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Types of Letters of Credit - Page II

This is the second page of types of letters of credit.
















Confirmed Letters of Credit 
It would be easier to understand the confirmed letters of credit if we start from the definition of the confirmation.
 
Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honor or negotiate a complying presentation.
 
If a letter of credit's payment undertaking is guaranteed by a second bank, in addition to the bank originally issuing the credit this kind of credit is called confirmed letter of credit. The confirming bank agrees to pay or accept drafts against the credit even if the issuer refuses to do so. Only irrevocable credits can be confirmed.

Clean Letters of Credit :
Below two different definitions of clean letters of credit are given.

A letter of credit payable upon presentation of the draft, without any supporting document being required.(www.businessdictionary.com)
L/C that does not require any document other than a written demand for payment by its beneficiary. In effect, a draft.(www.intracen.org)

Clean letters of credit are issued only by the request of the highest credit standing companies. It is suitable for variety commercial situations where no movement of goods is expected. Historically these types of credits have been used in traveler's letters of credit. Today direct pay standby letter of credit can be given as an example of clean letters of credit. 
 
There are also some other form of letters of credits which deserve special attention. We will discuss them by one by more in detail however; you can find short description of each of them below.
 
Transferable Letters of Credit
 
Transferable letter of credit is a documentary credit that is issued with the option to allow a trader to transfer its rights and obligations to the supplier.
 
Back-to-Back Letters of Credit
 
Arrangement in which one irrevocable letter of credit serves as the collateral for another; the advising bank of the first letter of credit becomes the issuing bank of the second L/C. Unlike transferable letters of credit, there are two separate letter of credits exist in back-to-back letter of credit transactions.
 
Advance Payment (Red Clause) Letters of Credit
 
Letter of credit that carries a provision (traditionally written or typed in red ink) which allows a seller to draw up to a fixed sum from the advising or paying-bank, in advance of the shipment or before presenting the prescribed documents.  
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Unconfirmed Letters of Credit 
Unconfirmed Letters of Credit can be described as a letter of credit, which has not been guaranteed or confirmed by any bank other than the bank that opened it. In these types of credits, the only bank that undertakes to honor a complying presentation is the issuing bank.
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