Week4_Export_2-01.txt - Traditional Letter of Credit 1...

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Traditional Letter of Credit: 1. Purchase and Agreement 2. L/C Application 3. Advises of L/C 4. Shipment of Goods 5. Presents Documents for Negotiation 6. Sends Documents 7. Pays Bank or Gets Loan Exporter Seller Beneficiary Export's Bank Importer Buyer Account Party Importer's Bank Islamic ("Shariah") Finance - based upon the Quoran - increasingly important because banks and investors are seeking wealth from oil profits in the Middle East - some advocates claim Islamic finance is socially responsible because it bans investors from funding companies that sell or promote products such as alcohol, tobacco, pornography, gambling, and even pork - others claim anti-American terrorists are often financially supported through U.S. investments -- creating a system by which the nation funds its own enemy Types of Shariah Financing: - cost plus sales contract - forward sale contract - commission to manufacture contract - diminishing partnership - lease with a promise to sell contract - monetization - insurance Best Letter of Credit: Confirmed Irrevocable Non-Revolving Shariah Letters of Credit: - conventional letters of credit take many forms: irrevocable and revocable, confirmed and unconfirmed, revolving and non-revolving - there is no Shariah objection to a letter of credit being issued by a bank to guarantee a payment by an importer to an exporter; the only issue being to ensure the contract is clear to all the parties, and there is no element of contractual uncertainty -> occurs mostly in revocable letters of credit, if the conditions regarding cancellation are insufficiently clear -> if the letter of credit is confirmed by the exporter's bank, there is
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