1) Describe what a Letter of Credit is and how it ensures payment.
2) Describe 3 types of risk that could affect the success of an Import or Export business and explain why it is a risk. (include 3 topics for full points)
3) What are the pros and cons of the recent trade wars between China and the US?
1. A Commercial Letter of Credit is taken as Guarantee to be used in payment of goods and services. It’s issued as guarantee that the applicant, the customer of issuing bank will execute responsibilities under an agreement. Its purpose is to guarantee that a seller will receive payment in full as long as certain delivery conditions have been met. 2. There are various types of risks that affect the success of an import or an export business, here I will refer to three. Credit risk Sometimes because of large distance, it becomes difficult for an exporter to verify the creditworthiness and reputation of an importer or buyer. Any false buyer can increase the risk of non-payment, late payment or even straightforward fraud. So, it is necessary for an exporter to determine the creditworthiness of the foreign buyer Poor quality risk Exported goods can be rejected by an importer on the basis of poor quality. So it is always recommended to properly check the goods to be exported. Sometimes buyer or importer raises the quality issue just to put pressure on an exporter in order to try and negotiate a lower price Legal risk International laws and regulations change frequently. Therefore, it is important for an exporter to drafts a contract in conjunction with a legal firm, thereby ensuring that the exporter's interests are taken care of.