Letter of Credit Exam

[picant]

Hi Pal,

A documentary credit is a mean of payment, so you dont need to have a further mean of payment called draft. The draft we may use is just a proof of settlement between banks.
In some area, it is possible to request this draft on applicant, but it must be listed in the required
documents field and it will be checked as the other documents.
Remember that in many Countries draft pays a fiscal duty, in Italy it varies from 0,9 to 1,2 pct.
Other comments appreciated
Ciao

[gondem]

Hi buddy,

It is a principle under LC transactions. Drafts are issued on banks, not on the applicant. Because remember that the applicant is not a party of the LC. The drawee is the bank, not the applicant.

[sammer123]

Thks both for great explanation . I have clarity now . Thks a lot . I may post some more queries may need ur help again

[Navi]

Hi,

A letter of credit is the undertaking of the issuing bank not applicant, and applicant is not a party to the L/C. Beneficiary and nominated/confirming bank act according to issuing bank's instructions and undertaking.

If the L/C is issued "available by a draft drawn on applicant" then the undertaking under the LC shifts to the draft and applicant which is contrary to definition of LC.

regards

[Lydia]

Draft are used under LC because it provides a mean of short term finance to Beneficiary , as the beneficiary can discount the draft at any banks not only the bank that accept the draft ,that is why the beneficiary prefer to use draft under LC