Questions and Answers of International Trade

3 Recipients of transmissions will confirm that the content appears to be complete and correct (an essential reservation for banks receiving documents in which they have a financial interest and
2 All documents transmitted will be protected by the use of a ‘private key’agreed between parties for authentication purposes.
1 Subscribers to the scheme will be able to raise their documents electronically, whether for collection or for presentation against a documentary credit, and to submit them electronically (EDI).
5 Communication between the various parties to a transaction was limited to the exchange of mail and fax messages where opinions were sought as to the authenticity or correctness of a given document
4 Importers and exporters were unable to cover foreign exchange commitments until the documents were found by both negotiating and issuing banks to be in order.
3 Documents which were found to be out of order, could not, in many cases be corrected manually and re-presented to banks within the validity of their respective irrevocable credits (time is money!).
2 Manually produced documents offer opportunities for fraud through forgery, alteration and unauthorized amendment.
1 Documents are often delayed by using airmail and can be lost, if not permanently, certainly for long enough to cause the banks and consignees great inconvenience and expense.
7 a liability policy to protect carriers and exporters against, inter alia, loss of interest, charter costs, demurrage and customs costs.
6 digital signing of messages limiting access only to authorized users
5 high level security using cryptographic technology
4 title registry
3 access through the use of internet
2 a core messaging platform
1 an electronic commerce service
The cotton buyer is paying in Sterling for his cotton and faces an exchange risk, spread possibly over 2 years. Currency options would, at least, fix his liabilities.
If the cotton buyer is only a short sea journey from the African supplier, the documents of title may have to go direct to the buyer or to the issuing bank instead of via the countertrader. In that
The UK exporter will charge interest on the cost of the cotton gin from the time of despatch. Interest will be payable on £5 million until the first payment under the cotton buyer’s credit and
7 In the second year, stages (4), (5) and (6) are repeated until the UK exporter has been paid £5 million.
6 The UK exporter is paid from the proceeds of the discounted bills.
5 The countertrader presents the documents against the documentary credit, which we must assume is a usance one as the diagram states that the bills are discounted.
4 In the first year, the African state industry ships cotton to the cotton buyer and sends the documents to the countertrader.
3 On the strength of that credit, the countertrader can now authorize the UK exporter to despatch the cotton gin to the African state industry.
2 When that insurance is in place, the cotton buyer is asked to establish an irrevocable documentary credit or credits in favour of the countertrader, valid for 2 years.
1 The UK exporter arranges insurance against possible non-delivery of cotton by the African state industry and assigns the insurance cover to the countertrader.
4 A bank performance bond from the US supplier for US$1 565 000. There are two ways in which this document can be obtained before the French bank becomes liable on its irrevocable credit. Firstly, it
3 French bank irrevocable credit for US$15 650 000 in favour of the US supplier and available by payment at sight. This is the back-to-back credit and must be a reproduction of the foreign credit
2 Foreign government irrevocable credit issued by their bank for US$16 000 000 valid for 6 months and available by acceptance of 180 day drafts.
1 A bid bond for $800 000 issued by the French Bank: if the bid is successful, this will become a performance bond for an amount of US$1 600 000.
5 Can you obtain a performance bond from your supplier to support our bond?
4 Are your terms of sale identical to the terms under which you are buying the tallow? If not, what are they?
3 How will you pay for the tallow?
2 We are asked to guarantee that you will execute your contract with the foreign government, but where will you get the tallow from?
1 If your bid is successful, how will you be paid?
4 The first beneficiary may request that payment or negotiation be effected to the second beneficiary at the place to which the credit has been transferred, up to and including the expiry date of the
3 If a credit is transferred to more than one second beneficiary, refusal of an amendment by one or more second beneficiaries does not invalidate the acceptance by the other second
2 At the time of transfer the first beneficiary must irrevocably instruct the transferring bank as to whether he wishes to retain the right to refuse to allow the transferring bank to advise
1 A credit may only be transferred by the bank authorized to pay, incur a deferred payment undertaking, accept or negotiate; if the credit is freely negotiable it can only be transferred by the bank
3 When the bank which has effected the transfer of a credit eventually receives documents raised by the transferee and presented by its appointed advising bank, it immediately approaches the first
2 The issuing bank is unaware of the opening of a back-to-back credit; to that extent it is totally independent of the master credit.
1 When a transferable credit is transferred, it is done with the knowledge and consent of the issuing bank.
Alterations may be made to the amount, the price of the goods, latest shipment date, validity and insurance cover and number of days from date of transport document within which documents must be
The beneficiary of the prime credit may be shown as the applicant for the transferred credit.
Where part shipments are permitted, partial transfers can also only be made once.
Unless a transferable credit permits part shipments, the amount can only be transferred once.
3 sell back the option.
2 abandon the option and lose his premium
1 exercise his option and sell the currency in March
regularly obtain updated status reports on the buyers.
ensure that all amendments to the policy are notified direct to the bank
regularly check on any variation in the nature of the exporter’s trade
have the premiums paid by standing order/direct debit, etc.
have the policy assigned to the bank
3 The individual limit on the buyer may have been exceeded.
2 He may have breached his contract with the buyer (faulty goods, late delivery etc.).
1 The exporter may have defaulted on the payment of the insurance premiums.
9 Voyage diversion.
8 War, strikes, riots, civil commotions.
7 Shortfall resulting from the settlement in local currency and subsequent conversion to foreign currency (delay risk).
6 Cancellation of export licence/import licence.
5 External debt moratorium declared by the buyer’s government.
4 Any embargo by the government in the buyer’s country that prevents the import of goods which the exporter has contracted to sell.
3 Buyer’s failure to take up the goods.
2 Failure by buyer to pay within 6 months of due date for goods which he has accepted.
1 Insolvency of buyer.
3 The exporter must place all his exports with the insurer except where he is the beneficiary of an irrevocable credit.
2 Limit of cover is 90% for buyer risk and 95% for sovereign risk.
1 Cover is usually for a maximum of 6 months’ credit period.
4 Detail the products which you advise them to demand from Gdanski in order to reduce or eliminate those risks and to achieve completion of the contract.
3 Identify the risks which Combinex Inc. face once the contract has been awarded.
2 Detail the bank products which you would advise them to demand from Combinex in order to reduce or eliminate those risks and to effect payments in accordance with the contract.
1 Identify the risks which Gdanski Construct SA face if they are awarded the contract.
6 Obviously, immediately AOM are obliged to use the standby credit, they would stop further shipments pending an explanation of UPS’s default.
5 The reason for the credit covering 2 months’ shipments is to allow for the possibility of UPS not paying, say by 15 May for the April shipment while AOM may have made a further shipment between 1
4 If, by the 15th of any month, UPS have failed to settle the AOM for the shipment made in the previous month, AOM simply submit a claim for the invoice amount under the standby credit.
3 AOM will ship 50 000 metric tons in January and invoice UCPS direct with a request for payment by 15 February; they will repeat this procedure each month for 12 months.
2 In return for AOM’s agreement, UPS arranges for its bank to issue a standby credit in their favour for US$9 500 000, being the value of 2 months’ supply.
1 UPS enters into a contract with AOM by which AOM agrees to supply 50 000 metric tons of coal each month for 12 months on open account.
4 To reduce the cost of providing a continuous stream of documentary credits covering trade between a buyer and an overseas supplier.
3 In cases where companies are purchasing oil in the market and the cargoes which are offered have already been bought and sold several times. Thus, the original bills of lading have been issued to a
2 To cover reinsurance companies against failure by their insurers to reimburse them for claims settled within the terms of an agreement between the companies.
1 In support of construction contracts where default or improper performance by the contractor would be financially detrimental to the buyer. Thus the contractor would be penalized by any claim under
4 The bank providing the indemnity may demand that payment by the negotiating bank is made direct to itself in order to reduce the beneficiary’s borrowings or to release facilities for other
3 The payment may considerably reduce his bank borrowings andconsequently the interest incurred.
2 He urgently needs payment in order to pay his supplier; the beneficiary is not always the actual supplier.
1 He considers his buyer, the applicant for the credit, will waive the discrepancies.
future: for undertakings given but not yet realised. By agreement with the beneficiary, the negotiating bank makes payment only when it has been reimbursed by the issuing bank, rather than risk
past: for advances already made; for example, the beneficiary may be a customer of the negotiating bank and could have asked for an advance against his documents which he deposited with them as
present: for immediate payment under a sight credit
4 It can use the transaction to establish a relationship with the beneficiary, who has received his payment considerably earlier than if the bill had been drawn on the issuing bank.
3 The confirming bank will additionally earn acceptance commission and discount charges.
2 The accepted bill can be discounted immediately by the confirming or any other bank, with obvious advantages to the beneficiary.
1 Acceptance by the confirming bank is immediate whereas acceptance by the issuing bank may take 7–14 days.
3 In addition, the confirming bank will continue to record a risk against the issuing bank for the amount of the credit, thereby using up a valuable facility.
2 If the credit is confirmed, the confirming bank has to consider that it could still be liable under a sight credit.
1 The issuing bank does not know whether it is liable under a sight or usance credit.
2 Our confirmation is withdrawn.
1 This credit is now available against drafts drawn at 180 days sight.
5 The beneficiary may subsequently persuade his foreign buyers to route future credits through the silent confirmer with obvious benefits to that bank.
4 The silent confirmer may be able to avail itself of telegraphic reimbursement on a reimbursing agent. Thus it could be in funds before the issuing bank can raise any objection to the confirmation.

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