| Passage 1 The credit created for international settlement among banks not only provides a sense of security for the traders involved, but also a reliable source of finance for foreign trade where required. The credit created, in general, favors the exporter. In order to reduce the possible risk, the exporter usually insists on the buyer establishing a credit in his favor before shipment is unloaded. There are generally several types of credits. A "confirmed credit" guarantees payment to the beneficiary, provided that the credit terms and conditions are met and the standing of the advising bank in the beneficiary's country is sound. A "revocable credit" may be cancelled at any time up to the moment the advising bank pays. This type of credit is the least favorable to the exporter. There is a risk that the goods may be shipped, and the credit revoked before documents are presented to the advising bank. An "irrevocable credit" may not be cancelled or even amended without the consent of all the parties involved. This type of credit guarantees that no single party will revoke the contract already signed. With the credit arrangement, the issuing bank agrees to pay the advising bank, and the advising bank pays the exporter according to the terms of the documents which appear to fulfill the conditions of the credit. Banks, however, are not bound by, and therefore, not concerned with the underlying sales contract on which the credit requirements are based. As long as the documents are in good order and there are no apparent problems with the process, the buyer is still responsible for payment to the issuing bank although the goods received may be of inferior quality to those ordered. |