NAME: WAQAS

CLASS. BBA 6 th
What is LC? Also define the term UCP.
Answer.

A letter of credit is a document which is used between the two parties for the providing the
security and undertaking on the behalf of the parties that they will fulfill their obligations. The
abbreviation of the letter of credit is the LC and it is commonly used in the import and export of
the business. It is also known as the documentary credit.
A letter of credit (LOC) is a promise from a bank to make a payment after verifying that somebody
meets certain conditions.
example, we assume that an importer is buying goods from an exporter. He needs LC for buying
goods from an exporter. He make the LC from Bank. The seller wants more confidence that the
buyer will pay. Perhaps this buyer and seller have never worked together, or the order might be
large enough to cause severe financial hardship if something goes wrong. For example, if the seller
spends money to produce and ship goods, the seller wants to recoup those costs. The buyer might
not pay for several reasons.
The Uniform Customs and Practice for Documentary Credits (UCP) is a set of rules on the
issuance and use of letters of credit. The UCP is utilized by bankers and commercial parties in
more than 175 countries in trade finance. Some 11-15% of international trade utilizes letters of
credit, totaling over a trillion dollars (US) each year.

Q. No.2 Ans.
Discuss the structure of typical LC transaction theoretically as well as diagrammatically.