Definition A Letter of Credit (L/C) can be characterized as “an arrangement where in a bank ensures in the interest of its clients (importers) to make payments to the beneficiary upon presentation of documents specified in the credit”. Parties engaged with L/C Opener/Purchaser/Importer: The individual who opens the L/C is known as Opener/Purchaser/Importer of the L/C. The purchaser and the seller close a business contract accommodating payment by documentary credit. Beneficiary: Dealer and exporter in whose support the L/C is opened. The beneficiary is typically the merchant of products who get payments under documentary credit on the off chance that he has accumulated with terms and conditions thereof.

 Banks include in letter of credit operation: Issuing Bank Issuing bank implies the bank that issues a credit at the demand of a candidate for its benefit. Advising Bank The bank through which the L/C is prompted. L/C will be sent to the beneficiary through their operator/agent (reporter bank) abroad. The obligation of the advising bank is to confirm the message so the seller can follow up on it with no dread of imitation or forgery. Arranging Bank The bank that is approved to deal with (buy) the records under the L/C in the trading nation is known as arranging bank or negotiating bank. L/C will stipulate either an advised bank to arrange (restricted L/C) or any bank can consult in the dealer’s nation (unrestricted L/C). Repaying Bank At the demand of the issuing bank a repayment bank is approved to pay, acknowledge and pay time draft under a narrative acknowledge in agreement for UCP 600 article 13 or if incorporated the ICC uniform principles for bank to bank reimbursements under documentary credit(URR 725) Affirming Bank An affirming bank is one which adds the certification to the credit opened by another bank, in this way attempted the obligation of payment/arranging/acceptance under the credit notwithstanding that of the issuing bank. An affirming bank regularly does as such if asked for by the issuing bank.

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 3.2 Fundamental Systems FOR Building up A LETTER OF CREDIT: The Letter of Credit Process has been institutionalized by an arrangement of rules distributed by the International chamber Of Commerce (ICC).These rules are known as the Uniform Customs and Practice for Documentary Credits(UCPDC) and are contained in ICC publication no.600. The accompanying is the essential arrangement of steps utilized as a part of a LC transaction. Particular LC transaction take after to some degree distinctive strategies. ?After the purchaser and seller concede to the terms of a deal, the purchaser masterminds his bank to open a letter of credit for the merchant. Note: The purchaser should have a line of credits builds up at the bank or give money insurance to the measure of the letter of credit.

 ??The purchaser’s bank(issuing bank) readies the LC ,counting the greater part of the purchaser’s directions to the dealer concerning shipment and required documentation. ??The purchaser’s bank sends the LC t the merchant’s exhorting bank. ??The merchant’s bank advances the LC to the dealer.

 ??The merchant deliberately surveys all conditions stipulated in the LC. On the off chance that the vender can’t consent to any of the arrangements, it will request that the purchaser alter the LC. ??After last terms are settled upon ,the merchant delivers the products to the fitting port of area. ?After shipping the merchandise, the dealer gets the required records.

Here the dealer may need to acquire a few records earlier shipment. ?The merchant introduces the archives to his bank(advising bank/recipient bank/arranging bank) alongside a draft for installment. ?The dealer’s bank audits the reports. On the off chance that they are all together, it will forward them to the purchaser’s issuing bank.

On the off chance that an affirmed letter of credit, the prompting bank will pay the seller(cash or a financier’s acknowledgment). ?Once the purchaser’s bank gets and surveys the reports, it either(1) pays if there are no inconsistencies; or(2) advances archives to the purchaser if there are disparities for its audit and endorsement. During this season of discharge the archives from the issuing bank, the purchaser pay the draft add up to the issuing bank. ?The shipper organizes to discharge the merchandise for the traditions specialist and in addition gather the bill of section as proof of leeway of products and orchestrate to present the same to the LC issuing bank. ?At the last stage the issuing bank present the installment points of interest with Demon frame through month to month come back to Bangladesh Bank and also give the posting in On-line Import Checking Framework.

 Kinds of L/C ?Revocable/Irreversible L/C. ?Confirmed/Unsubstantiated L/C. ?Transferable L/C.

 ?Back-to-Back L/C. ?Acceptance L/C. ?Revolving L/C. ?Red Proviso L/C. ?Green Proviso L/C.