Explain the role of the advising bank in a letter of credit transaction
What will be an ideal response?
Once a bank issues a letter of credit, it will commonly deliver the credit to a correspondent bank located in the beneficiary's county, which will in turn deliver the credit to the beneficiary. The correspondent, formally known as an advising bank, assumes no liability for paying the letter of credit. Its only obligation is to the issuing bank, to ensure that the beneficiary is advised and the credit delivered, and to take "reasonable care to check the apparent authenticity of the credit." It does this by comparing the signature on the credit with the authorized signatures it maintains on file.
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