What is a confirmed Letter of Credit?

A confirmed Letter of Credit is one that involves two separate banks in the transaction, typically the buyer's bank (the issuing bank) and a second bank (the confirming bank), which adds its own guarantee to the payment. This ensures that the seller receives payment for the goods or services provided, thereby enhancing the reliability of the transaction. Even if the buyer's bank faces issues or is unable to make payment for any reason, the seller has the assurance that the confirming bank will fulfill the obligation, thus reducing risk in international trade.

The other options do not accurately reflect the nature of a confirmed Letter of Credit. For instance, it does require documentation to process, as the seller must present specified documents to prove that the goods have been shipped as per the agreed terms. Additionally, a confirmed Letter of Credit does not entail automatic payments without bank intervention; rather, the payment process is contingent upon the submission and acceptance of proper documents. Lastly, it is not a risk-free investment opportunity, as there are still market risks associated with international transactions despite the assurance provided by the letter of credit.