1. Unit 9. Instruments of International Settlements

2. In international trade practice, the buyer is obliged to make payment to the seller. The instruments (or bills) used for payment or transfer of money in international trade practice, including draft, promissory note, and check.

3. I. Draft (Bill of Exchange) ( 汇票 )

4. A. The definition of the draft Definition-A bill of exchange (draft) is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a certain sum of money to the order of a specified person or to the bearer.

5. B. 3 Parties of Draft A bill of exchange has three parties: the drawer, the drawee and the payee: The drawer is one who issues the bill of exchange, and he demands the drawee to pay a certain sum of money to the payee. He signs his name on the bill, and guarantees that the payer will pay the money or accept the bill upon the presentation of the draft. He draws the bill of exchange upon the drawee presumably because the drawee owns or is expected to pay him a certain sum of money. The drawee of the bill of exchange is required by the bill of exchange to pay a certain sum of money to the payee upon the presentation of the bill or, if the bill is a time bill, he is required to accept the bill and effect the payment at the maturity of the bill. The payee of the bill of exchange is the creditor of the bill of exchange. He is entitled to ask the drawee for the payment. If refused, he is entitled to have recourse to the drawer for the payment. The payee is generally the one that is listed on the bill. But for a negotiable bill, the payee listed on the bill may transfer the bill to someone else. He then becomes the prior endorser or transferor, when the man to whom the bill is transferred is the subsequent party.

6. C. Types of drafts 1) Commercial bills and banker’s bill Commercial bill is drawn by commercial companies, which is often used in foreign trade finance, while banker’s bill is drawn by banks, which is chiefly used in remittance. 2) Clean bill ( 光票 ) and documentary bill ( 跟单汇票 ) In the transfer of the bill of exchange, if the bill of exchange is accompanied by the relevant documents, it is a documentary bill. If there’s no attachment of documents, it is a clean bill. In international trade, mostly it is the documentary bill that is used, occasionally the clean bill is used to collect payment in small amount or sundry charges. 3) Sight bill ( 即期汇票 ) and time bill ( 远期汇票 ) A sight bill demands immediate payment by the drawee at the sight of the bill. In case of the time bill, the drawee is to accept it first and pay it at a later date. The date may be in a certain number of days after the acceptance, such as “30 days after sight”. 4) Commercial acceptance ( 承兑 ) bill and banker’s acceptance bill If the drawee of a time bill is a commercial firm, it becomes a commercial acceptance bill after it is accepted by the drawee. If the drawee of a time bill is a bank, it becomes a banker’s acceptance bill after it is accepted by the bank. Banker’s acceptance bill can be very useful for financing the importer.

7. BANK OF CHINA 本汇票有效期为一年 This draft is valid for one year from the date of issue 号码 No. 30007611 金 额 AMOUNT 致 TO ： 请 付 PAY TO pay to 金 额 THE SUM OF pay to 请凭本汇票付款划我 行帐 pay to PAY AGAINST THIS DRAFT TO THE DEBIT OF OUR ACCOUNT pay to 中国银行上海分行 BANK OF CHINA SHANGHAI Banker’s Draft

8. 凭 Drawn under 信用证 L/C XXXXXX No. 764351 BANK OF CHINA, SINGAPORE 日期 DatedPayable with interest @% 按息 付款 支取 5TH MAY, 1994 号码 No. Exchange for 17TH JULY 94 汇票金额 M0789 USD729, 000.00 Shanghai 上海 19 见票 日后（本汇票之副本未付）付交金额 sight of this FIRST of Exchange (Second of Exchange AT …… Being unpaid) Pay to the order of BANK OF CHINA the sum of UNITED STATES DOLLARS SEVEN HUNDRED AND TWENTY NINE THOUSAND ONLY 款已收讫 Value received ABC 公司 ABC CORP. 此致 To : DEPT. MANAGER. 王明 Commercial Draft

9. D. Stages in handing a bill of exchange To draw ( 出票 ) Presentation ( 提示 ) and acceptance ( 承兑 ) Payment （支付） Endorsement ( 背书 ) Dishonor ( 拒付 ) and recourse ( 追索 )

10. II. Promissory Note ( 本票 )

11. A. Definition of Promissory Note Definition-A promissory note is an unconditional promise in writing made by one person to another, signed by the maker ( 出票 人 ), engaging to pay, either on demand ( 见票即 付 ) or at a fixed or determinable future time, a certain sum of money, to, or to the order of, a specified person or to bearer.

12. B Parties of Promissory Note As a promissory note is a promise by the maker (not drawer) to pay to the payee, there are only two parties concerned, i.e. the maker and the payee. The maker of a promissory note can be more than one person, they are jointly and separately responsible for the payment of the bill. Promissory notes can be sight promissory notes or time promissory notes. Promissory notes can be made by commercial firms or bankers. Promissory notes made by the bankers are usually called cashier’s order or cashier’s check ( 银行本票 ). They are all sight notes. And in international trade, most promissory notes are drawn by bankers which are mostly not negotiable.

13. A promissory note is like a bill of exchange that has been accepted, and can only have one copy. When it is dishonored, the payee needs not to produce protest for the settlement of the dispute. Types of promissory note: (a) Commercial promissory notes: Commercial promissory notes are rarely used in international trade practice. But in domestic trade practice in some countries, some sellers accept commercial promissory notes as guarantee for the payment, especially, installment payment of some expensive goods. (b) Banker’s promissory notes: In using the banker’s promissory notes, the importer first needs to buy the promissory note from a bank, and then send it to the exporter for the settlement of payment. When the payee has received the bill, he usually will deposit in his own bank that will ask the bank, which has made the bill for payment.

14. ASIA INTERNATIONAL BANK, LTD. 18 Queen ’ s Road, Hongkong CASHIER’S ORDER Hongkong, Aug.8, 1995. Pay to the order of Dockfield & Co. …………………… the sum of Hongkong Dollars Eighty Thousand and Eight Hundred Only. ………………………………………………… For Asia International Bank, Ltd. HK $ 80,800.00 Manager Cashier’s Order ( 银行本票 )

15. ￡ 60,000.00 London, May 15,19… Three months after date I promise to pay John Tracy or order the sum of SIXTY THOUSAND POUNDS for value received. William Taylor General Promissory Note ( 一般本票 )

16. III. Check

17. A. Definition of Check Definition-A check is an unconditional order in writing drawn on a banker signed by the drawer, requiring the banker to pay on demand ( 见票即付 ) a certain sum of money to or to the order of a specified person or to bearer. The drawer of a check must be a depositor that keeps a current account in the paying bank. The drawer of the check must be sure that the sum carried on the check is not more than the amount he has deposited in the bank, or the check will be dishonored. If the paying bank marked “certified” ( 保兑的 ) with signature on the check, it is a certified check which will not be dishonored.

18. To prevent the check from being falsely claimed in case the check is lost, the drawer can draw 2 transverse lines on the check to make it a crossed check, which can only be paid to banks instead of to individuals. The check can be paid “to the order of sb.”, “to sb.”, or “to bearer”. The first one is negotiable. When an exporter has received check from the importer for the payment of the goods, he should first of all come to the paying bank to see if it can be cashed.

19. Check