`The concept of the letter of credit reflects the buyer`s interests better than the concept of the bill of exchange.` Discuss

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The concept of letter of credit and bill of exchange

Both the letter of credit and the bill of exchange are useful documents in expressing the buyer 's interest in undergoing a contractual relationship in the international trade . However , rationality should be employed in internalizing which between the two pronounces better terms in such interest . Letter of Credit (LC ) refers the declaration of the financial commitment and soundness by a particular bank on behalf of its client on a monetary value which is

stated in that particular LC and addressed to another party who is the perceived beneficiary named on the LC . It can either be endorse-able or not . In the event of any payment default by the one obliged to make the payment , its issuing bank is governed in honoring such payment either conditionally or not . Usually LCs may be drawn with or without some conditions . Additionally , some Bills of Exchange may be drawn on and above the preferential limits held by a LC in significance of authenticating specific amount within the LC to be made at a later date ( HYPERLINK "http /www .wisegeek .com /what-is-a-letter-of-credit .htm http /www .wisegeek .com /what-is-a-letter-of-credit .htm

A bill of exchange refers to a set legally held negotiable instrument that is used in settling payment in the future . It is usually drawn by the drawer and addressed to the drawee in reference of the drawee 's acceptance of the particular payment liability within the scope of a later date as stated in it . The drawer draws it and sends it to the particular drawee for the acceptance of the same . In the event of such an acceptance , the bill of exchange thereon becomes a legitimately negotiable instrument within the proximities of financial market terms and thus a legal debt against him /her (drawee . Upon its acceptance , the drawer can choose the discounting of the bill of exchange from his account so as to get immediate funds as working capital . When the payment date is due , it is presented for the accepted payment by the drawee as it could be stated ( HYPERLINK "http /www .wisegeek .com /what-is-a-bill-of-exchange .htm http /www .wisegeek .com /what-is-a-bill-of-exchange .htm

Rationally therefore , a letter of credit posits greater interest for the buyer than a bill of exchange . This is because LC shows a greater commitment to making payment than a bill of exchange . Otherwise the transacting bank to the LC is governed by the legal execution of making the payments stated to it either conditionally or elsewhere unconditionally . However , a Bill if Exchange is only shielded with some substantial capacity of its payment and that the choice of payment is solely held by the drawer . Cases like bankruptcy can revoke its payment (Mark , Jerry , 1993 ,

.46 ) Since the drawee is the sole person allied to making the transfer of its payment at such a stated date , his personal opinion whether irrevocable or not may entail and result to lack of payment . Conventionally , LC is...