What are the different types of LCs?
A. Examples of commonly used Letters of Credit include: Deferred Payment Letter of Credit: This allows the buyer (importer) to take possession of goods by agreeing to pay the issuing bank or the confirming bank at a fixed future date. Red Clause: The contract for the establishment of the LC allows the bank of the exporter to advance some payment to the exporter/beneficiary to aid in the exportation of the goods. Stand-by letter of credit: As opposed to a commercial letter of credit, stand-by letter of credit does not cover the direct purchase of merchandise or goods, so called because it is often intended to be drawn on only when the applicant for whom it is issued fails to perform an obligation. Back-To-Back: This is used when there is a third party (middleman) between the importer and the exporter. It involves the establishment of two LCs, one by the importer in favour of the middleman and another by the middleman in favour of the exporter. The amounts involved are different and the
