Definition:

An instrument issued by Citibank^® in favor of a beneficiary (exporter) and on behalf of the applicant (importer). Citibank^® commits to the payment of the transaction, provided that the exporter complies with the terms stipulated in the Letter of Credit.

Advantages:

	The importer is assured that payment will only be made only if the exporter complies with the terms and specifications stated in the L/C (quantity, statements, documents, terms, etc).
	Is particularly useful in those cases in which both importer and exporter do not know each other well, or it is a new relationship.
	The importer can improve his negotiating power by having Citibank® commit to the payment.
	In many cases is required by the exporter in order to eliminate sovereign risk of the importer’s country through confirmation.

Please note that:

	Because Citibank® is committing to the payment of the Letter of Credit, the importer must maintain a credit line with Citibank®.
	Banks never commit for the state of the merchandise covered by the Letter of Credit; only documents are verified to comply with the specifications.

Costs:

	Issuing fees and amendments of amount and/or term. As the exposure for the bank is directly related to amount and term, the quotation is for the total amount of the L/C and for the whole term (credit validity + deferred term, if applicable). It is usually a percentage per annum.
	The confirmation fee is collected by a bank from the exporter’s country and is generally a percentage of the total amount of the L/C.
	Other costs: discrepancies, amendments, telex, mail, etc.

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