For an importer,which of the following is a disadvantage of using a letter of credit for international transactions?
A)It results in the importer losing control over the process of trading.
B)It reduces the exporter's level of trust in the importer.
C)It reduces the importer's ability to borrow funds for other purposes.
D)It requires the importer to repay the loan even before the merchandise is sold.
E)It is not issued at the importer's request.

Question

Quizplus · Accepted Answer

A letter of credit requires the importer to provide collateral for the transaction, which can reduce their ability to borrow funds for other purposes. Option A is incorrect as the importer retains control over the process of trading, as they can negotiate and set the terms of the letter of credit. Option B is incorrect as a letter of credit actually increases trust between the importer and exporter, as it ensures that payment will be made once the terms of the letter have been met. Option D is incorrect as the importer is not required to repay the loan until the term of the letter of credit has been completed. Option E is incorrect as the importer must request the letter of credit from a bank or other financial institution.

For an Importer,which of the Following Is a Disadvantage of Using