Answer to Question #144339 in Economics for Nethra

Question

Current trends in trade finance exhibit a clear shift to open account-based trade and away from the traditional (and more secure) documentary credit. By some estimates, documentary letters of credit are now utilized in about 4% of trade transactions, even where higher-risk markets are involved.

1. Discuss the assertion by a senior European trade banker that "we are just one major crisis away from a mass return to traditional trade finance instruments, particularly the letter of credit."

2. What characteristics of the letter of credit might be the basis for such a statement?

Answer 1

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