Question

Regarding the nature of liability and default triggers, what is the core operational difference between a Letter of Credit (L

Q: Answer-Regarding the nature of liability and default triggers, what is the core operational difference betw...

Under an LC framework, the banks obligation is primary it is an undertaking to pay the seller directly upon presentation of compliant shipping documents, without waiting for any contractual default to occur. Conversely, a Bank Guarantee is a secondary, contingent contract where the banks liability is only triggered if the applicant defaults on their obligation to the beneficiary.

C and a Bank Guarantee (B
G ?

A An LC carries a contingent liability that triggers only on default, whereas a BG carries a primary liability that does not wait for a default.

B An LC constitutes a primary liability where the bank pays against documents without waiting for a default, whereas a BG is a contingent liability triggered strictly by the applicant's default.

C An LC involves only two parties, whereas a BG legally requires a minimum of four parties.

D An LC is always treated as a long-term fund-based asset, whereas a BG is strictly a short-term fund-based asset.

E There is no difference; both require immediate layout of funds from the bank at the time of sanction.

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Regarding the nature of liability and default triggers, what is the core operational difference between a Letter of Credit (L

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