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Stand By Letters of Credit
(SBLC's)
Stand By Letters of Credit
(SBLC's) - Cash them in for real dollars.
Note: This also applies to Letter of Credit (LC); Irrevocable Letter of
Credit (ILC); and Pay Orders
Value
conversion depends on many factors, some fixed, some floating such as:
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Type of Letter of Credit
varies and includes (SBLC, ILC, LC, Pay Order, etc.)
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It is Usually viewed
as a SBLC is the Better Bank Instrument
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SBLCs are issued on
a Bank-to-Bank Basis only
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The Issuing Bank Rating
as well as location (branch) of Bank
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Who is issuing the instrument
- individual, company, government, etc.
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Instrument Must Be in
US Dollars only
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Bank Policy
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Market Conditions
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Client Anticipation
of Return
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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
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These types of Bank Instruments
can be issued to individuals, corporations, trust, pension funds,
endowments, non profit organizations, or to any payable entity.
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Individuals who hold
such an instrument may have problems with 3rd party transactions or
banks.
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LC, ILC, or SBLC are
often times issued for the sale and purchase of tangible assets.
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It is often easier to
raise a 'Credit Line' than convert the instrument to CASH!
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Fluctuating World Market
Conditions set the pace and determine the trading value, if any.
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Usually most every instrument
can be converted, however, some are just Not desirable Trading Instruments
on the current World Market.
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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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