International Payment: Special Letters of Credit Flashcards

A set of vocabulary flashcards covering the definitions and characteristics of special letters of credit used in international trade, based on Chapter 13 of International Payment, 4th Edition.

Special Credits

Credits designed to meet specific needs of buyers, suppliers, and intermediaries, which involve increased participation by banks and higher financing and service charges.

Standby Credit

Often called nonperforming letters of credit because they are only used if the collection on a primary payment method is past due, acting as an obligation to pay a beneficiary in the case of nonperformance by the applicant.

Nonperforming Letters of Credit

An alternative name for standby credits, reflecting that they are only utilized as a backup payment method if the collection on a primary payment method is past due.

Revolving Credit

A commitment by an issuing bank to restore a credit to its original amount without the need for amendment after it has been used or drawn down, often used for multiple delivery contracts.

Cumulative Revolving Credit

A type of revolving credit where any sum not utilized by the beneficiary during an installment period may be carried over and added to a subsequent installment period.

Noncumulative Revolving Credit

A type of revolving credit where any value not utilized during an installment period may not be carried over and added to a subsequent installment period.

Red Clause Credit

A documentary credit containing a special clause, traditionally written in red ink, that authorizes the confirming bank to make advances to the beneficiary (seller) prior to the presentation of shipping documents.

Transferable Credit

A documentary credit where the original beneficiary may request that all or part of the proceeds be transferred to one or more other parties, typically the ultimate supplier.

Second Beneficiary

The party to whom part of the proceeds of a transferable credit is transferred by the original beneficiary; they cannot transfer the credit to a third beneficiary.

Back-to-Back Credit

A new credit opened on the basis of an already existing, irrevocable, non-transferable documentary credit which is used as collateral or support for the second credit.

Intermediary

A middleman who acts between a buyer and a seller to earn a profit for structuring a transaction, often using transferable or back-to-back credits to avoid committing their own funds.

Credit Available by Installments

A credit for the full value of goods requiring specific quantities to be shipped at intervals (e.g., weekly or monthly) allowing part-shipments, which is distinct from a revolving credit.