International Trade Finance

S example 1 2 3 4 5 after us exporter seller and

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Unformatted text preview: (LOC) in action (a u.s. example) 1) 2) 3) 4) 5) After US exporter (seller) and buyer agree on terms of sale, the buyer arranges for its bank to open a LOC The buyer’s bank prepares an irrevocable LOC, including all instructions to the seller concerning the shipment The buyer’s bank sends the irrevocable LOC to a US bank, requesting confirmation The US bank prepares a letter of confirmation to forward to the exporter along with the irrevocable LOC The exporter arranges with the freight forwarder to deliver the goods to the appropriate port or airport UNIVERSITY OF ALBERTA U.S. EXAMPLE (CONT.) 6) 7) 8) 9) 10) When the goods are loaded, the forwarder completes the necessary documents The exporter presents to the US bank documents indicating full compliance The bank reviews the documents. If in order, the documents are airmailed to the buyer’s bank for review and transmitted to the buyer The buyer gets the documents that may be needed to claim the goods A draft, which accompanies the letter of credit, is paid by the exporter’s bank at the time specified or may be discounted at an earlier date UNIVERSITY OF ALBERTA WHEN DRAFTING LOC APPLICATION To avoid confusion and rejection of the documents, it is best to: § Specify exact quantities of packing units, and explicitly state that the quantity “should not be exceeded or reduced” § Use clear, simple, concise instructions to the issuing bank § Not call for documents that the beneficiary cannot obtain § Not state conditions whose observances cannot be ascertained from the face of a document UNIVERSITY OF ALBERTA DRAFTS When seller presents documents for payment on a letter of credit, it presents the bank with a draft drawn on the LOC. It is an order for the bank to pay. Drafts contains: § § § § § Unconditional order to pay determinate sum of money § The name of the person who is to pay (drawee) § Statement of the time of payment Statement of the place where payment is to be made The name of the person to whom payment is to be made (payee) Statement of the date and place where the bill is issued Signature of the person who issues the bill (drawer) UNIVERSITY OF ALBERTA Drafts Sight draft – a check drawn on the purchaser’s account that can be cashed by the seller immediately upon presentation of required documents. Time draft – a check drawn on the purchaser’s account that can be cased by the seller at a specified time after the presentation of required documents. A time draft can be used to allow an exporter to extend credit to a buyer, stating that payment is due within a certain amount of time afte...
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This document was uploaded on 01/23/2014.

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