Sunday, April 18, 2010

CLAUSES OF A LETTER OF CREDIT

A letter of credit contains several clauses. The main ones are:

A) TYPE OF CREDIT:
The heading of a credit indicates the type of credit and its purpose. For this purpose, every bank has prescribed its own letter of credit forms.

B) VALUE OF CREDIT:
The fixed amount to which the bank is liable is specially mentioned in the letter of credit.

C) SPECIFICATIONS OF DOCUMENTS:
The documents required are specially mentioned in the credit

D) DESCRIPTION OF GOODS:
A brief description of goods that are required by the importer is given.



E) PARTIAL-SHIPMENT AND TRANS-SHIPMENT:
Part-shipment means shipment of goods in lots or installments i.e. in more than one shipment.
Trans-shipment means the carriage of goods by more than one vessel or mode of transport.
The credit must specify whether this can be trans-shipped / part-shipped or not.

F) VALIDITY PERIOD:
This is a very important clause and because every credit indicates an expiry date or the validity period. This period is so fixed to provide sufficient time to complete the transaction.

G) REIMBURSEMENT CLAUSE:
This clause indicates the method for obtaining the reimbursement by the foreign negotiating bank. It will be discussed elaborately in later part.

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