LGST4120 Ch. 11

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back to back letter of credit

(at request of beneficiary) third bank agrees to issue a second letter of credit, using the first letter as collateral. -second letter is often used to pay the beneficiary's suppliers

Export-Imort Bank (Eximbank)

...

Foreign Corporation Insurance Agency (FCIA)

...

Overseas Private Insurance Corporation (OPIC)

...

Small Business Administration (SBA)

...

bill of exchange

...

without recourse

...

international standby practices (ISP98)

10 seperate rules governing standby letters of credit

foraiting

Long term financing - draft given to exporter to obtain nonrecourse financing - terms are negotiated in advance so the exporter is assured of payment before shipping the goods

irrevocable letter of credit

Most commonly type (letter of credit) used in export transactions. Provides more security, given the bank cannot revoke it at any time

factoring

Short term financing - exporter sells a _______ company the right to cecieve payment. That company then discounts the amount of payment owed to the exporter in order to produce the desired rate of return

documentary credit transaction

The removal of the risk of nonpayment. - the buyer obtains a letter of credit from bank that guarantees payment to seller ****substituting the credit or guarantee of a bank (for that of a buyer) eliminates risk of nonpayment

standby letter of credit

Type of credit issues as a guarantee against default by any parties to the contract. ****used to gaurantee performance rather than payment**** -only paid on default (party doesn't perform) **same purpose as bank guarantee/performance bond

Convention on Independent Letters of Guarantee and Standby Credits

UNCITRAL's rules governing guarantee/standby **ineffective (only 6 states joined)

red clause financing

Unsecured Financing seller recieves an advance (monetary) on the letter of credit prior to presenting documents ****purchaser trusting the exporter

open account transaction

Unsecured type of financing -seller does not require payment until after purchaser recieves goods/documents ****exporter trusting the buyer

power of attorney

_______ allows the freight forwarder to complete documents in the name of the exporter

amendment

a change to a letter of credit (issued by bank and signed by all parties)

World Bank

a development

sight draft

a draft that does not specify time of payment

retention fund

a surety in the form of a corporate guarantee from the parent company. Not a third party guarantee but an arrangement between the principal parties.

banker's acceptance

bank accepts a draft int becomes a negotiable instrument known as a ___________. *** this can be sold to another bank at a discount for immediate payment

Nominating bank

bank designated by the issuing bank, where the beneficiary party can give documents/get paid (does not have to be advising or confirming bank)

confirming bank

bank in beneficiary's country that further guarantees the issuing banks commitment to pay the letter of credit

Unifrom Commercial Code - Article 5

basic rules for letter of credit transactions within the US

draft

collections instrument that acts like a check. Seller presents documents for payment on a LoC (which is a draft drawn on the LoC). The draft is an order to the bank/account party to pay. **documentary draft - seller acts as botht the drawer and the payee

letter of credit

commercial bank guarantee of either payment by the buyer (______) or performance by one of the parties (stanby ______) ***bank guarantee

freight forwarder

coordinates the movement of goods, secures the bill of lading, and copletes other documentation as requireded in the letter of credit

acceptance

creates independant obligation drawee/payer - _____ converts a draft into a negotiable instrument

transferable credit

credit can be transferred by beneficiary party in whole or part to secondary beneficiaries UCP requires the original credit exprssly provide for transferablity

Bill of Lading

document of title. Negotiable bill allows the transfer of good while in transit. - negotiable = collateral to secure loan

performance bond

guarantee from an insurance company to pay the insured in case of default. (same purpose as standby) *minimizes buyer's risk of nonperformance by the seller

credit surety

guarantees repayment to a bank or lender who finances an export transaction or development project

customs broker

importer/buy may seek advice regarding import regulations (required documentation) from this party prior to signing a contract.

advising bank

intermediary bank that chooses not confirm/guarantee LoC from issuing bank. No contractual relationships are formed between issuer or beneficiary ** no liability - meaning choice of law will generally go to issuing bank's state

UCP 500

international rules for letters of credit pyblished by ICC in paris **current version known as _______

time draft

like a postdated check - can only be cashed sometime after the presentation of the document (draft may be sued on - independanct of underlying export contract)

documentary letter of credit

payment under a ______ is based on documents , not on terms of sale or the condition of goods sold

demand guarantee

popular means of guaranteing performance. "any guarantee, bond or other payment undertaken by a bank, insurance company or other body or person given in writing for the payment of money on presentation in conformity with the terms of the undertaking of a writen demand for payment and such other documents as may be specified in the Guarantee *secures performance on a nonmonetary obligation -default device when performance is unsatisfactory ****banks pay a documentary LoC when things go right, called upon to pay a ________ or standby letter only if things go wrong

facial compliance rule

refers to the principle that a bank's ONLY obligation in a LoC transaction is to review document *not to be confused w/ strict compliance(the standard by which banks review)

bid bond

required to bid on government procurement contracts - inusres against the risk of a bidder not honoring its bid

documentary collections transaction

seller does not give up control of goods until the buyer purchases the document, minimizing seller's risk of not being payed - simultaneously minimizes buyer's non-delivery risk b/c it ooobtains legal control over the goods in transit (only risk is fraud) - bank does not act as a guarantor of payment

Convention Providing a Uniform Law for Bills of Exchange and Promissory Notes

states that "a bill of exchange or draft contains: (1) an unconditional order to pay a determinate sum of money; (2) the name of the drawee/payer; (3) statement of the time of payment; (4) place where payment is made; (5) name of person payee/who is getting paid; (6) date/place the bill is isssued; and (7) the signature of the person who issues the bill (drawer)

21 Day Rule

states that the bill of lading, and accompanying documents, must be presented tot he bank within twenty-one days from their prcurement ***parties can avoid this through express terms in the letter of credit (can be implied from parties' actions/interpretation/requirements

Uniform Rules for Demand Guarantees

the ICC's rules to govern Demand Guarantees. 28 articles. discourages unfair calls (banks) by requiring a statement from the beneficiary describning the way in which the principal is in breach

issuing bank

the bank that accepts the application for LoC and forms contract between the account party (buyer) and itself. This bank then issues LoC, forming contract w/ beneficiary party to pay the contract price upon the presentation of documents *** Contractual relationships are independent of on another (seller v. buyer is not related to seller v. bank)

beneficiary party

the party for which the letter of credit is ISSUED ***receiving payment (ie. exporter/seller of goods)

account party

the party requesting or applying for the letter of credit from a bank

rule of strict compliance

the strandard by which banks review documents presented for payment under a LoC. Banks ensure that documents submitted by beneficiary are exactly corresponding to the letter of credit

pro forma invoice

used in export import financing - know financing factors beforehand

trade acceptance

when buyer signs the draft, and is formally obligated to pay within the stated time

approximate

word usage in UCP500 that fixes variants in amount of goods as ranging 5% (<,>)


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