A firm wants to start doing business with a supplier on another continent. Which of the following methods to minimize financial risk would best protect the supplier and customer?

Question

Quizplus · Accepted Answer

A letter of credit (L/C) is a payment method that provides financial protection to both the supplier and the customer. It involves a bank guaranteeing payment to the supplier once the conditions outlined in the agreement are met. This protects the supplier from non-payment and the customer from supply disruptions. Bank drafts and cash-on-delivery terms do not offer the same level of protection, and currency hedging is a separate financial strategy that does not directly address payment security.

A Firm Wants to Start Doing Business with a Supplier