Working Capital Management Question:
What is letter of credit (LC)?
Answer:
Letter of Credit is a non fund based lending which is very regularly found in international trade. This facility is given when the exporter and importer are unknown to each other. In this case, the importer applies to his bank (Issuing Bank) in his country to open a letter of credit in favour of exporter whereby the importers’ bank undertakes to pay the exporter on fulfilling the terms and conditions specified in the letter of credit.
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