International Trade Finance

Acceptance creates an obligation on the acceptor

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Unformatted text preview: r the buyer accepts the draft and receives documents. Acceptance – creates an obligation on the acceptor (drawee), and converts the draft into a negotiable instrument. Trade acceptance – a draft which the buyer has accepted and signed. It can be kept by the exporter until maturity or sold to a bank at a discount for immediate payment Banker’s acceptance – a draft that has been accepted by a bank. It then becomes the bank’s obligation, and a negotiable instrument, which can be sold to a bank at a discount for immediate payment UNIVERSITY OF ALBERTA Uniform customs and practices for documentary credits (ucp) Set of rules established by the ICC (International Chamber of Commerce) applicable to letters of credit to guarantee payment or performance. Most recently published was the UCP 500. § § UNIVERSITY OF ALBERTA Key items of the ucp 500 § § § Care in selecting appropriate expiration date to avoid expense of obtaining extensions or additional bank charges. For LOC to be transferable, applicant must request such designation. § The applicant must request that the LOC be confirmed, and it is best for the beneficiary and applicant to agree on identity of the confirming bank before the credit application is submitted. Currency of the credit should be designated using the ISO currency codes (UDS, CAD, etc.). UNIVERSITY OF ALBERTA Ucp 500 (cont.) Applicant should designate which banks the credit will be available, or insert “freely negotiable by any bank”, or “freely negotiable credit” § Applicant should clearly instruct if credit will be made available for partial shipments, or pre-agreed installments § Applicant should provide transport details such as: • Where shipment should be taken on board (loaded) • Where shipment must be made (discharged) • Latest date for shipment **Note: Abbreviations for all geographical destinations should be avoided. Under the strict compliance rule banks are authorized to reject documents that use abbreviations** § UNIVERSITY OF ALBERTA 10 Rules Pertaining to international letters of credit 1) 2) 3) 5) Facial Compliance – banks are only required to review documents and compare them with the requirements of the LOC for conformity (not liable for “fraud” in the transaction) Banks are not required to know or to investigate trade or business usage, customs, or practices Strict Compliance – banks may reject documents for ANY discrepancy 4) A LOC must have an expiry date to be enforceable UCP 500 21 Day Rule – the beneficiary party must deliver documents within 21 da...
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This document was uploaded on 01/23/2014.

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