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Minimizing Commercial Risk Through a Letter of Credit Essay


I’m working on a finance question and need an explanation and answer to help me learn.

This case study deals with the decision facing an Indian leather-garment-manufacturing start-up, engaged in exports and seeking to expand. The company started with a few clients in the United States and is now looking to find more clients in that country, as well as expanding its export business in Canada. Through out this process a primary concern of the company is to minimize commercial risk.The case allows for a discussion of various concepts related to Documentary Letters of Credit as a means for payment in international trade and how it benefits both exporters and importers. Through out the case the student will be able to ascertain the essential role played by international banking in facilitating and financing trade.

1. Describe the dilemmas or concerns of buyers/importers and sellers/exporters in international trade

2. Explain Mohanty’s business decision problem

3. Explain the various payment options available in international business, and their relative merits and demerits for exporters and importers 

4. Explain the various risks in international trade. Identify risks that are common in domestic trade and risks that are unique to international trade. Explain the methods for managing these risks

5. identify the most crucial risk when an exporter deals with new clients from developed countries. Explain the best payment method for mitigating commercial (default risk). How should Muhanty manage the commercial risk her company is facing

6. Explain the concept and mechanics of a Documentary Letter of Credit (DLC) and its application in international business (see attached exhibit). How does a Documentary Letter of Credit (DLC) work as a credit enhancement device for importers and a credit risk-mitigating tool for exporters?

7. Provide a detailed explanation of What you Have Learned from the Case


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