{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

review-403 term test 2

review-403 term test 2 - 403 term test 2 1 The application...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
403 term test 2 1. “The application of the concept of payment for non-performance is the bedrock of the standby credit’. Elaborate the concept and discuss the main characteristics of standby credits. Standby L/C —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. Features: 1) Banks may issue standbys based on UCP 600 or ISP98. 2) Concept of payment for non performance. 3) Regular settlement is non L/C. 4) Standby acts as a guarantee for payment, used only if the regular arrangement fails. 5) Usually valid for a year. 6) Evergreen clause for automatic renewal. 2. “The application of the concept of payment for non performance is the bedrock of standby letter of credit ”. Analyze the statement and briefly explain how standby works in a commercial relationship. How a standby works? 1) 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. 2) 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. 3) 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. 4) 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. 3. Types of standby 1) Advance Payment standby- Supports an obligation to account for an advance payment made by the beneficiary to the applicant. 2) Bid Bond/ Tender Bond Standby-Supports an obligation of the applicant to execute a contract if the applicant is awarded a bid. 3) Commercial Standby- Supports the obligations of an applicant to pay for goods or services in the event of payment by other methods. 4) Financial Standby- Supports an obligation to pay money, including any instrument evidencing an obligation to repay borrowed money. 4. What are advantages of revolving L/C? (Compare and contrast L/Cs revolving in relation to time and L/Cs revolving in relation to value.) A revolving Letter of Credit is a documentary letter of credit that by its nature eliminates the costly
Image of page 1

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

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern