One of the main advantages that LC grants to business owners is the fact that they can be resold to financial institutions. Something that other documents do not allow.

LC provides some guarantees to the businesses when dealing with financial institutions that other documents would fail to do. Especially when we are talking about exporting goods.

Through the use of LC, a business is more likely to keep the same exchange rates in the course of transactions regardless of the changes that countries do in their currencies. It is not in the best interest of local governments to show the world that the LC are not valid because there were changes in currency.

When there is an LC in the midst of a import or export transaction, there is more stability in the currency regardless of the changes in the country. This is for the duration of the LC. If currencies change within a country, governments would honor the agreements established in the LC.

The importers also see the benefits from the use of LC because they do not need to pay for the merchandise only when the documents arrive to a port or local airport.

The main advantage of a LC to the importer is that this fund should not pay until the documents arrive at a port or local airport and until they have satisfied all conditions in the credit.

One of the main drawbacks of LC for importers it the fact that the bank that issued them are often high, and there is also the likelihood that the LC reduces the lines of credit to request other loans.

The main disadvantage of LC for importers is the high prices of that the issuing banks establish. Having one may reduce the possibility of a business to obtain lines of credits.

There are some risks that LC can only alleviate but not prevent.

Exposure to movements in the exchange rate: Fluctuations in exchange rates may affect the demand of the product of a foreign company, when the currency strengthens national product denominated in that currency become more expensive for foreign customers, which may cause a decrease in demand and therefore a decline in inflows of cash.

Political risks are another risk. Corporations entering new markets in a foreign land have little control on the political context they enter.

Exposure to political risk: When multinational corporations, establish subsidiaries in other countries are exposed to political risk, which represents political actions taken by the host government or the public that affect the cash flows of multinational corporations. Letters of Credit have advantages, disadvantages and risks. We will call them LC throughout this document.