Pros and Cons of This International Settlement

Topics: International trade, Credit risk, Interest Pages: 2 (434 words) Published: April 9, 2013
Pros and Cons of this international settlement to both the exporter and importer Pros and Cons to Exporter/Seller
The risk of payment relies upon the creditworthiness of the issuing Bank and the political risik o0f the Issuing Bank’s domicile, and not the creditworthiness of the importer is one of the pros for exporter. Besides, exporter agrees in advance to all requirements for payment under the letter of credit. If the letter of credit is not issued as agreed, the exporter is not obligated to ship against it. Lastly, exporter can further reduce foreign political and bank credit risk by requesting confirmation of the letter of credit by a bank in its own country. However, there are some cons existed to exporter which like documents must be prepared and presented in strict compliance with the requirements stipulated in the letter of credit and some importers may not be able to open letter of credit due to lack of credit facilities with their bank which consequently inhibits export growth. Pros and Cons to Importer/ Buyer

Importer is assured that the exporter will be paid only if all terms and conditions of the letter of credit have been met is one of the pros to importer. Other than that, importer is able to negotiate more favourable trade terms with the exporter when payment by letter of credit is offered. Moreover, if the buyer may need to receive the goods for certain reason such as meeting festival needs, he can insist on appropriate shipment by putting in the latest shipment date and in case of several shipments, the buyer may negotiate for a revocable documentary credits. Thus, upon the first shipment and if he is not satisfied with goods, the buyer may arrange with the issuing bank to cancel the credit. However, there are also some cons existed to importer which like a letter of credit does not offer protection to the importer against the exporter shipping inferior quality goods or lesser than quantity of goods. Meanwhile, if the exporter acts...
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