Regarding bills of exchange / LC

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Dinesh kumar Mahanto (Querist)
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16 June 2011 i want know that what is bills of exchange? what is the full form of LC and how it will be done with the bank? please tell me in detail.

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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16 June 2011 Bill of exchange:

A non-interest-bearing written order used primarily in international trade that binds one party to pay a fixed sum of money to another party at a predetermined future date.

For elaborating purpose read the link:-

https://220.227.161.86/16771Bills_of_Exchange.pdf

https://en.wikipedia.org/wiki/Negotiable_instrument

Letter of credit :-

A Letter of Credit is a payment term generally used for international sales transactions. It is basically a mechanism, which allows importers/buyers to offer secure terms of payment to exporters/sellers in which a bank (or more than one bank) gets involved. The technical term for Letter of credit is 'Documentary Credit'. At the very outset one must understand is that Letters of credit deal in documents, not goods. The idea in an international trade transaction is to shift the risk. Thus a LC (as it is commonly referred to) is a payment undertaking given by a bank to the seller and is issued on behalf of the applicant i.e. the buyer.

The Buyer is the Applicant and the Seller is the Beneficiary. The Bank that issues the LC is referred to as the Issuing Bank which is generally in the country of the Buyer. The Bank that Advises the LC to the Seller is called the Advising Bank which is generally in the country of the Seller.
The specified bank makes the payment upon the successful presentation of the required documents by the seller within the specified time frame. Note that the Bank scrutinizes the 'documents' and not the 'goods' for making payment. The process works in favor of both the buyer and the seller.

For more info:-

https://en.wikipedia.org/wiki/Letter_of_credit

https://banking.about.com/od/businessbanking/a/letterofcredit.htm

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