Risk Situations in Letter-of-credit Transactions
Fraud Risks
- The payment will be obtained for nonexistent or worthless merchandise against presentation by the beneficiary of forged or falsified documents.
- Credit itself may be forged.
Sovereign and Regulatory Risks
- Performance of the Documentary Credit may be prevented by government action outside the control of the parties.
Legal Risks
- Possibility that performance of a Documentary Credit may be disturbed by legal action relating directly to the parties and their rights and obligations under the Documentary Credit
Force Majeure and Frustration of Contract
- Performance of a contract – including an obligation under a Documentary Credit relationship – is prevented by external factors such as natural disasters or armed conflicts
Risks to the Applicant
- Non-delivery of Goods
- Short shipment
- Inferior Quality
- Early /Late Shipment
- Damaged in transit
- Foreign exchange
- Failure of Bank viz Issuing bank / Collecting Bank
Risks to the Issuing Bank
- Insolvency of the Applicant
- Fraud Risk, Sovereign and Regulatory Risk and Legal Risks
Risks to the Reimbursing Bank
- no obligation to reimburse the Claiming Bank unless it has issued a reimbursement undertaking.
Risks to the Beneficiary
- Failure to Comply with Credit Conditions
- Failure of, or Delays in Payment from, the Issuing Bank
Read more about this topic: Letter Of Credit
Famous quotes containing the words risk and/or situations:
“Its a funny thing, the less people have to live for, the less nerve they have to risk losingnothing.”
—Zora Neale Hurston (18911960)
“There are situations in life to which the only satisfactory response is a physically violent one. If you dont make that response, you continually relive the unresolved situation over and over in your life.”
—Russell Hoban (b. 1925)