ABSTRACT
LETTERS OF CREDIT IN INTERNATIONAL TRADE On the first night of our classes in international business and international finance, we typically ask our students what they want to get out of taking our course (other than an A or B!). Many students answer that they would like to better understand how to “do international business.” The purpose of this beginning to the final chapter is to demystify options available to domestic business (i.e., the “good guys” of popular lore) from commercial banks (i.e., the “bad guys” of the popular press) in the hopes of experiencing what economist Jagdish Bhagwati calls the “Dracula effect”: exposing a problem to light
in the hopes that it shrivels up and goes away. Essentially, “doing” international business typically requires the use of a letter of credit or some variant thereof. The use of letters of credit demonstrates the essential role of commercial banks in international business.
