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:
“Nature, we are starting to realize, is every bit as important as nurture. Genetic influences, brain chemistry, and neurological development contribute strongly to who we are as children and what we become as adults. For example, tendencies to excessive worrying or timidity, leadership qualities, risk taking, obedience to authority, all appear to have a constitutional aspect.”
—Stanley Turecki (20th century)
“Part of the responsibility of being a parent is to arrange situations in children’s lives so they are able to meet crises with a reasonable chance of coping successfully with them.... Parents who believe children are unharmed by crises and will simply bounce back in time seriously misunderstand children.”
—Donald C. Medeiros (20th century)