When a letter of credit is received by the exporter, he after shipping the goods presents the required documents and the draft to the bank is his own country. If the bank is satisfied with the documents submitted by the exporter it negotiates the draft with the bank in the importing country and pays the exporter at the official exchange rate in the currency of his own country. The risks of exchange fluctuations of any are on the exporter's bank. The exporter bank surrenders all the foreign exchange.
The importer's bank before honoring the draft submitted by the negotiating bank will require the following conditions to be duly filled.
The documents are submitted within a specified time that the necessary documents such as bills of lading, invoice, insurance policy, port of shipment and value of goods.
The bills are properly drawn and are supported by invoice price that the description goods on the papers conform to the sale of contract and the papers are consistent with one another.
The bill of lading is not stale and bears a date within the permitted period of shipment of time. If the credit is secured b some form of collateral and the bill of lading is to be issued in blank or to the order of the bank the papers should conform to this condition that the bill of lading is clean and freight paid.
The importer's bank before honoring the draft submitted by the negotiating bank will require the following conditions to be duly filled.
The documents are submitted within a specified time that the necessary documents such as bills of lading, invoice, insurance policy, port of shipment and value of goods.
The bills are properly drawn and are supported by invoice price that the description goods on the papers conform to the sale of contract and the papers are consistent with one another.
The bill of lading is not stale and bears a date within the permitted period of shipment of time. If the credit is secured b some form of collateral and the bill of lading is to be issued in blank or to the order of the bank the papers should conform to this condition that the bill of lading is clean and freight paid.
