documentary letters of credit because the banks involved in the letter of credit transaction deal in documents as opposed to goods. The terms and conditions specified in a documentary letter of credit generally involve the presentation of specific documents within a stated period of time.

The principal difference between a standby letter of credit and a documentary letter of credit is the fact that a documentary is an active payment instrument under which payment is intended if the terms and conditions prescribed by the letter of credit are met, whereas a standby letter of credit is a passive payment instrument under which payment is not intended and will occur only if the standby letter of credit applicant fails to meet its obligations as specified by the standby letter of credit.

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When a confirmed letter of credit is used generally?

A confirmed letter of credit is a formal written undertaking issued by a bank in the buyer’s country (issuing bank) and guaranteed or confirmed by a bank in the seller’s country (confirming bank) in accord with which both banks agree to pay a seller (the letter of credit beneficiary) a specified amount on behalf of a buyer (the letter of credit applicant.account party), if the seller complies with the terms and conditions that are specified within the letter of credit.

A confirmed letter of credit is a desirable (albeit expensive) payment method for a company that is buying a product internationally and a desirable (albeit expensive) payment method for a company that is selling product internationally. The buyer who uses this payment method can feel comfortable that two banks are assessing the seller’s performance under the letter of credit which has been issued on behalf of the buyer. Likewise, the buyer can feel comfortable that the seller will not be paid if the seller does not perform exactly as the confirmed letter of credit requires. The seller, on the other hand, should also feel comfortable with a confirmed letter of credit transaction in that the seller knows that it will be paid in the U.S. by a U.S. bank if it performs in accordance with the terms and conditions that are specified by the letter of credit.

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Which is the most to the least secure international payment method?

From an importer’s perspective, the international payment methods rank in terms of the most secure to the least secure are: Open account, documents against acceptance, documents against payment advised letter of credit, confirmed letter of credit, and cash in advance.

From an exporter’s perspective, the most commonly used international payment methods rank in terms of the most secure to the least secure are: Cash in advance, confirmed letter of credit, advised letter of credit, documents against payment, documents against acceptance, and open account.

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