1. Chapter five Letter of Credit（P50-84)

2. 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

3. Part definition
Some words:
written promise
Conditions
pay

4. 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.

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

6. 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

7. 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

8. 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)

9. 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)

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

11. 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

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

13. 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

14. 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 .

15. 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

16. 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 .

17. 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.

18. 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.

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

20. 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

21. 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 .

22. 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.

23. 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.

24. 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 .

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

26. 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.

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

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

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

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

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

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

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

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

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

36. 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

37. 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.

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

39. 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

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

41. 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

42. 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

43. 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

44. 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?