{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

ITA 403-081-Special Types of Credits

ITA 403-081-Special Types of Credits - Special Types of...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Special Types of Credits Special credits are variations on the traditional or customary documentary commercial letters of credit. Under special credits we will discuss 1) Standby letters of credit 2) Revolving Letters of Credit 3) Transferable Letters of Credit 4) Back to Back Letters of Credit 5) Assignment of proceeds 6) Authority to purchase and pay 7) Time draft and banker’s acceptance 8) Red Clause and Green Clause L/Cs. Standby Letters of Credit A standby L/C or standby, is “issued to support payment, when due or after default, of obligations based on money loaned or advanced, or upon the occurrence or non-occurrence of another contingency”. Thus a standby is intended to cover a non-performance (default) situation than a performance situation. In reality in international trade the standby credit arrangement works only between trusted trading partners ie. only after a couple of successful transaction using either advance payment method or regular L/C settlement. The exporter and importer negotiate a sales arrangement that substitutes a standby letter of credit for commercial letter of credit, at an amount equal to an agreed credit limit for the buyer. In the event the buyer fails to pay in a timely manner on the open credit sales, the exporter can draw on the standby letter of credit. The buyer must have absolute trust in the seller as the seller can make a claim for payment to the bank even when the payment was made under other settlement method agreed. Rules for the handling of standby letters of credit by issuers, beneficiaries and others were developed in 1998 and is called the International Standby Practices (ISP98). Currently banks can issue standby L/Cs either in conformity with UCP 600 or ISP 98. In some cases the buyer’s bank may be reluctant to issue a Standby Credit because it will no longer receive documents of title to the goods at the time it makes payment. The documents required to claim money under a standby are 1) Supplier’s signed statement that applicant did not pay its obligations when Due.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2) A copy of the unpaid commercial invoice marked unpaid. 3) A draft in the amount of the unpaid invoices. 4) A copy of the Bill of Lading evidencing that shipment did take place. Evergreen Clause :- An evergreen clause is wording in a letter of credit, usually in a standby letter of credit, that provides for the automatic extension of the maturity date for another period unless the issuing bank takes some action at a particular point in time. An example of an evergreen clause in a standby is as follows. “ It is a condition of this Letter of Credit that it will be automatically renewed for an additional 12 months unless we have notified you in writing at least 30 days prior to such expiry date that we elect not to renew, in which case you may draw for the full amount of this Letter of Credit upon presentation of the above required draft only”.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 8

ITA 403-081-Special Types of Credits - Special Types of...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon bookmark
Ask a homework question - tutors are online