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Simple English definitions for legal terms
negotiating bank
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A quick definition of negotiating bank:
A negotiating bank is a type of bank that buys or discounts drafts (a type of financial document) that are drawn under a letter of credit issued by another bank. This means that they help people get money for things they need by buying their financial documents. It's like if you had a ticket to a concert but couldn't go, so you sold it to someone else who wanted to go. The negotiating bank is the person buying the ticket in this example.A more thorough explanation:
Definition: A financial institution that discounts or purchases drafts drawn under a letter of credit issued by another bank.
Example: Company A wants to buy goods from Company B in another country. Company B requires payment through a letter of credit issued by a bank. Company A's bank, the negotiating bank, agrees to pay Company B for the goods and then collects the payment from Company A.
Explanation: In this example, the negotiating bank acts as an intermediary between the buyer and the seller. It provides a guarantee of payment to the seller and assumes the risk of non-payment from the buyer. The negotiating bank also charges a fee for its services.