From my treasury expertise at Ecobank Ghana, where I’ve handled numerous LCs, I address this with references to UCP 600 and Ghanaian trade finance practices.

a) Definition of a Documentary Credit under UCP 600:

• Under Article 2 of UCP 600, a documentary credit (LC) is defined as any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honor a complying presentation. This means the bank commits to pay the beneficiary upon presentation of stipulated documents (e.g., invoices, transport docs) that comply with LC terms, independent of the underlying contract.
• In practice, this autonomy principle protects parties in international trade; e.g., in Ghana’s oil imports, LCs under UCP 600 ensure payment security amid exchange controls (Act 723), reducing default risks and aligning with BoG’s trade facilitation.

b) Contractual Relations Between the Parties to Documentary Credits:

• Applicant (Buyer) and Issuing Bank: Contractual via application agreement; applicant reimburses the bank and provides indemnity for discrepancies.
• Issuing Bank and Beneficiary (Seller): The LC creates a direct, irrevocable obligation; bank pays on complying docs, independent of applicant disputes (autonomy principle).
• Issuing Bank and Advising/Confirming Bank: Agency relationship; advising bank authenticates LC, confirming bank adds its undertaking, sharing risks in cross-border deals.
• Beneficiary and Advising/Confirming Bank: Beneficiary relies on confirmation for added security; no direct contract with applicant under LC.
• Overall: Relations are privity-limited; e.g., in Ghanaian cocoa exports, these ensure enforceability, with fraud exception allowing injunctions. BoG oversight prevents misuse, as seen in post-cleanup trade finance recoveries.