1. Letter Of Credit and Its Basic Features
Niranjan Silwal

2. Letter Of Credit
A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the normal sense, LC is an authorization letter( recommending bank) to pay a specified person upon the completion of conditions started in letter of credit. Due to the nature of international dealings, including factors such as distance, differing laws in each country, and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade.

4. Basic Feature Of Letter Of Credit
Negotiability
Letter of credit are usually negotiable. The issuing bank is obligated to pay not only the beneficiary, but bank nominated by the beneficiary. To be negotiable, the letter of credit must contain either an unconditional promise to pay at any time the holder wishes or at a definite time. Negotiable notes become transferable in a way comparable to money when they have this feature.
Revocability
A letter of credit may be revocable or irrevocable. In the case of a revocable letter of credit, it is possible that the obligation to pay may be revoked or modified at any time or for any reason. An irrevocable letter cannot be changed without agreement by all of the affected parties.

5. Transfer And Assignment
Domestic letters of credit, which are governed by the UCC (Uniform commercial code), may be transferred as many times as desired and will remain effective. This holds true even where the letter of credit says that it is non-transferable to the extent that no one has yet performed actions pursuant to the letter of credit when the transfer occurs.
Sight And Time Drafts
There are two possible features of a letter of credit that can trigger an obligation to pay: sight or time. A sight draft must be paid when the letter is presented for payment. A time draft must be paid after a certain period of time has elapsed. In both instances, the bank is allowed the opportunity to review the letter of credit to assure its validity.

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