Foreign Direct Investment
is investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset
Types of FDI
There are two types of FDI:
Greenfield investment : It is the direct investment in new facilities or the expansion of existing facilities. It is the principal mode of investing in developing countries.
Mergers and Acquisition : It occurs when a transfer of existing assets from local firms takes place.
Forbidden Territories:
FDI is not permitted in the following industrial sectors:
Arms and ammunition.
Atomic Energy.
Railway Transport.
Coal and lignite.
Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc
Investment in India
Government of India recognizes the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. The Government of India has put in place a liberal and transparent FDI policy.
FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging economies. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI.
Saturday, 13 November 2010
Monday, 8 November 2010
DOCUMENTARY COLLECTIONS
Documentary collection is the collection by a bank of funds due from a buyer against the delivery of documents. The bank, acting as agent for the seller (exporter), presents documents to
the buyer (importer) through that party's bank and in exchange receives payment of the amount owed, or obtains acceptance of a time draft for payment at a future date.
The liability of the bank under a documentary collection is primarily restricted to following the seller's instructions in forwarding and releasing documents against payment or acceptance.
How is Documentary Collection different from an L/C or Open Account?
Unlike a letter of credit, the bank does not assume any liability to pay if the buyer does not want or is unable to pay. Compared to open account sales, the documentary collection offers more
security to the seller, but less than a letter of credit
When should a Documentary Collection be used?
Numerous criteria are applied by businesses when determining which payment instrument to offer as a term of sale. However, in general, a documentary collection would be appropriate
where:
1) The seller and the buyer know each other to be reliable.
2) There is no doubt about the buyer's willingness or ability to pay.
3) The political and economic conditions of the buyer's country are stable.
4) The importer's country does not have restrictive foreign exchange controls.
What are the advantages of a Documentary Collection?
1) Simple and inexpensive handling compared to letters of credit.
2) Often faster receipt of payment than open account terms.
3) Seller retains title to the goods until payment or acceptance is made.
What are the disadvantages of Documentary Collection?
If the buyer refuses or is unable to pay, the seller has three options, which could be expensive:
1) Find another buyer.
2) Pay for return transportation
3) Abandon the merchandise.
Who are the parties involved?
1) PRINCIPAL - exporter, seller, remitter, drawer of the draft.
2) REMITTING BANK - exporter's bank handling the collection
3) PRESENTING OR COLLECTING BANK - usually the buyer's bank.
4) DRAWEE - importer, buyer, payee.
What types of Documentary Collections are there?
1) Documents against Payment (D/P) also known as "Sight Draft" or "Cash against Documents” (CAD). The buyer must pay before the collecting bank releases the title documents.
2) Documents against Acceptance (D/A). The buyer accepts a time draft, promising to pay for the goods at a future date. After acceptance, the title documents are released to the buyer.
What are the steps in documentary collection?
1) The buyer (importer) and seller (exporter) agree on the terms of sale, shipping dates, etc., and that payment will be made on a documentary collection basis.
2) The exporter, through a freight forwarder, arranges for the delivery of goods to the port/airport of departure.
3) The forwarder delivers the goods to the point of departure and prepares the necessary documentation based on instructions received from the exporter.
4) Export documents and instructions are delivered to the exporter's bank by either the exporter or the freight forwarder.
5) Following the instructions of the exporter, the bank processes the documents and forwards them to the buyer's bank.
6) The buyer's bank, on receipt of documents, contacts the buyer and requests payment or acceptance of the trade draft.
7) After payment or acceptance of the draft, documents are released to the buyer, who utilizes them to pick up the merchandise.
8) The buyer's bank remits funds to the seller's bank or advises that the draft has been accepted.
9) On receipt of good funds, seller's bank credits the account of the exporter.
the buyer (importer) through that party's bank and in exchange receives payment of the amount owed, or obtains acceptance of a time draft for payment at a future date.
The liability of the bank under a documentary collection is primarily restricted to following the seller's instructions in forwarding and releasing documents against payment or acceptance.
How is Documentary Collection different from an L/C or Open Account?
Unlike a letter of credit, the bank does not assume any liability to pay if the buyer does not want or is unable to pay. Compared to open account sales, the documentary collection offers more
security to the seller, but less than a letter of credit
When should a Documentary Collection be used?
Numerous criteria are applied by businesses when determining which payment instrument to offer as a term of sale. However, in general, a documentary collection would be appropriate
where:
1) The seller and the buyer know each other to be reliable.
2) There is no doubt about the buyer's willingness or ability to pay.
3) The political and economic conditions of the buyer's country are stable.
4) The importer's country does not have restrictive foreign exchange controls.
What are the advantages of a Documentary Collection?
1) Simple and inexpensive handling compared to letters of credit.
2) Often faster receipt of payment than open account terms.
3) Seller retains title to the goods until payment or acceptance is made.
What are the disadvantages of Documentary Collection?
If the buyer refuses or is unable to pay, the seller has three options, which could be expensive:
1) Find another buyer.
2) Pay for return transportation
3) Abandon the merchandise.
Who are the parties involved?
1) PRINCIPAL - exporter, seller, remitter, drawer of the draft.
2) REMITTING BANK - exporter's bank handling the collection
3) PRESENTING OR COLLECTING BANK - usually the buyer's bank.
4) DRAWEE - importer, buyer, payee.
What types of Documentary Collections are there?
1) Documents against Payment (D/P) also known as "Sight Draft" or "Cash against Documents” (CAD). The buyer must pay before the collecting bank releases the title documents.
2) Documents against Acceptance (D/A). The buyer accepts a time draft, promising to pay for the goods at a future date. After acceptance, the title documents are released to the buyer.
What are the steps in documentary collection?
1) The buyer (importer) and seller (exporter) agree on the terms of sale, shipping dates, etc., and that payment will be made on a documentary collection basis.
2) The exporter, through a freight forwarder, arranges for the delivery of goods to the port/airport of departure.
3) The forwarder delivers the goods to the point of departure and prepares the necessary documentation based on instructions received from the exporter.
4) Export documents and instructions are delivered to the exporter's bank by either the exporter or the freight forwarder.
5) Following the instructions of the exporter, the bank processes the documents and forwards them to the buyer's bank.
6) The buyer's bank, on receipt of documents, contacts the buyer and requests payment or acceptance of the trade draft.
7) After payment or acceptance of the draft, documents are released to the buyer, who utilizes them to pick up the merchandise.
8) The buyer's bank remits funds to the seller's bank or advises that the draft has been accepted.
9) On receipt of good funds, seller's bank credits the account of the exporter.
Saturday, 6 November 2010
A little about Bank Guarantees ( BG )/ Standby Letter of Credit (SBLC)
Introduction
A Bank Guarantee (more properly called a Banker’s Guarantee) is a banking arrangement whereby a bank substitutes its creditworthiness for that of its customer.
Unlike an L/C which is intended to be paid, a BG is a contingent obligation. “Contingent” means “depending on the happening of an event, which may or may not occur” and 99% of the time it is not paid because the event does not happen.
The terms SBLC and BG are interchangeable, both do the same work and both serve the same purpose. The difference between a BG and a SBLC is legal, a BG is a simple obligation subject to civil law whereas a SBLC is issued subject to UCP 500 and ISP 98, both well-accepted banking protocols. Both SBLCs or BGs can be issued and sent by Swift, telex, courier, mail, messenger or
pigeon. The mode of transmission does not matter.
What Is A Bank Guarantee?
A bank guarantee is a written obligation, or guarantee, from an issuing bank promising to pay a set sum of money to a beneficiary who is doing business with a client of the bank’s, in the event that the bank’s client defaults on the payment contractually promised to the beneficiary
TYPES OF GUARANTEES
Tender/Bid Guarantee
In practice tender guarantees or bid bonds are often used by a party to safeguard its interest in the event that the party submitting the tender withdraws prior to entering into a legally binding contract. If a party that has submitted a tender later withdraws it from the buyer this could cost the buyer dearly in terms of time and costs in retendering.
Advance Payment Guarantee
If the seller has requested an advance payment, then the buyer can request a bank guarantee to cover the advance payment in the event that the seller fails to fulfill its obligations as stipulated in the contract. This is rarely needed in sugar trading, as payment is usually made by a letter of credit, under which payment is only made to the seller in the event that the conditions of the contract are fulfilled.
Performance Guarantee
A performance bond guarantee is a bank guarantee which is issued by the seller and given to the buyer. If the seller fails to meet the terms of the contract, then the buyer is entitled to claim payment on the bank guarantee, which is normally around ten percent of the total value stipulated on the contract. It is standard practice for the seller to issue the buyer a performance bond guarantee.
Payment Guarantee
A payment guarantee is simply an assurance provided by the buyer to the seller that payment will be made upon shipping of goods. This is the most common form of bank guarantee usage in the global sugar trading industry, and buyers can expect most sellers to request a bank guarantee for the purpose of securing payment in the case of the buyer defaulting on the contract.
Retention Guarantee
supports an obligation to account for retention money made by the beneficiary to the principal/applicant. Retention guarantee may increase in accordance with the successive releases of the retention money. It is advisable that the Retention Guarantees/Standby explicitly stipulates that it does not take effect until the retention money has been received by the principal/applicants account at the issuing bank.
Warranty Guarantee
support remedies and any defects, which become apparent after delivery of the goods or after provisional or substantial completion of the plant.
Loan Guarantee
A loan guarantee is a promise by a person or an entity to assume a debt obligation in the event of non payment by the borrower. The person or entity that guarantees the loan is referred to as the guarantor.
A Bank Guarantee (more properly called a Banker’s Guarantee) is a banking arrangement whereby a bank substitutes its creditworthiness for that of its customer.
Unlike an L/C which is intended to be paid, a BG is a contingent obligation. “Contingent” means “depending on the happening of an event, which may or may not occur” and 99% of the time it is not paid because the event does not happen.
The terms SBLC and BG are interchangeable, both do the same work and both serve the same purpose. The difference between a BG and a SBLC is legal, a BG is a simple obligation subject to civil law whereas a SBLC is issued subject to UCP 500 and ISP 98, both well-accepted banking protocols. Both SBLCs or BGs can be issued and sent by Swift, telex, courier, mail, messenger or
pigeon. The mode of transmission does not matter.
What Is A Bank Guarantee?
A bank guarantee is a written obligation, or guarantee, from an issuing bank promising to pay a set sum of money to a beneficiary who is doing business with a client of the bank’s, in the event that the bank’s client defaults on the payment contractually promised to the beneficiary
TYPES OF GUARANTEES
Tender/Bid Guarantee
In practice tender guarantees or bid bonds are often used by a party to safeguard its interest in the event that the party submitting the tender withdraws prior to entering into a legally binding contract. If a party that has submitted a tender later withdraws it from the buyer this could cost the buyer dearly in terms of time and costs in retendering.
Advance Payment Guarantee
If the seller has requested an advance payment, then the buyer can request a bank guarantee to cover the advance payment in the event that the seller fails to fulfill its obligations as stipulated in the contract. This is rarely needed in sugar trading, as payment is usually made by a letter of credit, under which payment is only made to the seller in the event that the conditions of the contract are fulfilled.
Performance Guarantee
A performance bond guarantee is a bank guarantee which is issued by the seller and given to the buyer. If the seller fails to meet the terms of the contract, then the buyer is entitled to claim payment on the bank guarantee, which is normally around ten percent of the total value stipulated on the contract. It is standard practice for the seller to issue the buyer a performance bond guarantee.
Payment Guarantee
A payment guarantee is simply an assurance provided by the buyer to the seller that payment will be made upon shipping of goods. This is the most common form of bank guarantee usage in the global sugar trading industry, and buyers can expect most sellers to request a bank guarantee for the purpose of securing payment in the case of the buyer defaulting on the contract.
Retention Guarantee
supports an obligation to account for retention money made by the beneficiary to the principal/applicant. Retention guarantee may increase in accordance with the successive releases of the retention money. It is advisable that the Retention Guarantees/Standby explicitly stipulates that it does not take effect until the retention money has been received by the principal/applicants account at the issuing bank.
Warranty Guarantee
support remedies and any defects, which become apparent after delivery of the goods or after provisional or substantial completion of the plant.
Loan Guarantee
A loan guarantee is a promise by a person or an entity to assume a debt obligation in the event of non payment by the borrower. The person or entity that guarantees the loan is referred to as the guarantor.
Thursday, 7 October 2010
FAQ’S On BILL OF EXCHANGE
1. COULD YOU BRIEFLY EXPLAIN BILL OF EXCHANGE?
It is an instrument unconditional order signed by the maker directing certain party to make the payment of certain amount to certain party or the bearer of the instrument.
Essential Elements of Bill
1. Date
2. Time 3
3. Amount
4. Parties
5. Stamp
6. Far value received ( Consideration )
7. Acceptance
* It is of two types: 1 order 2. Bearer
* it is of two types : 1 real 2. Accommodation
* it is of two types : 1 date of payment fixed 2. Sight bill
2. WHAT ARE THE MAIN FEATURES OF A BILL OF EXCHANGE?
A) ”Bill of Exchange” included in the current text (applicable also under H)
B) Drawer´s name = Name and address of the issuer of the Bill of Exchange i.e. the Seller.
C) Drawee’s name = Name and address of the paying part.
D) The amount expressed in letters.
E) The amount expressed in figures.
F) Date of issue = the date of the issuance of the Bill of Exchange.
G) Maturity = The maturity date of the Bill of Exchange. Upon immediate payment , write ”At sight”. Upon payment at a pre-determined date, write maturity yyyy-mm-dd ” ” at a pre-determined date after shipment, e.g. 60 days after B/L date, write”60 days date” in G) and under F) date of shipment When a Bill of Exchange matures at a pre-determined period after acceptance, e.g. 60 days sight the acceptance shall include maturity date.
H) Payee = the party receiving payment at maturity. In this field usually is written ”ourselves” and the issuer of the Bill of Exchange makes an endorsement on the reverse of the Bill of Exchange. The endorsement is consisting of the firm’s stamp alt. the company’s written name plus a signature of the person authorised to sign the Bill of Exchange.
If required in a Letter of Credit or otherwise that a First and Second of Exchange should be presented, write on the first “First (Second unpaid)” and on the second “Second (First unpaid)”
I) Field for additional information if applicable, e.g. Letter of Credit No.
J) Drawer´s signature = The Seller’s firm stamp+ signature alt. the company’s written name plus the signature of the person authorised to sign the Bill of Exchange.
K) When the drawee has accepted the Bill of Exchange he is called acceptor.
L) It could be payable at a the domicile of a third party, e.g. a bank, whose address should be stated.
M) Place of payment is the domicile of the drawee provided that M) is not evidencing otherwise
3. WHICH INTERNATIONAL CONVENTIONS ARE USUALLY GOVERNING BILLS OF EXCHANGE?
Usually the Geneva or UK Convention.
4. WHAT HAPPENS IF THE ACCEPTOR DOESN’T PAY TIMELY?
Default of payment must be evidenced by an authentic act (protest for non-acceptance or non-payment), usually carried out by a Notary Public at the place where payment of the Bill of Exchange should have been done. The bona-fide holder (a holder in good faith) of the Bill of Exchange should approach the Notary Public. A summary protocol is established upon protesting. This may be utilized by the Bill of Exchange holder facilitating summary proceedings. A protest is made official at the place where payment should have been made.
5. CAN YOU EXPLAIN “ENDORSEMENT”?
Endorsement is a legal term for the physical handing over of the instrument. The person handing over it (the endorser) to a succeding party can either endorse to a named party or make it payble to the bearer – that is the person duly holding the Bill of exchange.
6. CAN INTEREST BE SPECIFIED IN A BILL OF EXCHANGE
When a bill of exchange is payable at sight, or at a fixed period after sight, the drawer may stipulate that the sum payable shall bear interest. The rate of interest must be specified in the Bill of Exchange, in default of such specification the stipulation shall be deemed not to be written.
7. FROM WHICH DATE RUNS THE INTEREST IN A BILL OF EXCHANGE?
From the date of the Bill of Exchange issuance, unless some other date is specified.
It is an instrument unconditional order signed by the maker directing certain party to make the payment of certain amount to certain party or the bearer of the instrument.
Essential Elements of Bill
1. Date
2. Time 3
3. Amount
4. Parties
5. Stamp
6. Far value received ( Consideration )
7. Acceptance
* It is of two types: 1 order 2. Bearer
* it is of two types : 1 real 2. Accommodation
* it is of two types : 1 date of payment fixed 2. Sight bill
2. WHAT ARE THE MAIN FEATURES OF A BILL OF EXCHANGE?
A) ”Bill of Exchange” included in the current text (applicable also under H)
B) Drawer´s name = Name and address of the issuer of the Bill of Exchange i.e. the Seller.
C) Drawee’s name = Name and address of the paying part.
D) The amount expressed in letters.
E) The amount expressed in figures.
F) Date of issue = the date of the issuance of the Bill of Exchange.
G) Maturity = The maturity date of the Bill of Exchange. Upon immediate payment , write ”At sight”. Upon payment at a pre-determined date, write maturity yyyy-mm-dd ” ” at a pre-determined date after shipment, e.g. 60 days after B/L date, write”60 days date” in G) and under F) date of shipment When a Bill of Exchange matures at a pre-determined period after acceptance, e.g. 60 days sight the acceptance shall include maturity date.
H) Payee = the party receiving payment at maturity. In this field usually is written ”ourselves” and the issuer of the Bill of Exchange makes an endorsement on the reverse of the Bill of Exchange. The endorsement is consisting of the firm’s stamp alt. the company’s written name plus a signature of the person authorised to sign the Bill of Exchange.
If required in a Letter of Credit or otherwise that a First and Second of Exchange should be presented, write on the first “First (Second unpaid)” and on the second “Second (First unpaid)”
I) Field for additional information if applicable, e.g. Letter of Credit No.
J) Drawer´s signature = The Seller’s firm stamp+ signature alt. the company’s written name plus the signature of the person authorised to sign the Bill of Exchange.
K) When the drawee has accepted the Bill of Exchange he is called acceptor.
L) It could be payable at a the domicile of a third party, e.g. a bank, whose address should be stated.
M) Place of payment is the domicile of the drawee provided that M) is not evidencing otherwise
3. WHICH INTERNATIONAL CONVENTIONS ARE USUALLY GOVERNING BILLS OF EXCHANGE?
Usually the Geneva or UK Convention.
4. WHAT HAPPENS IF THE ACCEPTOR DOESN’T PAY TIMELY?
Default of payment must be evidenced by an authentic act (protest for non-acceptance or non-payment), usually carried out by a Notary Public at the place where payment of the Bill of Exchange should have been done. The bona-fide holder (a holder in good faith) of the Bill of Exchange should approach the Notary Public. A summary protocol is established upon protesting. This may be utilized by the Bill of Exchange holder facilitating summary proceedings. A protest is made official at the place where payment should have been made.
5. CAN YOU EXPLAIN “ENDORSEMENT”?
Endorsement is a legal term for the physical handing over of the instrument. The person handing over it (the endorser) to a succeding party can either endorse to a named party or make it payble to the bearer – that is the person duly holding the Bill of exchange.
6. CAN INTEREST BE SPECIFIED IN A BILL OF EXCHANGE
When a bill of exchange is payable at sight, or at a fixed period after sight, the drawer may stipulate that the sum payable shall bear interest. The rate of interest must be specified in the Bill of Exchange, in default of such specification the stipulation shall be deemed not to be written.
7. FROM WHICH DATE RUNS THE INTEREST IN A BILL OF EXCHANGE?
From the date of the Bill of Exchange issuance, unless some other date is specified.
Wednesday, 6 October 2010
RED CLAUSE Vs. GREEN CLAUSE
RED CLAUSE LETTER OF CREDIT
In the case of a red clause letter of credit (letter of credit with advance payment) the seller can request the advance payment of an agreed amount (defined in the terms and conditions of the letter of credit) from the correspondent bank. This is basically intended to finance the production or purchase of the goods to be delivered under the letter of credit. The advance is normally paid out against receipt and the written undertaking of the beneficiary to subsequently deliver the transportation documents by an agreed date.
GREEN CLAUSE LETTER OF CREDIT
In the case of a green clause letter of credit (letter of credit with advance payment) the beneficiary can request the advance payment of an agreed amount (defined in the terms and conditions of the letter of credit) from the correspondent bank. This is basically intended to finance the production or purchase of the goods to be delivered under the letter of credit. Unlike the red clause letter of credit the advance is not paid out against receipt and the written undertaking of the beneficiary to subsequently deliver the transportation documents by an agreed date, but an additional document is also always required providing proof that the goods to be shipped have been warehoused.
In the case of a red clause letter of credit (letter of credit with advance payment) the seller can request the advance payment of an agreed amount (defined in the terms and conditions of the letter of credit) from the correspondent bank. This is basically intended to finance the production or purchase of the goods to be delivered under the letter of credit. The advance is normally paid out against receipt and the written undertaking of the beneficiary to subsequently deliver the transportation documents by an agreed date.
GREEN CLAUSE LETTER OF CREDIT
In the case of a green clause letter of credit (letter of credit with advance payment) the beneficiary can request the advance payment of an agreed amount (defined in the terms and conditions of the letter of credit) from the correspondent bank. This is basically intended to finance the production or purchase of the goods to be delivered under the letter of credit. Unlike the red clause letter of credit the advance is not paid out against receipt and the written undertaking of the beneficiary to subsequently deliver the transportation documents by an agreed date, but an additional document is also always required providing proof that the goods to be shipped have been warehoused.
Saturday, 2 October 2010
TYEPES OF BANKS IN TRADE FINANCE
Advising bank
A bank normally located in the country of residence of an Exporter, used by an Importer's bank to validate the authenticity of a Letter of Credit before the Letter of Credit is passed to the Exporter.
Issuing Bank
Buyer's or importer's bank which establishes (opens) a letter of credit (L/C) in favor of a beneficiary (seller or exporter), forwards it to an advising bank for delivery to the beneficiary, and commits itself to honor demand drafts drawn by the beneficiary against the amount specified in the L/C. Also called opening bank.
Nominated Bank
A bank designated by the issuing bank which is authorized to pay, to accept draft(s), to incur a deferred payment undertaking, or to negotiate the letter of credit (L/C) is known as the nominated bank. The nominated bank can be a party other than the advising bank.
Correspondent Bank
The term correspondent bank or correspondent used in international trade refers to another bank in another country with which the first bank maintains a banking service agreement.
Confirming Bank
A bank which engages to honor a letter of credit issued by another, or engages that such letter of credit will be honored by the issuer or by a third bank.
Paying, Accepting or Negotiating Bank
The nominated bank which:
* makes payment to the sight draft(s) drawn by the beneficiary is known as paying bank,
* accepts the term draft(s) drawn by the beneficiary is known as accepting bank,
* negotiates the draft(s) and/or documents presented by the beneficiary or bona fide holder is known as negotiating bank.
When the bank negotiates the draft(s) and/or documents, that is, the negotiation, it gives value to such draft(s) and/or documents, not just examination of the documents.
Transferring Bank
The paying, accepting or negotiating bank that makes the credit available in whole or in part to one or more second beneficiaries at the request of the first beneficiary is known as the transferring bank.
Reimbursing Bank
Reimbursing bank" means the bank instructed or authorized to provide reimbursement pursuant to a reimbursement authorization issued by the issuing bank.
Collecting bank
In documentary credit, the bank (usually the buyer's bank) that collects cash payment or a time draft from a buyer, in exchange for bill of lading and/or other documents which enable the buyer to take delivery of the shipment. The collecting bank then forwards the payment to the remitting bank (usually the seller's bank) for eventual remittance to the seller.
Remitting Bank
intermediary bank in documentary collections that forwards a seller's shipping documents to the collecting-bank, and the payment in the opposite direction
Presenting BankBank that submits (presents) a financial instrument (check, draft, letter of credit, etc.) to the advising or paying bank to seek a payment
A bank normally located in the country of residence of an Exporter, used by an Importer's bank to validate the authenticity of a Letter of Credit before the Letter of Credit is passed to the Exporter.
Issuing Bank
Buyer's or importer's bank which establishes (opens) a letter of credit (L/C) in favor of a beneficiary (seller or exporter), forwards it to an advising bank for delivery to the beneficiary, and commits itself to honor demand drafts drawn by the beneficiary against the amount specified in the L/C. Also called opening bank.
Nominated Bank
A bank designated by the issuing bank which is authorized to pay, to accept draft(s), to incur a deferred payment undertaking, or to negotiate the letter of credit (L/C) is known as the nominated bank. The nominated bank can be a party other than the advising bank.
Correspondent Bank
The term correspondent bank or correspondent used in international trade refers to another bank in another country with which the first bank maintains a banking service agreement.
Confirming Bank
A bank which engages to honor a letter of credit issued by another, or engages that such letter of credit will be honored by the issuer or by a third bank.
Paying, Accepting or Negotiating Bank
The nominated bank which:
* makes payment to the sight draft(s) drawn by the beneficiary is known as paying bank,
* accepts the term draft(s) drawn by the beneficiary is known as accepting bank,
* negotiates the draft(s) and/or documents presented by the beneficiary or bona fide holder is known as negotiating bank.
When the bank negotiates the draft(s) and/or documents, that is, the negotiation, it gives value to such draft(s) and/or documents, not just examination of the documents.
Transferring Bank
The paying, accepting or negotiating bank that makes the credit available in whole or in part to one or more second beneficiaries at the request of the first beneficiary is known as the transferring bank.
Reimbursing Bank
Reimbursing bank" means the bank instructed or authorized to provide reimbursement pursuant to a reimbursement authorization issued by the issuing bank.
Collecting bank
In documentary credit, the bank (usually the buyer's bank) that collects cash payment or a time draft from a buyer, in exchange for bill of lading and/or other documents which enable the buyer to take delivery of the shipment. The collecting bank then forwards the payment to the remitting bank (usually the seller's bank) for eventual remittance to the seller.
Remitting Bank
intermediary bank in documentary collections that forwards a seller's shipping documents to the collecting-bank, and the payment in the opposite direction
Presenting BankBank that submits (presents) a financial instrument (check, draft, letter of credit, etc.) to the advising or paying bank to seek a payment
Wednesday, 1 September 2010
CDCS Questions 3/500
1. What is the instrument to which the Letter of Credit can be historically
Related?
The term ‘Letter of Credit’ was perhaps first used with Traveller’s Letters of Credit
issued by banks in the western world to provide their clients with a means of obtaining cash from banks abroad for use during their foreign travel
2. What two key elements are a prerequisite to trigger the exchange of payment
for goods in the usual Documentary Credit cycle?
Payment is exchanged for documents in the Documentary Credit cycle provided the
stipulated documents are presented and the terms and conditions of the Credit are
complied with.
3. What two key elements provide commonality to the terms?
● Letters of Credit
● Commercial Credit
● Documentary Credit
● Standby Letters of Credit
All four terms generically refer to the same product which undertakes payment to
the Beneficiary on the conditions that the documents stipulated in the Credit are
presented and all terms and conditions of the Credit are complied with.
Related?
The term ‘Letter of Credit’ was perhaps first used with Traveller’s Letters of Credit
issued by banks in the western world to provide their clients with a means of obtaining cash from banks abroad for use during their foreign travel
2. What two key elements are a prerequisite to trigger the exchange of payment
for goods in the usual Documentary Credit cycle?
Payment is exchanged for documents in the Documentary Credit cycle provided the
stipulated documents are presented and the terms and conditions of the Credit are
complied with.
3. What two key elements provide commonality to the terms?
● Letters of Credit
● Commercial Credit
● Documentary Credit
● Standby Letters of Credit
All four terms generically refer to the same product which undertakes payment to
the Beneficiary on the conditions that the documents stipulated in the Credit are
presented and all terms and conditions of the Credit are complied with.
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