For which of the following scenarios is a letter of credit necessary?

A letter of credit serves as a crucial financial instrument in international trade, particularly when dealing with new customers. When shipping to a new customer without an established credit history, the seller faces increased risk as there is no track record to assess the buyer's reliability in making payments. By using a letter of credit in this scenario, the seller can ensure that payment will be made upon fulfilling the terms of the agreement, provided that the proper documentation is presented. This arrangement reduces the risk for the seller and provides assurance that they will receive payment for the goods shipped.

In contrast, while letters of credit can be beneficial for all international shipments, they are not universally necessary. For domestic shipments, letters of credit are generally not required since both parties often have a better understanding of each other's creditworthiness and legal recourse is more accessible. Similarly, not all high-value transactions mandate a letter of credit; established relationships and other forms of payment methods can also be used effectively. Thus, the necessity of a letter of credit primarily arises in situations involving new customers where trust and financial risk are paramount.