What are some types of letter of credit?

Answer 1

Documentary letter of credit, open letter of credit, confirmed letter of credit,unconfirmed letter of credit, revolving letter of credit, fixed letter of credit,transferable letter of credit,nontransferable letter of credit,revocable letter of credit,irrevocable letter of credit,back to back letter of credit.

Answer 2

confirmed letter of credit ,transferable letter of credit,unconfirmed letter of credit

Types of Letters of Credit:

Traveler's letters of credit, which were commonly used in eighteenth century, were the first financial instrument contains very similar characteristics with the contemporary letters of credit. From traveler's letters of credit days to today's complex global economy, the letters of credit have been performing their duties as a secure and reliable payment method. Actually, during this period letters of credit have gained a very flexible structure that can satisfy different needs of different types of international trade practitioners. In this article, we will discuss types of letters of credit.

Commercial Letters of Credit

Commercial letters of credit are mainly used as a primary payment tool in international trade such as exporting and importing transactions. Majority of commercial letters of credit are issued subject to the latest version of UCP (Uniform Customs and Practice for Documentary Credits). The ICC publishes UCP, which are the set of rules that governs the commercial letters of credit procedures.

Revocable Letters of Credit

Revocable letters of credit give issuer the amendment or cancellation right of the credit any time without prior notice to the beneficiary. Since revocable letters of credit do not provide any protection to the beneficiary, they are not used frequently. In addition, UCP 600 has no reference to revocable letters of credit. All credits issued subject to UCP 600 are irrevocable unless otherwise agreed between the parties.

Irrevocable Letters of Credit

Irrevocable Letters of Credit cannot be amended or cancelled without the agreement of the credit parties. Unconfirmed irrevocable letters of credit cannot be modified without the written consent of both the issuing bank and the beneficiary. Confirmed irrevocable letters of credit need also confirming bank's written consent in order any modification or cancellation to be effective.

Unconfirmed Letters of Credit

Unconfirmed Letters of Credit can be described as a letter of credit, which has not been guaranteed or confirmed by any bank other than the bank that opened it. In these types of credits, the only bank that undertakes to honor a complying presentation is the issuing bank.

Confirmed Letters of Credit

It would be easier to understand the confirmed letters of credit if we start from the definition of the confirmation.

Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honor or negotiate a complying presentation.

If a letter of credit's payment undertaking is guaranteed by a second bank, in addition to the bank originally issuing the credit this kind of credit is called confirmed letter of credit. The confirming bank agrees to pay or accept drafts against the credit even if the issuer refuses to do so. Only irrevocable credits can be confirmed.

Transferable Letters of Credit

Transferable letter of credit is a documentary credit that is issued with the option to allow a trader to transfer its rights and obligations to the supplier