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Letters of Credit: Understanding Their Role in International Trade

Updated: Sep 17



In the world of international trade, a Letter of Credit (LC) is a key tool that helps ensure smooth transactions between buyers and sellers from different countries. An LC is like a promise from a bank that the seller will get paid once they meet certain conditions. This article will explain what LCs are, how they work, and why they are important for global trade.

Key Takeaways

  • A Letter of Credit is a promise from a bank to pay the seller once certain conditions are met.

  • There are different types of LCs, including commercial and standby LCs.

  • Using an LC provides security for both buyers and sellers in international trade.

  • Banks play a crucial role in the LC process by verifying documents and ensuring compliance.

  • Understanding LCs can help businesses avoid common pitfalls and ensure smooth transactions.


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