Uncategorized TRANSFERRABLE LC VS BACK TO BACK LC By Mr Old Man Posted on April 15, 2013 4 min read 10 0 4,943 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUESTION Dear Mr. Old Man, Hope you and the family are just fine. Any growing tension to your country due to Korean conflicts? I've got a question (I have been trying to find the answer thru some sources but the explanation are not yet clear compared to the way you explained my previous questions). Which is more profitable for trader, transferable L/C or back to back L/C? And why? Thanks a lot for your willingness to have responded me in the midst of your valuable time. P. Bandung Indonesia—————- ANSWER Dear P. Thanks P. Those who produce and sell weapons would love wars as they can make profit from the wars. Like other peoples in the world we love peace and hope that the conflict between North Korea and the rest of the world will not lead to a nuclear war. We do not feel any tension. Regarding your questions, I would answer as follows: I don’t want to use the phrase “more profitable”. What I want to say is that the middle man (trader) would prefer a transferrable L/C to a back to back L/C arrangement. The reasons are as follows: The transferrable L/C and the transferred L/C are in fact one L/C. The transferring bank is willing to transfer the L/C as under the transferred L/C it would undertake to pay the second beneficiary only after its receipt of the proceeds from the issuing bank. The middle man is not required to have a credit line with the transferring bank nor cash deposit to secure the payment. A back to back L/C arrangement involves two L/Cs, a master L/C and a back to back L/C. The latter is independent of the former. The bank that issues a back to back L/C is exposed to risks as it must honour if the documents presented are complying irrespective of whether or not it receives the payment from the bank that issues the master L/C. It is because of this that banks would rarely agree to issue the back to back L/C unless the middle man is a good customer and has a credit line with the issuing bank. Best regards,Mr. Old Man