The efficient management of money, assets, credit, and financial tools to conduct global trade is trade finance. Trade finance is the process by which working capital is provided to ensure smooth movement of commerce. You can invest in global financial markets through single Northwest Capital Funds investment solutions without the need to know about the individual markets in detail.
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Why Use A Letter Of Credit?
In a letter of credit, the bank acts as a mediator between the importer and exporter. The letter of credit is issued by the bank to the exporter guaranteeing to pay the money when he meets the standards laid out in the letter of credit.
The length of the letter of credit is for the period of the transaction and ends when the cash is paid to the exporter or the seller. The L/C doesn't protect the beneficiary in the loss he might need to endure if the deal doesn't go through.
The letter of credit may be used not just in the selling of products but also of providers. The buyer sends the letter of credit from his bank to the exporter's bank consequently making the buyer's bank accountable for timely payment of his money.
Common Financial Instruments
Bank guarantee is an additional financial instrument in which the lender guarantees to cover the beneficiary in case the buyer defaults on the payment. The difference in a letter of credit is that the bank guarantee comes into play only when the buyer defaults.
Another financial tool used commonly is documentary set wherein the seller forwards the sale documents to the purchaser's bank with terms attached as to when it could be published for the collection of goods from the shipper.