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Study on Credit and Leading Decision

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Added on  2020-05-04

Study on Credit and Leading Decision

   Added on 2020-05-04

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Running head: CREDIT AND LENDING DECISION Credit and Lending DecisionName of the StudentName of the UniversityAuthor note
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1CREDIT AND LENDING DECISIONAnswer 3There are different kinds of risk involved in approving the letter of credit as well asthe line of credit by GMMC. Line of credit is the kind of commitment from bank to make payment on the behalf ofcustomers. This is the kind of arrangement between the financial institutions as well asbetween the different customers that helps in establishing maximum balance of loan that thelender will permit the borrower in order to maintain or access ( Ru, Hong and Antoinette2016).On the other hand, letter of credit is the kind of letter from a particular bank thatguarantees the payment of the buyers to the seller that will be received on particular time forcorrect amount as well. The letter of credit is balanced method of payment in terms ofdifferent risks for both the bank as well as the companies. The entire responsibility of theletter of credit is on the banks and the responsibility is one such party who bears the risk inthe transactions related to the letter of credit as well. There are different kinds of risk that isinvolved in the letter of credit as well as line of credit for the company as well as the banks(Jia et al. 2016).There are different kinds of risk that are involved in the bank as well as in thedifferent companies such as GMMC as well. The main risk is involved with the bank as theseare the ones who pay the amount and issue the letter of credit on the behalf of the companies.The risk involved with the bank is regarding the amount that is paid by the bank has to becontrolled as well as this can be a large issue in the future as well. On the other hand, thereare different kinds of risk that are involved with the company as well when the amount is notbeing able to be refunded by them, then the property of the company will be seized by thebank as well (Emekter et al. 2015).
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2CREDIT AND LENDING DECISIONRisks involved in line of credit in case of Bank In case of bank, there are different kinds of risk that has to be borne by the bank whenthe customer is not being able to pay off the amount that has been paid by the bank on behalfof the respective customer. The dangers or risks that are involved in such cases are asfollows:The line of credit is based on the interest rate that is variable in nature. When thecustomer is not being able to pay the specific amount, this will be risk that will beborne by the respective bank as per the conditions of the market that will changeaccordingly (Tirole 2014).There can be loss of collateral when the payments are not made on time by thecustomers to the respective bank. This is a kind of dangerous risk that can be borne bythe bank and this will permit the bank in seizing the property of the individual whohas not been able to pay the amount to the bank that has been paid by the bank inbehalf of the customer (Bluhm et al. 2016).These are the different kind of risks that has to be properly borne by the bank inbehalf of the individual (Souza 2014). This line of credit risks has to be properly handled bythe bank as this will help both the company along with the company with proper maintenanceof the interest rates involved in it as this will help in achieving the amount by seizing theproperty of the respective customer or the company who has taken such line of credit fromthe bank.The Motor City National Bank should not increase as well as approve both the line aswell as letter of credit as this will be a huge risk for the respective bank as well as thecompany.
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