Chapter six Letter of credit

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Chapter six Letter of credit

• 6.1 An Overview of Letter of Credit
• 6.2 Parties to Letter of Credit
• 6.3 Procedures of documentary credit operation
• 6.4 Types of Letter of Credit
• 6.5 Inspection and Amendment of letter of credit
• 6.6 Amendment of Letter of Credit

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Definition Characteristics of a L/C Contents of
a L/C Uniform customs and practice
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1.Definition of L/C

• A L/C is a written undertaking by the issuing
  bank to the beneficiary, under which the bank
  will pay a sum certain in money to the
  beneficiary if the beneficiary of the L/C
  provides the bank with specified documents within
  a prescribed time period, which all comply with
  the terms and conditions of the credit.

L/C is a letter from a bank promising to pay on
certain specific condition ????????????????????
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Characteristics of a L/C
A. Primary Liability of the Issuing Bank to Make
Payment
B. Separated from the sales
C. Dealing with Documents Only
D. High level of protection and security to both
buyers and sellers
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Assignment translate the L/C on page 88
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Contents of a L/C

• Items on the credit itself
• Basic parties
• Items on draft
• Settlement conditions?????
• Items on goods, shipping documents , transport
  and insurance
• L/C amount and currency
• Additional conditions
• Reimbursement of the paying, accepting and
  negotiating bank
• The notation of the credit subject to UCP600

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Uniform Customs and Practice
6.1.4 Uniform Customs and Practice for
Documentary Credits

• UCP 500

• UCP 600

• ISBP

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6.2 Parties to letter of credit
Applicant/buyer ???
Issuing bank/the buyers bank ???
Beneficiary/seller ???
Advising bank ???
Confirming bank ???
??? negotiating bank
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??? APPLICANT

• Liable for payment to the issuing bank provided
  
• no discrepancy between documents and the
  credit (????????????)
• right to examine the documents and refuse
  payment(?????????)
• any requirement of the applicant should be
  satisfied by certain documents and clearly
  indicated when making credit application(?????????
  ???????)
• Issuing application form (???????)

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??? Issuing bank

• Require the applicant to hand over certain
  percentage of credit amount as a margin when it
  opens a credit.(???????)
• After effecting the payment, the issuing bank may
  handle goods under the credit and make claim on
  the importer if the importer is unable to pay the
  issuing bank.(?????????????)
• If there are any discrepancies in the documents,
  the issuing bank may reject the
  payment.(?????????)
• The issuing bank may be exempted from its
  obligation for delay or loss of
  transmission.(???????????,???????????)

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??? Beneficiary

• The right to examine a credit upon receipt of it
  according to the sales contract
• whether be paid or not solely depends on the
  fulfillment of terms and conditions of the
  credit.

????????????,?????????????? ??????,??????,????? ??
????????,????????????? ?????,??????????????????
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??? Advising bank

• According to UCP600article 2, advising bank
  means the bank that advises the credit at the
  request of the issuing bank.
• Advising bank is usually the correspondent bank
  of the issuing bank in the exporters country,
  which verifies the authenticity of the letter of
  credit and any amendment and forwards them to the
  beneficiary.

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??? negotiating bank

• According to the UCP600, Negotiation means the
  purchase by the nominated bank of drafts (drawn
  on a bank other than the nominated bank) and/or
  documents under a complying presentation by
  advancing or agreeing to advance funds to the
  beneficiary on or before the banking day on which
  reimbursement is due to the nominated bank.

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??? Confirming bank

• According to UCP600article 2, confirming bank
  means the bank that adds its confirmation to a
  credit upon the issuing banks authorization or
  request.
• the confirming bank undertakes the same
  independent responsibility for payment as that of
  the issuing bank

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??? Reimbursing bank

• The reimbursing bank is the bank that holds the
  local currency account of the issuing bank.

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6.3 The procedure of L/C
Application of Issuing L/C by applicant
Issue of L/C by issuing banks
L/C delivered by advising bank
Shipment of goods and presentation of documents
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Procedures of L/C
A buyer and a seller enter into a sales contract
providing payment by a documentary credit
(????)
Step 1

• The buyer instructs the issuing bank to issue a
  documentary credit in favor of the seller
• (????)

Step 2
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The issuing bank opens a documentary credit
according to the instructions of the applicant
(??)
Step 3

• Step 4

The issuing bank asks another bank, usually in
the country of the seller, to advise and perhaps
also to add its confirmation to the documentary
credit
Step 5

• The seller examines the documentary credit, and
  requires an amendment of the credit if necessary.
  (??)

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• The seller presents his documents to the advising
  bank for settlement

Step 6
The negotiating bank forwards documents to the
issuing bank, claiming reimbursement as agreed
between the two banks. The issuing bank examines
the documents and make reimbursement.

• Step 7

• The buyer redeems(??) the documents and picks up
  the goods against the documents

Step 8
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Procedures of L/C
1)contract
Buyer/ applicant
Seller/ beneficiary
Shipping company
10)pick up goods
6)
9)examine documents and ask the buyer to redeem
5)examine and require an amendment
7)payment
2)application and cash deposits
4)advise L/C
3)opens a L/C
Advising bank designated bank
Issuing bank
8)Forwards documents and claiming reimbursement
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4.Types of L/C
UCP600?????????????
Revocable L/C
Irrevocable L/C
Confirmed L/C
Unconfirmed L/C
????,??????? ????????
Documentary L/C
Clean credit
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UCP600???UCP500????????

Sight payment L/C
Negotiable L/C
Deferred payment L/C
Bankers acceptance credit
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????L/C sight payment credit

• 1. THIS CREDIT IS AVAILABLE WITH ISSUING
• BANK(OR XX) BY PAYMENT AT SIGHT.
• 2.??
• ????????,????????
• ????????????? ??????????,????????????(?????)??
  ??,?????????????????

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????L/C deferred payment credit

• ???????,??????????????
• ????????,??????????
• This credit is available with advising bank by
  deferred payment at 30 days after date of bill of
  lading against the documents detailed herein.
• ?????????????,???????????

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????? acceptance credit

• In a bankers acceptance credit, a time draft
  drawn on the issuing bank or any other nominated
  drawee bank by the beneficiary is essential, and
  the drawee of the draft should be bank only.

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• ??????
• Usance Letter of Credit Payable at sight
• This usance drafts are payable on a sight-basis,
• discount charges and acceptance commission
• are for buyers account

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• ??????????,????????
• 1. ?????????,????(????)??,?????????????Usance
  Drafts to be negotiated at sight basis and
  discounted by us (Issuing Bank), discount charges
  and acceptancecommission are for Importer's
  account.
• 2. ?????????,????????Usance draft to be
  negotiated at sight basis, interest is for
  buyer's account.

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• 3. ????????????,????????The Negotiating Bank is
  authorized to negotiate the usance drafts at
  sight for the face amount.
• 4. ????????????????????Usance drafts drawn under
  this credit are to be negotiated at sight basis.
  
• 5, UCP600 ?????? 42C DRAFTS ATAT XXX DAYS AFTER
  SIGHT ????????

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????? negotiation credit

• A negotiation credit refers to the
• credit under which the issuing
• bank authorizes other nominated
• banks to purchase the documents
• and /or drafts presented by the
• beneficiary.

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Special Types of L/C

• Transferable L/C
• Back to Back Credit
• Reciprocal credit
• Revolving L/C
• Anticipatory credit
• Green clause L/C Red clause L/C

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Transferable L/C ??????

• According to UCP600 Article 38, a transferable
  credit means a credit that specifically states it
  is transferable. A transferable credit may be
  made available in whole or in part to another
  beneficiary (second beneficiary) or several
  other beneficiaries at the request of the
  beneficiary (first beneficiary).

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CASE
C?? ???
A?? ???
B?? ???
C????????B??,B????????A???????????1.full set of
clean B/L made out to order with blank endorsed
and notify applicant. 2.the name of applicant
must be appeared in inspection certificate of the
health as the consignee .
Question
?????????????????
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Answer

• 1.full set of clean B/L made out to order with
  blank endorsed and notify C company.
• 2.the name of C company must be appeared in
  inspection certificate of the health as the
  consignee

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• ?????(Back to Back Credit)

• Once the letter of credit is received by the
  middleman from the opening bank, that letter of
  credit is used as security to establish a second
  letter of credit drawn on the exporter in favor
  of his supplier. So a back-to-back documentary
  credit process actually involves two separate
  documentary credits one opened by the buyer in
  favor of the middleman, and one opened for the
  account of the middleman naming the actual
  supplier of the goods as the beneficiary.

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?????(reciprocal credit)

• A reciprocal credit is mostly used in a barter
  trade, a trade of processing of incoming
  materials, a counter trade, or a compensation
  trade. In the above types of trade, there are
  usually two transactions and letters of credit
  involved. The applicant of one credit(the
  original credit)may assume the position of the
  beneficiary of the other credit(the reciprocal
  credit), and the beneficiary of the first credit
  is the applicant of the second credit.

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?????(revolving credit)

• The amount of the credit can be renewed or
  reinstated without specific amendments to the
  credit.

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• Revolving around time ?????
• This is a monthly revolving credit which is
  available for up to the amount of USD15000 per
  month, and the full credit amount will be
  automatically renewed on the 1st day of each
  succeeding calendar month. Our maximum liability
  under this revolving credit does not exceed
  USD90000 being aggregate value of six months.

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• Revolving around value ?????
• This credit is revolving for three
  shipments only. Each shipment should be effected
  at one month interval. The amount of each
  shipment is not exceeding USD50000. The total
  value of this revolving credit does not exceed
  USD150000.

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??????????????? cumulative revolving
???? non-cumulative revolving????? ?????? automat
ic revolving?????? periodic revolving
(semi-automatic revolving)??????? notice
revolving (non-automatic revolving)???????
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?????(anticipatory credit)

• Anticipatory credit includes red clause letter of
  credit and green clause credit. Under this letter
  of credit variation, the beneficiary is able to
  obtain advances or funds against (from within)
  the letter of credit in order to purchase or
  process merchandise or carry out other
  activities. The beneficiary does not have to
  borrow money to get money.

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• ??????,???????????,?????????????????????,????,????
  ????,????????????
• ??????,???????????????,???????????,???????????????
  ??????????????????,???????????????????????????????
  ???????????????,???????

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Inspection of Letter of Credit

1. Advising bank inspect the credit

Issuing bank inspect the credit application and
applicants credit
Advising bank inspect the credit

Beneficiary inspect the credit it
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Check the soft clause

• .?The credit clause stated that the credit become
  effective unless the issuing bank give another
  instruction or notice.
• ?The credit clause stated that the beneficiary
  must submit an inspection certificate signed by
  the buyer after the cargo arrived the
  destination.
• ?The credit clause stated that the beneficiary
  must submit a certain document signed by a
  nominated person.

?????????????????????4000??????????
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• ?The credit note that the issuing banks payment
  must be on the applicants acceptance on the
  draft drawn by beneficiary.
• ?The credit may ask for documents impossible to
  get. For example, asking for the container B/L in
  cabin etc. which can not be got by shipper
  according to transportation regulation.
• ?The credit terms seems easy but actually
  impossible to carry on. So that the issuing bank
  get the right to dishonor all the time.
• ?The credit specify that 1/3 original B/L and
  one set of non-negotiable documents to be sent to
  applicant within 3 days after shipment by DHL.

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case