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| Letters of Credit/Documentary Credit |
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This is a credit facility that enables both the local and international trader(s) to conduct business transactions through risk minimization. It involves trade financing against trade documents/goods. |
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When to use an LC: |
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The product is available
to trading clients for both exports and local trade. |
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A new trade relationship |
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Concern over the creditworthiness of the buyer |
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Concern over seller’s ability to perform |
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Potential economic or sovereign risk in the buyer’s country |
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Legislation in the buyer’s or the seller’s country |
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Foreign exchange regulation or other authority regulation |
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Considerable geographic distance or a commonly used trade practice |
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Large projects or special products made to order |
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