The Power of Metals and Commodities in Stock Market Trading One of the most important things in the stock market is knowing about metals and commodities. If you can understand the metals in commodities, you can trade in them. You can also trade stocks related to commodities. Copper: A Versatile Metal This is metal. The starting metal used by humans in the early stages is copper. And not just because it was used in the beginning; even now, after steel and aluminum, copper is used more. This is the third-largest metal-consuming country in the world. Usually, copper is seen more in electric wires. Because it conducts electricity easily and has less resistance compared to the other metals, The companies that are making these electric wires are listed in the stock market, and for them, copper is an important raw material. Historical significance and ongoing use Most of the electronics and machines we use, and most importantly, in construction, in building infrastructure, copper plays a very...
How many types of Letters of Credit are there & How do they work?
- Revocable Letter of Credit
- Green Clause LC
- UN Confirmed Letter of Credit
- Standby Letter of Credit
- Transferable Letter of Credit
- Back-to-Back Letter of Credit
- Red Clause LC
Let's take the example of someone who imports computer equipment from china. he/she
needs to buy in Letter of Credit the buyer will go to his/her bank and request for LC. After his request the bank gives a LC on his behalf and then the bank further transfers the LC to the advising bank. Advising bank checks the authenticity of that LC & sells it to the seller.
As soon as the LC reaches the seller, they ship the goods to the buyer And also submit the documents such as, bill of lading, etc. to the dealer bank Nominated bank is basically nominated bank of issuing bank Securities. it is also known as a negotiating bank. Point to be noted that nominated banks & advising banks can be the same.
When the documents are submitted to the negotiating bank, the beneficiary get their payments. Beneficiary means seller. And then negotiating banks after checking the documents send it to the issuing bank As per Letter of Credit, shipment are done or not.
Then the document is checked by the buyer after getting approval. The issued bank asks the applicant to release funds as soon as the applicant pays to an opening bank. Then the opening bank paid these funds to the negotiating bank. In this way, all of this cycle operates.
CLC
This type of Letter of Credit is called a "commercial Letter of Credit" CLC is one of the most common Letters of Credit and has only few conditions, it is for simple trade purposes generally facilitated by a guideline from an international chamber of commerce(ICC). These guidelines are called Uniform Custom and Practice for Documentary credits. These are conditions for a letter of credits set by ICC
What is StandBy Letter of Credit
As we know in Normal commercial Letter of Credit When a shipment is done then payment is made to the beneficiary, But in the case of StandBY, it is converse. StandBy LC payment is not made only when shipment is done but, it is also made when there is a breach of any contract. In that circumstance StandBy LC is opened.
E.g. let say a construction company fails to deliver the project on time Then StandBy L.C is taken from that company If the company also fails to pay then StandBy LC is opened. it acts like a bank guarantee LC are opened only when conditions are not met or in case of any breach
of the contract.
Unconfirmed LC
Unconfirmed Letter of Credit Means that the guarantee was fully taken by the issuing bank. the issuing bank takes the full guarantee. Let's assume, in the LC If buyer does the default then the issuing bank will do the whole payment. The guarantee of a big bank whose credit rating is good is often considered for Unconfirmed LC.
Transferable LC
Transferable LC Means Transferrable Letter of Credit In the transferable LC, the seller can transfer their right to any other party. The whole LC or some portion of it can assign our right to any other party. The beneficiary can be a part of a big company. Then it can happen that the LC can assign its rights to the holding company So this type of LC is called transferable LC.
Back-to-Back Letter of Credit
To understand it better Let's say, here is a buyer and a seller, the payment made through the LC in the buyer's bank & the advising bank reaches here and Then the LC reaches the seller, this is a normal trade. Let's assume, the seller is a house trader, but he does not have a manufacturing unit. It could be that he is only trading with you, now in this case. It will require payments, maybe it does not have goods immediately.
Then what he will do is, that he will go to the seller's bank & say that he is buying the goods from a different supplier which is a 3rd party source In which there are 3 parties who are trading
And then the bank will give him back to back LC.
Red clause LC
Red Clause Letter of Credit Means Advance Payment. It is basically used for advance payment.
Let's say, Buyer gives the normal LC to the issuing bank and then it will go to the nominated bank. Here the payment is not immediate to the seller. then Seller says, He wants an advance payment because he doesn't have goods immediately
Now, for manufacturing, packing, dispatching, shipping of those goods he will need money
He says, give me an LC for advance payment by which he can get some initial payment. then the issuing bank will say it to the nominated bank to give him the advance payment on their risk.
Green Clause LC
Green Clause Letter of Credit Means that It provides Advance payment to the seller for pre-shipment finance & storage at export terminal. A Green Clause LC is given and it is added in the common LC. The advance payment is done till the storage. The advance is adjusted by the nominated bank by the final payment according to the green clause LC.
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