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:: Volume 11, Issue 4 (Fall 2016) ::
J. Mon. Ec. 2016, 11(4): 467-482 Back to browse issues page
Discounting of Letters of Credit; A Legal Analysis
Mohammad Taghi Rafiei 1, Akbar Tamizi1
1- University of Tehran
Abstract:   (1172 Views)

Letter of Credit is an international payment instrument whereby the issuing bank undertakes to pay the beneficiary, against presentation of certain stipulated documents, according to the conditions of the Letter of Credit. Discounting of LC for the short-term financing of the seller, due to the independent and irrevocable undertaking of the bank to make payment, is prevalent. Beneficiary gets the amount of the credit immediately (after discount rate deduction) in consideration of the assignment of the credit in discounting practice. Now, the main question is: how will the assignment of rights and proceeds under the Letter of Credit be executable and what will be its consequences? Hence, by surveying different methods of assignment of rights in accordance with LC, we study discounting Acceptance and Deferred Payment LCs as two kinds of deferred LCs. In discounting practices of LCs, if a fraud being discovered after the discounting transaction but before the payment due date, the discounting bank would be able to recover payment from issuing bank or confirming bank. According to our analysis, the most promising way for the assignment of rights and reducing the risk of discounting for the discounting bank is "Negotiation" of LC. Acceptance LC makes a favorable opportunity for discounting purposes because it includes bill of exchange as a negotiable instrument, and there is an organized secondary market for Acceptances.

Keywords: Assignment, Negotiation, Deferred, Acceptance, Fraud
Full-Text [PDF 159 kb]   (2152 Downloads)    
Type of Study: Original Research - Theoric | Subject: Macroeconomics
Received: 14 May 2018 | Accepted: 4 Sep 2018 | Published: 9 Dec 2018
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Rafiei M T, Tamizi A. Discounting of Letters of Credit; A Legal Analysis. J. Mon. Ec.. 2016; 11 (4) :467-482
URL: http://jme.mbri.ac.ir/article-1-299-en.html

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Volume 11, Issue 4 (Fall 2016) Back to browse issues page
Journal of Money and Economy Journal of Money And Economy
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