Definitions of Related Terms:
Advising bank: The Bank which advises a Letter of Credit to the Beneficiary at the request of the issuing Bank is known as the Advising Bank
Applicant: Applicant is the party on whose request the issuing bank issues a credit .
Banking day: The day on which a bank is regularly open at the place at which an act to be performed.
Beneficiary: Beneficiary is the party who is to receive the benefit (payment) of the LC. The consignee of an LC and the beneficiary may not be the same. The credit is issued in his favor.
Presentation: Presentation is either delivery of documents against an LC or the document itself.
Complying presentation : A presentation is said to be complying presentation when it is
i. in accordance with the terms and conditions of the credit,
ii. the applicable provisions of UCP and
iii. international standard banking practice.
Confirmation: Confirmation is a definite undertaking from the confirming bank to honor or negotiate a complying presentation in addition to that of the issuing bank.
Confirming bank: The Bank which adds confirmation to an LC is termed as Confirming Bank. It does so at the request of the issuing bank and taking authorization from the issuing bank.
Letter of Credit/ Credit: Credit is a definite undertaking of the issuing bank to honor a complying presentation. According to UCP all credit must be Irrevocable.
Honour: Honour means act according to commitment of the LC. Presentations are honored in different ways depending on the type of credit like. i. Making payment at sight for sight LC ii.By incurring a deferred payment undertaking and paying at maturity deferred payment LC. iii. by accepting a Draft drawn by the beneficiary and paying at maturity for Deferred Acceptance LC.
Issuing bank: The Bank which issues a credit is known as issuing bank.
Nominated Bank: The Bank with which credit is available is termed as Nominated Bank of that Credit. If no Bank is mentioned in the credit as nominated bank, all banks are nominated bank.
Negotiation: A bank (Nominated Bank) is said to negotiate a document if it purchases a draft and/or documents under a complying presentation either by making advance or agreeing to advance funds to the beneficiary on or before the date on which reimbursement is due to the nominated bank . A draft drawn on a nominated bank can not be purchased by itself.
Read more about this topic: Letter Of Credit
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