Global Financing Report on the Term Paper

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International trade permits the companies that interact in the international commercial environment to explore other opportunities existent on the market, and the letter of credit gives advantages for every interested party. Economic growth is enhanced by increased commercial activity, due to some extent to the development of these payment instruments, like the letter of credit.

The letter of credit is used by many commercial players in the world market, especially for the individual advantages and benefits it brings. From the seller's point-of-view, the letter of credit promotes certainty that all the conditions mentioned in the import-export contract are integrally observed, within the established period and the amounts stipulated in the documentation. The Seller may also offer the buyer a supplier credit, having a specific financing method: the submitted documentation is discounted under the particular export letter of credit - in this way, the payment will be made by the payer's bank soon after the date of the shipment, and not on maturity like in the usual case. In case the exporter is an intermediary among an international transaction, it can transfer the letter of credit to other subcontractors, or can cede the encashment resulted from this particular payment instrument. The importer has the certainty that the payment is realized only if the shipment of merchandise is performed only in the stipulated conditions, as these conditions must be demonstrated using the documents submitted by the exporter.

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Also the importer entitled to receive a supplier credit, from his bank.

Letter of credit reduces risk in commercial transactions

The risk is heavily reduced in the case when the letter of credit is used. In case of the importer, he does not have the responsibility to pay until all the delivery conditions are met, according to different documentation submitted to his bank. The letter of credit also provides guarantees for the exporter, since he is entitled for a secure money transfer into his account. The involvement of the two bank, the importer's and the exporter's bank maintain a high degree of security transactions, enhancing even more the commercial and financial flow at the international level.

As a conclusion, the letter of credit is a widely used payment instrument, with important advantages for the involved parties and which reduces the risk associated with an international transaction. This payment tool plays an important role in the promotion of international trade and conducts to economic growth at the national level, growth induced by the increase in country's exports......

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