International Trade Finance

6 7 8 9 10 banks period of review banks have a

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Unformatted text preview: ys of receipt (of bill of lading), or the LOC automatically expires UNIVERSITY OF ALBERTA 10 Rules (Cont.) 6) 7) 8) 9) 10) Banks period of review – banks have a reasonable period to review documents, no longer than 7 business days (UCP 500) or 3 business days (Article 5 of the UCC) Presumption of Irrevocability – UCP 500 and UCC Article 5 presumes that a letter of credit is irrevocable unless it clearly states on its face that it is revocable Insurance certificate – must not be dated later than date of loading and should be in the amount of CIF plus 10% Commercial Invoice – must include the exact description found in the letter of credit A letter of credit is not transferable unless it specifically states that it is a transferable credit UNIVERSITY OF ALBERTA Standby letters of credit § Typically only drawn on in the event that the applicant fails to perform an obligation to the beneficiary, usually a failure to make payment § A letter of credit that represents an obligation to the beneficiary on the part of the issuer to: • Repay money borrowed by or advanced to, or for the account of, the customer (account party) • To make payment on account of any evidence of indebtedness undertaken by the account party • To make payment on account of any default by the party procuring the issuance of the LOC in the performance obligation § UCP and the new International Standby Practices (ISP98) govern standby letters of credit UNIVERSITY OF ALBERTA Standby Loc (cont.) Also used to: • • • • • Guarantee performance in construction projects Guarantee warrantees Support borrowers under international loans Ensure availability of suppliers Secure counter-trade UNIVERSITY OF ALBERTA Alternative methods of guaranteeing performance § § § Performance bond – guarantee from an insurance company to pay the insured in case of nonperformance. Minimizes buyers risk of nonperformance by the seller in export transactions or by a contractor in a construction project. Bid bonds – insurance against the risk that a bidder may not honor its bid. Usually required to bid on government procurement contracts. Credit surety – guarantees repayment to a bank or lender who finances an export transaction or development project. These are often a payment guarantee from a state agency (such as the Export-Import Bank EXIMBANK) or from a development bank (i.e.. World Bank). UNIVERSITY OF ALBERTA Alternative methods (cont) Retention fund – an arrangement between the principle parties (rather than a 3rd party guarantee), whereby a percentage of the monies are deducted from each payment and are retained in a fund pending com...
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