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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
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
For LOC to be transferable, applicant must request
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
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
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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