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14. LETTERS OF CREDIT:

PROCEDURES

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LETTERS OF CREDIT

I. THE NEED FOR LETTERS OF CREDIT

A. USES TO THE SELLER WITH A FIRST-TIME CUSTOMER

WITH A CREDIT RISKY BUYER

WITH A CUSTOMER FROM A COUNTRY WITH

EXCHANGE CONTROLS

WHO MAY FACE THE RISK BUYER DEFAULTSBECAUSE PRICES HAVE DROPPED

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LETTERS OF CREDIT

B. DEFINITION

1. a l!!" a##"$$# !% !& $ll"'

2. (")!!* a*# $)+*# , a ,a*'

/. (&% a0!$ %* !& ,"$ ,&al3.

-Ba* 4"%5)$$ !% 4a #"a3!$'4"%6)## $ll" 4"3%"5$

7a0!l.

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LETTERS OF CREDIT

C. USUAL CONDITIONS8

1. Sll" $,5)!$ #"a3! ()!& #%05*!$.

a. D%05*!$

19 *+%!)a,l ,)ll %3 la#)*+

-0a* , a$$)+*#29 )*$"a*0 0"!)3)0a!

/9 0%55"0)al )*6%)0

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LETTERS OF CREDIT

Advantages to the Exporter

C"#)! ")$ l)5)*a!#

R#0$ 70&a*+ "a!a*# 4%l)!)0al ")$

N% N# 3%" C"#)!C&0

R;)"5*!$ !% 4aa" (ll-*%(*

P"$&)45*! ")$a6%)##

Fa0)l)!a!$ 3)*a*0)*+

I55#)a! 4a5*!

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L=C$ Fa0)l)!a! F)*a*0)*+

>

an!ers A""eptan"es 8 ";)" a !)5

#"a3! 3"%5 !& 74%"!" !% !& )54%"!"$

,a*U*#" L!!"$ %3 0"#)!' B=A$ a" $40)all

a$ !% 0"a!

W)!& $%*# 0"#)! ,a0)*+' ,a*$ "a# !%

4"%6)# *## 3)*a*0)*+a* L=C )$ l) a 4"0&a$ %"#" !&a! all%($

a##)!)%*al 3)*a*0)*+

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LETTERS OF CREDIT

Advantages to the I#porter $%ess than the

exporter&

E74"! E7a5)*a!)%* %3 D%05*!$

S%"0$ %3 S44l 74a*#

F)*a*0)*+

N% 0a$& !)# 4

Pa5*! %*l a3!" 0%54l)a*0

?T% $&)4 , a 0"!a)* #a! ";)"$ a* %*-,%a"# ,)ll

%3 la#)*+

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O*-B%a"# B)ll %3 La#)*+

D3)*)!)%*8 $&)44)*+ (a,)ll 0"!)3)*+

4"$*0 %3 +%%#$8 a #%05*! $!a,l)$&)*+

!&a! +%%#$ &a6 ,* l%a## %*!% a4a"!)0la" 6$$l a*# !&a! !& 0a"")" )$ *%(

"$4%*$),l 3%" !&)" $a3 4a$$a+

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LETTERS OF CREDIT

II. PARTIES TO THE TRANSACTIONA. THE BENEFICIARY

B. ACCOUNT PARTY $all)54%"!"9

C. OPENING BANK

D. ADVISING BANK $all a0%""$4%*#*! %3 %4*)*+ ,a*

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LETTERS OF CREDIT

E. PAYING BANKa+*! 3%" %4*)*+ ,a*

F. NEGOTIATING BANKa* ,a* (&% $,5)!$ #%05*!$ !% !&%4*)*+ ,a*

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G. CONFIRMING BANK

3 $all 4a)# , %4*)*+ ,a*

,a* 0&a"+$ a 3

0%*$)#"# 6" $a3 3"%5 74%"!"$ 6)(4%)*!'

).. 0%*!a)*$ %,l)+a!)%* !% 4a %* !& 4a"! %3 !(%

,a*$.

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LETTERS OF CREDIT:

LE'AL CO(SIDERATO(SIII. LEGAL CONSIDERATIONS

A. Ca$ La(

B. U.S. C%# la(

A"!)0l < %3 !& UCC

C. C%*!"a0!al La(U*)3%"5 C$!%5 a*# P"a0!)0$ UCP9

D. Ba*$ Dal )* D%05*!$ %*l

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OPENING AN L=C

T& R%! %3 a L!!" %3 C"#)!

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T& Pa!& %3 a L!!" %3 C"#)!

N+%!)a!)*+

Ba*

E74%"!" I54%"!"

A#6)$)*+ Ba* O4*)*+ Ba*

Pa)*+ Ba* C%*3)"5)*+ Ba*

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LETTERS OF CREDIT

I)POR TER

ACCOU(T

PART*OPE(I('

or ISSUI('A(+

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OPE(I(' LETTERS OF

CREDITIV. OPENING A LETTER OF CREDIT

$&%l# , #%* a$ $%%* a$ 0%*!"a0! $)+*#

$40)all )3 !&" )$ a 4")0 #0l)*A. C"#)! Fa0!%"$ ? )*6%l6$8

1. ,*3)0)a"' a00%*! 4a"! a*# %4*)*+ ,a*

2. 4"%5)$ , ,a* !% 4a (&*6" 4"%4" #%05*!a!)%* )$ 4"$*!#

/. R;)"$ a*al$)$ %3 0"#)!(%"!&)*$$

1@

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OPE(I(' LETTERS OF

CREDIT1. U*$0"# C"#)!

";)"$ 3)*a*0)al $!"*+!& a*#

)*!+")!

,)ll %3 la#)*+ 0%*$)+*# #)"0!l !%

!& )54%"!"

*#"l)*+ +%%#$ *%! $# a$

0%lla!"al

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2. S0"# C"#)!

";)"$ $0")! $0& a$

0a$&-0%55"0)al 0"#)!

5"0&a*#)$ a$ 0%lla!"al

3a0!%"$8

74%"! 5$! , 0"#)!(%"!&a" +%%#$ "a#)l 5a"!a,l

a#;a0 %3 )*$"a*0 0%6"a+

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OPE(I(' A( LC

Ca$& C%lla!"al C"#)! )* ,!(* al!"*a!)6

!"5$ #4*# %* !& $!"*+!& %3 !& )54%"!"

B. REUIREMENTS FOR THE ACCOUNTPARTY

1. A44l)0a!)%*

)54%"!a*0 %3 #%05*!$

#)$a#6a*!a+ %3 !%% 50& #!a)l

)54%"!a*0 %3 )*$"a*0

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OPE(I(' A( LC

C. REUIREMENTS FOR THE

OPENING BANK

1. R0)4! %3 A44l)0a!)%*2. A#6)0 !% B*3)0)a"/. A5*#5*!$

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LETTERS OF CREDIT:

CO(TE(TSV. CONTENTS

A. T4)0al I*3%"5a!)%*

1. Pla0=#a!2. Na5$ %3 A00%*! 4a"!=,*3)0)a"/. G*"al #$0")4!)%* %3 5"0&a*#)$:. T*" %3 !& #"a3!

. a5%*! %3 #"a3!

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LETTERS OF CREDIT:

CO(TE(TSCONTENTS 0%*!9

@. P%"!$ %3 %")+)*=#$!)*a!)%*

. L)$! %3 7a0! #%05*!$ !%

a!!a0& !% #"a3!$

. Ma7)55 a5%*! %3 #"a3!$1.E74)"a!)%* #a! %3 0"#)!

11.I""6%0a,l="6%0a,l

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LETTERS OF CREDIT:

PA*)E(TSVI. PAYMENTS

A. A0!)%* , ,*3)0)a"

B. C&0)*+ %3 #%05*!$

C. C%55%* #)$0"4a*0)$

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DOCU)E(TAR* LCS

VII. DOCUMENTARY L=C

EXAMINATION PROCEDURES

A. S0l

B. L=C a*# !& #"a()*+

C. C%55"0)al )*6%)0

2