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Stand By Letters of Credit
(SBLC’s)
Value
conversion depends on many factors, some fixed, some floating
Hints
Value
conversion depends on many factors, some fixed, some floating such as:
- Type of Letter of Credit varies and includes
(SBLC, ILC, LC, Pay Order, etc.)
- It is Usually viewed as a SBLC is the
Better Bank Instrument
- SBLCs are issued on a Bank-to-Bank Basis
only
- The Issuing Bank Rating as well as location
(branch) of Bank
- Who is issuing the instrument - individual,
company, government, etc.
- Instrument Must Be in US Dollars only
- Bank Policy
- Market Conditions
- Client Anticipation of Return
- Place Transaction Occurs
What is done with ‘Cash’ after conversion
- this is becoming a paramount issue with banks converting the instrument,
the preferred and acceptable method is to deposit a portion of the redeemed
funds with the honoring bank, usually not less than 20% for a period of
not less than six (6) months.
Hints
- These types of Bank Instruments can be
issued to individuals, corporations, trust, pension funds, endowments,
non profit organizations, or to any payable entity.
- Individuals who hold such an instrument
may have problems with 3rd party transactions or banks.
- LC, ILC, or SBLC are often times issued
for the sale and purchase of tangible assets.
- It is often easier to raise a 'Credit
Line' than convert the instrument to CASH!
- Fluctuating World Market Conditions set
the pace and determine the trading value, if any.
- Usually most every instrument can be converted,
however, some are just Not desirable Trading Instruments on the current
World Market.
- Certain Required "Documentation'
is needed for this type of transaction.
Recommended further
reading:
ICC
endorsement of the UNCITRAL Convention on Independent Guarantees and Stand-by
Letters of Credit
The mechanics of prime bank SLCS
and guarantees
Letters of Credit (LC, ILC & Pay Order)
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