Chapter five Letter of Credit（P50-84)

Teaching contents 5.1 The Definition and characteristics of L/C 5.2 The Procedures of L/C 5.3 Parties and Obligations 5.4 The relationship between the parties 5.5 operations of L/C

Part 1 1.1 definition Some words: written promise Conditions pay

Part 1 1.1 definition Definition（P50) L/C is the written promise of a bank , undertaken on behalf of a buyer, to pay a seller the amount specified in the credit provided the seller complies with the terms and conditions set forth in the credit.

part 1 1.2 The characteristics of a L/C （1）bank credit （2）Independent of the sales contract （3）Exclusively dealing with documents

Part 2 Procedures of L/C(P53-60) Parties: beneficiary, applicant, issuing bank, advising bank Useful words: apply ,forward, advise, payment etc Buyer/ applicant Seller/ beneficiary Issuing bank Advising bank Negotiating bank

Part 2 Procedures of L/C--2.1 contract Seller/ beneficiary Buyer/ applicant 1)application and cash deposits 3)advise L/C 2)open and forward L/C Advising bank Issuing bank

Part 2 Procedures of L/C—2.2 contract Seller/ beneficiary Buyer/ applicant Take delivery by B/L Shipping company 1)examine L/C and prepare documents 5)ask the buyer to redeem 4)Forward payment 2)Forwards documents and claiming reimbursement Advising bank Negotiating bank Issuing bank 3) examine documents and Payment (or acceptance)

Part 2 Procedures of L/C Buyer/ Seller/ applicant beneficiary 1)contract Seller/ beneficiary Buyer/ applicant 10)Take delivery of the goods Shipping company 5) 5)examine and prepare documents 2)application and cash deposits 9)ask the buyer to redeem 8)Forward payment 4)advise L/C 3)Open and forward L/C Advising bank Negotiating bank Issuing bank 6)Forwards documents and claiming reimbursement 7) examine documents and Payment (or acceptance)

Three-party Contractual Arrangement Sales contract applicant beneficiary L/C application issuing bank

Part 3 Parties and Their Obligations(P52、P64) Basic parties 1 Applicant/buyer 2 Issuing bank/the buyer’s bank 3 Beneficiary/seller 4 Advising bank 5 Negotiating bank Other parties: 1.Confirming bank 2.Acceptanting bank 3.Paying bank 4.Reimbursment bank

Part 3 Basic Parties 1 In international trade, the applicant of L/C usually is the importer (buyer).

Part 3 Basic Parties 1 Applicant-2 Liable for payment to the issuing bank provided no discrepancy between documents and the credit; Right to examine the documents and refuse payment; Any requirement of the applicant should be satisfied by certain documents and clearly indicated when making credit application

Part 3 Basic Parties 2 The bank accepting the commission of Issuing bank-1 The bank accepting the commission of applicant and setting up Letter of Credit is Issuing bank .

part 3 Basic Parties 2 Issuing bank-2 1、According to the applicant ,sets up and modifies the letter of credit. 2、Issuing bank has no right to recourse after payment. 3、By issuing a credit the issuing bank undertakes full responsibility for payment

part 3 Basic Parties 3 The beneficiary is drawer of bill of exchange . The beneficiary has a trade contract with the applicant and a letter of credit with the issuing bank .

part 3 Basic Parties 3 Beneficiary-2 1、The right to examine a credit upon receipt of it according to the sales contract; 2、Whether be paid or not solely depends on the fulfillment of terms and conditions of the credit.

The advising bank is the deputy of the issuing bank in exporter’s part 3 Basic Parties 4 Advising bank-1 The advising bank is the deputy of the issuing bank in exporter’s country.

part 3 Basic Parties 4 Accurately transmit the terms of credit and check the apparent authenticity of the credit Advising bank-2

Part 3 Basic Parties 5 In a negotiation credit, purchases the Negotiating bank In a negotiation credit, purchases the drafts and documents; (maybe) When dishonored by the issuing bank, it has the right of recourse to the beneficiary; Obtain the reimbursement from the issuing bank

The confirming bank is the bank adding confirmation on the Part 3 Other Parties 1 Confirming bank-1 The confirming bank is the bank adding confirmation on the irrevocable L/C .

Part 3 Other Parties 1 Undertake the same obligations assumed Confirming bank-2 Undertake the same obligations assumed by the issuing bank; Responsible for a credit independently and pay without recourse.

Part 3 Other Parties 2 Designated by issuing bank to effect Paying bank-1 Designated by issuing bank to effect payment or acceptance; Once it has made payment to the beneficiary, it will lose the right of recourse to the beneficiary; Entitled to obtain reimbursement from the issuing bank.

Part 3 Other Parties The issuing bank specify another Paying bank-2 The issuing bank specify another bank for payment of the bill of exchange. This bank is paying bank .

Part 3 Other Parties 3 The bank accepting the bill of Accepting bank The bank accepting the bill of exchange is the accepting bank.

Part 3 Other Parties 4 A bank named in credit from which the Reimbursing bank A bank named in credit from which the paying bank, accepting bank or negotiating bank may request cover after paying or negotiating the documents. The reimbursing bank shall not examine the documents.

Part 4 Applicant (importer) Beneficiary (exporter) The relationship between the parties Sale contract Applicant (importer) Beneficiary (exporter)

Part 4 The relationship between the parties Application of L/C Issuing Bank Applicant (importer)

part 4 Issuing Advising Bank Bank The relationship between the parties Agency agreement Issuing Bank Advising Bank

part 4 Issuing Bank Beneficiary (exporter) The relationship between the parties Indirect relationship Issuing Bank Beneficiary (exporter)

part 4 Issuing Bank Confirming Bank The relationship between the parties Agency agreement Issuing Bank Confirming Bank

part 4 Issuing Bank Negotiating Bank The relationship between the parties Indirect relationship Issuing Bank Negotiating Bank

part 4 Negotiating Bank Beneficiary The relationship between the parties Financing relationship Negotiating Bank Beneficiary

part 4 Confirming Bank Beneficiary The relationship between the parties Indirect relationship Confirming Bank Beneficiary

part 4 Issuing Bank Paying Bank The relationship between the parties Agency relationship Issuing Bank Paying Bank

part 5 Operation on the Letter of Credit （P53-63） 1.The buyer How to fill in the application form 2. The beneficiary How to understand credit terms well and make out the documents correctly

buyer--- fill in the application form On P63 The 9 basic contents Others: Additional requirements from the buyer can require additional certificate or confirmation letters etc.

Seller: understand L/C Know the L/C structure and contents well 2nd Know the usual documents well

part 5 Operation on the Letter of Credit （P53-63） （一）Items on the credit itself 1、The type of L/C 2、The number of L/C 3、The place and date of issuing 4、Availability 5、 L/C amount and currency

part 5 Operation on the Letter of Credit （二）Basic parties to L/C 1、Applicant 2、Beneficiary 3、Issuing bank

part 5 Operation on the Letter of Credit （三）Items on goods, transport and insurance 1、Accurate description on goods; 2、Partial shipment  or not; 3、Transport or not; 4、Insurance; 5、UCP600

part 5 Operation on the Letter of Credit （四）Items on documents 1、Invoice; Certificate of origin; packing list 2、Transport document; 3、Insurance document

part 5 Operation on the Letter of Credit （五）Additional items 1、Signature 2、Paying instruction 3、Reimbursement of the paying, accepting and negotiating bank 4、The notation of the credit subject to UCP600

Questions 1 what are the Definition and characteristics of L/C ? 2 Can you explain the basic procedures of L/C 3 What are the main parties to a documentary credit? 4 Can you introduce the relationship between the parties?