Date post: | 03-Jun-2018 |
Category: |
Documents |
Upload: | dipin-nambiar |
View: | 228 times |
Download: | 0 times |
of 15
8/12/2019 Module 4 Letter of Credit Types
1/15
Presented by
Eldo G Zacharia KayyalathS3 MBA
Saintgits Institute of Management
For
Dr. Tommy J Eappan Tharayill
Professor, Saintgits Institute of
Management, Pathamuttom, Kerala
8/12/2019 Module 4 Letter of Credit Types
2/15
In order to cater to the wide variety of
transactions and customers, different types of
letter of credit have evolved.
Revocable L/C
Irrevocable L/C
Revolving L/C
Transferable L/C
Back to Back L/C
Red Clause L/C Standby L/C
8/12/2019 Module 4 Letter of Credit Types
3/15
Revocable L/C is issued by the issuing bank and
contains a provision that the bank may amend or
cancel the credit without the approval of thebeneficiary.
Provides least protection to the exporter
8/12/2019 Module 4 Letter of Credit Types
4/15
Cannot be amended or cancelled without the
exporters prior approval
A confirmed Irrevocable L/C contains anextra protection. In addition to the issuing
banks commitment, a Confirming Bank adds
its own understanding to pay provided all
conditions are met.
8/12/2019 Module 4 Letter of Credit Types
5/15
When the exporter is going to make shipments
on a continuing basis and a single L/C will
cover several shipments
8/12/2019 Module 4 Letter of Credit Types
6/15
Transferable L/C permits the beneficiary to
transfer a part or whole of the credit in favor
of one or more secondary beneficiaries
This type of L/C is used by trader exporterswho act as middlemen between the importer
and manufacturers of the goods.
The trader intends to profit from the
difference between the original amount ofcredit and the amount transferred to
secondary beneficiaries.
8/12/2019 Module 4 Letter of Credit Types
7/15
Here the beneficiary of the original L/C
requests a bank (usually the advising bank to
the original L/C) to open an irrevocable L/C
in favor of another party who may be theultimate manufacturer or supplier of the
goods.
The original L/C is a guarantee against the
second L/C
8/12/2019 Module 4 Letter of Credit Types
8/15
A clause is printed in red ink on a normal L/C
authorizing the advising bank to make clean
advances to the exporter which are offset
against the export proceedings when thedocuments are finally presented.
In effect the importer makes unsecured loans
to the exporter in the latters currency.
This type of L/C is used when there exists aclose relationship between importer and
exporter.
8/12/2019 Module 4 Letter of Credit Types
9/15
Standby L/C is actually a term covering a
wide variety of arrangements provides a
fallback guarantee to the supplier incase theprimary obligor fails to pay
8/12/2019 Module 4 Letter of Credit Types
10/15
Applicant:The buyer or importer of goods
Issuing bank: Importers bank, who issues the L/C
Beneficiary:The party to whom the L/C is addressed.The Seller or supplier of goods.
Advising bank:Issuing banks branch or correspondentbank in the exporters country to whom the L/C issend for onward transmission to the beneficiary.
Confirming bank:The bank in beneficiarys country,
which guarantees the credit on the request of theissuing Bank.
Negotiating bank:The bank to whom the beneficiarypresents his documents for payment under L/C
8/12/2019 Module 4 Letter of Credit Types
11/15
Bill of Lading: A Bill of Lading is considered themost important document involved in a shipment
of merchandise. An exporter receives a Bill ofLading when delivering the merchandise to theshipping company for transport to an importer.
Order Bill of Lading: An Order Bill of Lading is atitle document. Steamship companies issue one ormore original Order Bills of Lading per shipment,which allows an importer to claim merchandisewhen it arrives. An exporter normally endorses the
Bills of Lading "in blank," which means that theyare not endorsed to a specific person orinstitution. The party possessing any one of theoriginal Bills of Lading can take possession of thegoods.
8/12/2019 Module 4 Letter of Credit Types
12/15
Airway Bill of Lading (Straight Bill of Lading):This instrument does not convey title. Airlinecompanies issue Straight Bills of Lading called
Airway Bills. Since an Airway Bill is issued onlyin non-negotiable form, an exporter consigns itto a specific person or institution. A copy ofthe Airway Bill accompanies a shipment, andan exporter is given the original to present
along with other required shipping documents.To take possession of the merchandise, a partyto which the merchandise is consigned needsto present proper identification. Therefore, if
the air shipment is consigned to a buyer, theseller might lose control of the merchandisebefore payment is made. To prevent this, anAirway Bill should be consigned to Zions Bank.
8/12/2019 Module 4 Letter of Credit Types
13/15
Commercial Invoice: A Commercial Invoice is adocument that describes merchandise, as
stated in the Letter of Credit, and lists the
costs. An importer may agree to pay, inaddition to the cost of the merchandise,
charges involved in shipping the merchandise.
The description of the merchandise in the
Commercial Invoice and the description of themerchandise in the Letter of Credit must be
identical in every way.
8/12/2019 Module 4 Letter of Credit Types
14/15
Insurance Policy: Issued by an underwritinginstitution, the Insurance Policy states that a
specified party will be reimbursed an amount
in the event merchandise is damaged ordestroyed. An Insurance Policy generally covers
accidental losses and covers voluntary losses
when a cargo must be sacrificed to save a ship.
For additional cost, losses caused by spoilage,war, civil disturbance, riots and other risks can
be included in the coverage. Because
commercial banks are not included in the
shipping business per se, questions regardingtypes of coverage should be referred to a
freight forwarder or a customs broker.
8/12/2019 Module 4 Letter of Credit Types
15/15
THANK YOU