Chapter 8 non fund based credit facility

Sir letter of credit nd letter of guarantee are same or not?

No, both are not same. A letter of guarantee is an agreement by a bank (the guarantor) to pay a set amount of money to some person (the beneficiary) if a bank customer (the principal) defaults on a payment or an obligation to the beneficiary. Whereas, Letters of credit are also financial promises on behalf of one party in a transaction and are especially significant in international trade. A letter of credit is a document from a bank that guarantees payment. A Letter of Credit is issued by a bank at the request of its customer (importer / buyer ) in favour of the beneficiary (exporter / seller ). It is an undertaking/ commitment by the bank, advising/informing the beneficiary that the documents under a letter of credit would be honoured, if the beneficiary (exporter) submits all the required documents as per the terms and conditions of the letter of credit.

Answer given by Shubhamm Sir at 12-Apr-2023 06:53 PM