The Risk And Risk Prevention Facing Banksunder Lc Settlement

Letter of credit appeared in 19th century, and nowadays has been developed to be a mature and widely used payment medium in international trade. The function of LC is to provide a payment medium guaranteed by banking credit in international trade, but not to put an end to risks, indeed, there is no such kind of payment tool that can prevent risks completely. From the point of view of banks, this paper analyzes the risks arising from LC settlement and raises some active suggestions by analyzing theories and examples, which provides valuable references for banking risk prevention and favors enterprises in escaping from commercial risks in international trade.This paper comprises of five chapters. ChapterⅠintroduces researching aims, significance and present status. ChapterⅡintroduces the concept and procedure of LC. ChapterⅢanalyses the characteristics of LC and the three risk causes of LC settlement, which are risks from banking credit, pure documents business and LC independence. ChapterⅣelaborates on risks of credit, market and operation etc, and raises some risk prevention measures. In credit risk aspect, this paper analyses risks of importers, exporter and banks; market risks refer to risks from the changing of marketing factors such as exchange rate, interest rate and commodity prices;the document risk part illustrates risks on bill of lading and gives hint on how banks process LC disputes; LC fraud risk part lists the features of fraud commonly met and imposes defending suggestions; operating risks part describes the risks rising from imperfect inside control mechanism and manual factors ect, and raises measures on the construction of regulation and intellectual; the country and law risks part reminds of the risks occurs from politics, economies, military factors and social environment. Chapter V mainly illustrates the changes from UCP500 to UCP600 and the influence on banking risk control, esp. makes an thoroughly thinking on LC risk managing system, and points out that banks must innovate to set up a comprehensive and future-oriented risk managing system, for instance, to perfect risk managing system, to structure a foreign exchange risk managing organization, to set up and perfect the international business inside control system, to build an excellent talent team, and to coordinate with corporate in risk control aspect.