Gains from Foreign Trade
Most profitable use of country’s resources.
Much wider market for home products.
International competition leads to better quality products at competitive cost.
Exports earnings will lead to more jobs and improved productivity.
Exports earnings enable developing countries to finance their development projects.
What is a documentary Letter of Credit?
It is a conditional undertaking by the issuing bank given to the seller at request and in accordance with the instructions of the buyer to effect payment up to a stated sum of money within a prescribed time limit against stipulated documents.
There are two common conditions contained in each letter of credit:
- The beneficiary must submit the documents stipulated in the letter of credit (L/C).
- The beneficiary must comply with all the terms and conditions given in the L/C.
The distinctive features of documentary credit as follows:
- Banks deal in documents only and not in goods.
- The letter of credit is a separate contract having no nexus with the sales contract between the seller and the buyer (the autonomy of credit).
- The documentary credit is a fund and non-fund based facility.
