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I, WELCOME YOU TO THISPRESENTATION

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Sir, we will talk about

1. What is LETTER OF CREDIT (L.C.)OR

DOCUMENTARY CREDIT OR JUST CREDIT2. WHO ARE THE PARTIES TO A LETTER OFCREDIT

3. What are the different types of Letter of

Credit4. DOCUMENTATION5. INCO TERMS,2000

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1. What is LETTER OF CREDIT (L.C.)OR

DOCUMENTARY CREDIT

International Chamber of Commerce (ICC), Paris

defines it as

An arrangement (however named) whereby

a Bank (Issuing bank) acts at the request and onthe instructions of a customer (applicant) or onits behalf to

a) Make a payment to or to the order of a thirdparty (beneficiary) or is to accept bill ofexchange (draft) drawn by the beneficiary. OR

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What is LETTER OF CREDIT

An arrangement (however named) whereby

a Bank (Issuing bank) acts at the request and

on the instructions of a customer (applicant)or on its behalf to

b) Authorises another bank to effect suchpayments or to accept and pay such bills of

exchange (drafts) OR

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What is LETTER OF CREDIT

An arrangement ( however named) whereby

a Bank (Issuing bank) acts at the request andon the instructions of a customer (applicant)or on its behalf to

c) Authorises another Bank to negotiate againststipulated documents provided that the termsare complied with.

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PARTIES TO A LETTER OF CREDIT

1. Applicant (opener)

2. Issuing Bank (Opening bank)

3. Beneficiary 4. Advising Bank

5. Confirming Bank

6. Negotiating Bank 7. Reimbursing Bank

8. Second beneficiary

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Opening of documentary credit

IMPORTER EXPORTER

CONTRACT

OPENINGBANK ISSUE CREDIT

Opening of credit

Addresses concerns of both importer and exporter.

Exposure becomes real and fund based if applicant defaults.

Credit worthiness of the customer should be evaluated

SUPPLIES GOODS

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Advising bank

IMPORTER EXPORTER

CONTRACT

OPENING

BANKISSUE CREDIT

ADVISING

BANK

Advising bank guarantees genuineness of the credit. Does notvouch for competence or willingness of opening bank to pay.

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Confirming bank

IMPORTER EXPORTER

CONTRACT

OPENING

BANK

ISSUE CREDIT

CONFIRM

ING BANK

ADVISING

BANK

Confirming bank guarantees payment by opening bank

Means and creditworthiness of issuing bank to be assessed

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Negotiating Bank

IMPORTER EXPORTER

CONTRACT

OPENING

BANK

ISSUE CREDIT

NEGOTIATINGBANK

ADVISING

BANK

P

A

Y

DO

C

S

DOCUMENTS

PAYMENT

Negotiating bank pays beneficiary first and claims

reimbursement from the opening / confirming bank.

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Mechanics of Documentary Credit

IMPORTER EXPORTER

CONTRACT

OPENING

BANK

ADVISING/

NEGOTIATINGBANK

SHIPPING

COMPANY

GOODS

DOCS

DOCUMENTS

OPEN CREDIT

DOCUMENTS

PAYMENT PAYMENT

GOODS

DOCS

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TYPES OF LETTER OF

CREDIT 1. REVOCABLE

2. IRREVOCABLE

3. CONFIRMED 4. SIGHT CREDIT & USANCE CREDIT

5. BACK TO BACK

6. TRANSFERABLE

7. STANDBY

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DOCUMENTATION

1. AIRWAY BILL

2. BILL OF LADING

3. CERTIFICATE OF ORIGIN

4. COMBINED TRANSPORT DOCUMENTS

5. BILL OF EXCHANGE (draft)

6. INSURANCE POLICY 7. PACKING LIST

8. INSPECTION LIST

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INCO TERMS,2000

There are 4 groups of terms ---

(1) Group E Departure

(i) EXW

Ex works

(2) Group F Main Carriage unpaid (seller iscalled upon to deliver the goods to a carrier)

(i) FCA

Free Carrier (ii) FOB Free on Board

(iii) FAS Free alongside Ship

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INCO TERMS,2000

(3) Group C Seller has to contact forcarriage but without assuming the risk

of loss of or damage to the goods.(i) CFR Cost and freight

(ii) CIF - Cost, Insurance and freight

(iii) CPT - Carriage paid to(iv) CIP - Carriage & Insurance Paid to

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INCO TERMS,2000

(4) Group D Seller has to bear all cost andrisks needed to bring the goods to the

country of destination (i) DAF Delivered at Frontier

(ii) DDU Delivered duty unpaid

(iii) DDP Delivered duty paid

(iv) DEQ Delivered ex- quay

(v) DES Delivered ex ship