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  • 10.9.3-RISK AND THE RELATION TO TRADE CREDIT-ADVANCE LETTER OF CREDIT

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  • Advance letter of credit

     
     
    This is similar to the red clause L/C but it limits the amount that can be drawn without presentation of documents to a percentage of the invoice value and requires the exporter to present an original set of bills of lading before a specific date. Again, inclusion of a 'green clause' can extend the availability of credit through presentation of warehouse receipts as collateral.

    Both red clause and advance letters of credit are used when local financing is not available or is available only at excessively high rates of interest. From the point of view of the trade bank or the buyer, the credit provided is unsecured.