Free «A Letter Of Credit, Bill of Exchange and Ex-Im Bank» Essay Sample

A letter of credit is a document used by financial institution in trading and provides an irreversible payment. A letter of credit is mostly used in international trading and acts as a mode of payment when exporting or importing goods and services. An importer in one country can exchange a commercial letter of credit with goods and services from an exporter in another country. The holder of the letter of credit is the one entailed to payment. Once the document is issued then the payment cannot be reversed unless all the parties involved agree on the changes. For payments to be done the holder must provide the following documents a document to show that the goods traded were insured, commercial invoice and bill of lading.(Warner, 2009)

A bill of exchange is a financial document that orders the person or business named on the document to make specified payments to the payee from the drawee which always a financial institution like a bank. The drawer of the bill of exchange must sign on the document. The bill of exchange can be endorsed to the third party by the payee and the third part is also free to endorse to other parties. The last party has a right to receive payment from the drawee without any restrictions.(Musgrove, 1929)

The export import bank of the United States acts as an export credit agency for the United States government. It enables the United States government to import goods from other currents through financing and also insuring the imports especially if the foreign customers do no accept credit transactions. The bank also funds exports traded by the United States. The bank is restricted from competing with the private sector instead it should fund transactions that traders are not willing or have no financial ability to undertake due to the risks involved in the trade. I support the existence of the bank because it is one of the chief supporters of the United States economy. It does this by facilitating efficient import and export of products in the United States and also sustaining employment through provision of insurance, loans and guarantees to traders. (Becke & McClenahan, 2003)