The Letter of Credit (LC) becomes a vital tool in the complex web of international trade, where trust and money exchanges are interwoven. It is crucial for individuals navigating the intricacies of trade finance to comprehend the subtle differences between different kinds of LCs. Accompany me on an exploration of the multifaceted world of letters of credit, as we dissect their intricacies and illuminate the various kinds. Understanding Letters of CreditAt its core, a Letter of Credit is a financial instrument issued by a bank, providing a promise of payment to a seller on behalf of a buyer. It acts as a safeguard, ensuring that the seller will receive payment once certain conditions are met, typically involving the shipment of goods. Unveiling the Types of Letters of Credit1. Revocable Letters of Credit These LCs, though less common today, offer a degree of flexibility. They can be amended or canceled by the issuing bank without prior notice to the beneficiary. While this provides adaptability, it also introduces an element of risk for the seller. 2. Irrevocable Letters of Credit In contrast, irrevocable LCs provide a higher level of security. Once established, they cannot be modified or canceled without the agreement of all parties involved. This type of LC assures the seller that they will receive payment upon fulfilling the specified terms and conditions. 3. Confirmed Letters of Credit
Adding an extra layer of assurance, confirmed LCs involve a second bank, usually in the exporter's country. This bank provides a confirmation, guaranteeing payment even if the issuing bank defaults. This additional step enhances the credibility of the LC. 4. Standby Letters of Credit (SBLC) Stepping into the realm of financial guarantees, SBLCs act as a safety net for the seller. If the buyer fails to fulfill their payment obligations, the SBLC ensures that the seller receives the agreed-upon amount, making it a common choice in real estate and construction transactions.
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The Eastern Economic gathering is an annual global gathering hosted in Vladivostok, Russia, to encourage investment in Russia's Far East. The conference has been a platform for host Russia and international trade partners India, China, Laos, Mongolia, and ASEAN states to discuss strategic concerns since its formal inception. President Putin presented a blueprint of Russia's trade finance service towards Asia, particularly with China, Japan, Korea, India, and the ASEAN states, as well as Russia's Arctic goals, at the 8th Far Eastern Economic Forum between September 10 and 13. Russia's Strategic Priority Is the Far EastPresident Putin emphasized the strategic importance of Russia's Far East, saying that development of the Far East is an absolute priority for Russia, a direct priority for Russia as a whole for the entire twenty-first century, because it is a huge region with a small population but huge potential. Of undoubtedly the government has a strategic interest in this. As a result of the conflict in Ukraine, the European Union (EU), Russia's primary market for energy exports and source of export-based revenue, has imposed a series of increasingly punitive sanctions, including the disconnection of leading Russian financial institutions from SWIFT and the prohibition of all seaborne crude oil and petroleum product imports from Russia. However, Russia increased commerce with nations where it can sell and ship goods, primarily China and India. In the first six months of this year, Russia's trade finance service with Asia-Pacific countries increased. The 1.6 billion market is appealingPresident Putin stated that international trade with the APR (Asia Pacific Region) countries and economic relations in general will expand further because Russia and its Far East are open to strengthening trade and cooperation ties. The value of such collaboration cannot be overstated. This time, Russia is attempting to replace the 450 million-strong European market with a 1.6 billion-strong Far Eastern market.
Russia has begun to offer a package of fiscal incentives to encourage companies to invest in its oil resources in Eastern Siberia and the Far East region, including free land, the establishment of a massive tax-free zone across Arctic Russia, special economic zones offering corporate and individual income tax breaks, and reduced utility services. Despite China's advances in the region, Moscow has been eager for India to make significant investments. The sea route between Vladivostok and Chennai has been reopened by India. Indian Prime Minister Narendra Modi has announced a US$ 1 billion Line of Credit for the Russian Far East under the Act Far East Policy. As per the latest news, the Panama-based multinational bank Banco Latinoamericano de Comercio Exterior (Bladex) has turned into the first bank in Latin America to collaborate with Dubai-headquartered Fintech Innovations International DMCC’s TradeAssets platform. By associating with TradeAssets, an eMarketplace for financial institutions (FI) assisting banks in developing markets to get easy access to trade finance and liquidity, Bladex will empower to facilitate its client's improved access to global trade finance instruments, as per the companies’ statements in a press release. “We are excited about this tremendous association as its value propositions cater to various strategic goals for Bladex,” said BladexCEO Jorge Salas in the press release. “It offers easy access to new markets, gears up customers or counterparties development, and creates functional and effective improvements that aid in technological strength.”
TradeAssets has 100 bank members from around 30 nations, since 2020, more than $2.5 billion has been posted in volumes, as per the release. Read more: https://www.axioscreditbank.com/blogs/bladex-partners-with-tradeassets-to-boost-trade-finance-access-in-latam As per the latest news, a rise has been seen in the acknowledgement of supply chain finance in emerging economies to support the development of the global supply chain finance market. The Covid-19 pandemic significantly improved the interest in new technologies, including electronic/digital invoices, artificial intelligence, smartphone and mobile internet access, and blockchain technology in trade finance transactions, tremendously affecting the development of the international market. Area-wise, the Asia-Pacific region held a noticeable share in 2021. According to the report released by Allied Market Research, the global supply chain finance market produced $6 billion in 2021 and is expected to reach $13.4 billion by 2031, developing at a CAGR of 8.8% from 2022 to 2031. This report comprehensively evaluates the top winning methodologies, emerging trends in the market, market size and estimations, value chain, vital venture pockets, drivers & valuable opportunities, competitive scenario, and territorial conditions. This report is a relevant source of data for new participants, shareholders, leaders, and shareholders in introducing crucial methods for the future and measuring vital steps to boost and improve their position in the market efficiently. Covid-19 Situation:1. No doubt that the sudden outbreak of the Covid-19 pandemic hurt the development of the international supply chain finance market due to the growth in remote working activities forming the overwhelming task of catching information from many locations and sources for the supply chain finance companies.
2. On the other hand, the global pandemic outbreak also increased the demand for new innovations, including digital invoices, AI, blockchain in trade transactions etc., which resulted in the development of the global market. Read more: https://www.axioscreditbank.com/blogs/amr-global-supply-chain-finance-market-to-reach-13-4-billion-by-2031 What Is A Letter Of Credit?A letter of credit is a legal, written document that guarantees the buyer’s timely & full-fledged payment to the sellers. The buyer’s bank issues it to compensate the seller if the buyer defaults or cannot pay the seller. In such cases, the bank covers the full or remaining amount on behalf of the buyer. In other words, an international letter of credit service is a legally-binding finance instrument issued by a bank or trade finance institution to ensure on-time payments for the goods received on behalf of the buyer. It is also known as a Documentary Credit, where if any buyer fails to perform their due obligation, the bank pays the seller on behalf of the buyer, who then repays the bank later. Issuance of a letter of credit helps reduce the payment failure risk for the seller as it shifts from the buyer to the bank. On the other hand, it also allows the buyer to make an early payment to the seller, improving his credibility in the market.
Read more: https://www.axioscreditbank.com/blogs/things-to-keep-in-mind-while-choosing-a-letter-of-credit A bank guarantee is a type of legal assurance whereby an issuing bank ensures the beneficiary that the liabilities of the buyer (applicant) will be fulfilled by the bank in case the buyer fails. To put it simply, in a BG, the guaranteeing bank performs due diligence on the behalf of its applicant and offers payment security to the beneficiary within specified terms & conditions under a contract. Bank guarantee is one of the most used global trade finance instruments among importers & exporters to avoid the risk of payment. The issuing bank promises to reimburse the losses to the beneficiary in the event of the buyer’s default. The involvement of a legal third party ie. a Bank or a Financial Institution provides peace of mind to the beneficiary regarding an on-time payment while also establishing the buyer’s credibility to pay in foreign trade transactions. Types of Bank Guarantee A Bank guarantee is issued by a legal institution for a specific amount and a predetermined period by both the parties ie. seller and buyer. It eliminates the risk of non-payment & non-performance under a global trade transaction.
Originally Posted: https://www.axioscreditbank.com/blogs/know-the-different-types-of-bank-guarantee Being a trader or exporter, you may understand the need for export finance. Though banks are offering different types of loans and facilities to the exporters, export finance not only helps traders continue their production but also promotes the country's foreign exchange earnings. But how and what is export finance? Let us explain!! What Is Export Finance?There is no denying that finance plays an important role in the successful operation of a business. Export Trade finance service helps exporters fund their production process and other global trade transactions to assure that the exporter has enough production of their goods & services to send to the concerned importers. It lessens their financial discrepancies and manages their cash flow to handle their day-to-day working capital requirements. Export finance ensures the affordability of the production of goods for the exporter along with an assurance of getting paid on time. But the question is which type of export finance should an exporter choose. There are many types of export finance available in the market. Here they are as follows: Types of Export Finance1. Pre Shipment Finance - Also known as packing credit, exporters apply for pre-shipment finance when they require funds to purchase raw material/goods, to continue the production process, or for storage cost, packing, marking of goods after a purchase order is placed by the importer. To put it simply, pre-shipment finance is provided to an exporter before the shipment of goods to continue the production process. It is generally granted for a period of 180 days and in case of opposite circumstances, it can be extended to 90 days.
2. Post Shipment Finance - After dispatching the goods to the importer, a bill is drawn by the exporters that need to be paid by the importers. It generally takes a minimum period of 3 to 6 months and this time gap affects the production process for the exporter. To overcome this working capital inefficiency, the bill gets presented to the financial institution that provides funds to the exporter. The bill can be purchased, collected, or discounted by the bank. This type of export Trade finance is used by the exporter to pay wages or other services. 3. Finance Against Collection Of Bills - Another way through which an exporter can raise funds is by applying for a loan against the bills of purchases made by the importers or foreign companies. Various banks and FIs are ready to finance these export bills. If there is any default made by the importer, the finance company is entitled to compensate about 80% of the default amount. 4. Deferred Export Finance -Here, finance is provided to the importers/overseas buyers to ease the import of goods. It has two types:
5. Finance Against Allowances And Subsidies - Here, exporters get various subsidies and allowances from the government to sell the goods at a discounted price to the importer. Now you know what export finance is and how it helps exporters in continuing their production and shipment process. Additionally, it mitigates the risk of default of payment from the importer. Many people think that hiring a financial advisor is only a waste of money as handling financial planning-related tasks is not such a big deal. But using a financial advisor can help you protect and grow your assets as well as serve you in picking out the best financing options focused on a safe & secure future. Let’s take a look at why we need to hire a financial advisor: 1. To Maintain A Balance Between Spendings & Savings - Maintaining a balance between spendings and savings simply refers to saving regularly, spending carefully, and investing money accordingly. Professional financial advisory services can help you with this. For example, they can help you minimize your unnecessary buying or spendings. Hiring a financial advisor will help manage all your finances well to further meet your financial goals professionally. 2. To Secure Your Future After Retirement - Planning for retirement is a complex procedure since there is an availability of so many different options. A deep-thought & researched retirement planning helps you ensure a secure financial future. Here hiring a financial advisor will help you to save for retirement as well as assist you to adopt the correct retirement accounts. They will help you get aware of the rules and create a portfolio to enhance your long-term goals. 3. To Help Fulfill Investment Goals - Money needs to be invested to grow but not all the investment options match with your needs. They can differ in terms of taxation, charges, and fees. Plus, mostly an investment portfolio is made up of different types of investments such as mutual funds, bonds, & cash equivalents, etc. A financial advisor makes you aware of the significant pros and cons of different investment options and assists you pick up the best one. 4. To Minimize Your Tax Outgoes - Hiring professional financial advisory services will help you decrease your tax expenses. They are professional planners who guide you to arrange & manage your finances efficiently to save tax. Plus, they are quite aware of available deductions and exemptions which can result in tax-saving. Apart from this, you can get answers to these questions like, which investments will be taxed more or which of your assets will extremely impact your taxes, etc. They can help you stick to favorable terms.
5. To Secure With Estate & Mortgage Planning - With more complex mortgage rules and stringent lenders’ requirements, the mortgage market has become more complicated. Buying a house is a difficult process these days. A financial advisor helps you seek out the best rates. Apart from this, they also help you with your estate planning. They work with the estate attorney to make sure that your assets are being performed as you want. 6. To Protect Family With Insurance - Similar to estate planning, insurance planning is also essential to protect your family in your absence. On one hand, where health insurance provides financial support during medical emergencies, there is a wide range of insurance products in the market, and a professional financial advisor can tell you which ones are the best suitable for you after evaluating your position. They make you aware of all the pros and cons of a respective investment plan. 7. To Help Setting Off Debts - Hiring a financial advisor helps you create a debt profile and manage all your debts in a professional & suitable manner. They can help you defend your spendings to avoid debts in the future. Now you know that a financial advisor can help you in many ways. From investments to retirements, they can help you address different aspects of financial issues. Managing all of this on your own can be time-consuming & burdensome. So approach a financial advisor now. What is an International Prepaid Visa Card?International Prepaid Visa Cards, also known as currency cards are the cards that nearly work similarly to your debit cards. You can make ATM withdrawals or payments in the stores abroad but the only difference is that they are operable only after you load them with the specific amount of respective foreign country currency you are traveling to. After doing it, you can use them as you would use your debit card to spend or withdraw cash. Prepaid visa cards can be extremely helpful when you are traveling abroad or planning to visit overseas. As they have a specific amount of currency deposited by you, you do not have to worry about getting it stolen or misplaced. You have to just select the currency you need and switch your balance. This can make your international visit a budgeted journey as you are aware of the balance and not charged with extra fees or costs associated with exchange rates. What is a letter of credit? If you are looking for trade finance or deal in import-export services in the different corners of the world, you might hear the term but not completely aware of it. In this blog, we are explaining what it is and trying to figure out its pros and cons that you need to keep in mind before considering them. So, let’s start by its definition.
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