Question Details

Can you think of any alternative strategy that the U.S. exporter 



1. Letters of Credit. Ocean Traders of North America is a firm based in Mobile, Alabama, that
specializes in seafood exports and commonly uses letters of credit (L/Cs) to ensure payment. It
recently experienced a problem, however. Ocean Traders had an irrevocable L/C issued by a
Russian bank to ensure that it would receive payment upon shipment of 16,000 tons of fish to a
Russian firm. This bank backed out of its obligation, however, stating that it was not authorized to
guarantee commercial transactions.
a. Explain how an irrevocable L/C would normally facilitate the business transaction between
the Russian importer and Ocean Traders of North America (the U.S. exporter).
b. Explain how the cancellation of the L/C could create a trade crisis between the U.S. and
Russian firms.
c. Why do you think situations like this (the cancellation of the L/C) are rare in industrialized
countries?
d. Can you think of any alternative strategy that the U.S. exporter could have used to protect
itself better when dealing with a Russian importer?




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