AUDYOGIK SHIKSHAN MANDALS INSTITUTE OF MANAGEMENT & COMPUTER STUDIES

MMS II Division FINANCE Subject INTERNATIONAL FINANCE

GROUP MEMBERS


Afroz Ahmed Nikhil Ghumare Rahul Mahadik Siddhesh Raut

01 15 29 43 Guided By : S.H. Nagalkar

DOCUMENTARY CREDIT
International trade procedure in which the credit worthiness of an importer is substituted by the guaranty of a bank for a specific transaction. Under documentary credit arrangement (also called letter of credit arrangement) a bank (usually in the importer's country) undertakes to pay for a shipment,provided the exporter submits the required documents (such as a clean bill of lading, certificate of insurance, certificate of origin) within a specified period.

UCP 600
Into effect on - 01 July, 2007 No. of Articles 39 Article 17 - Original Documents and Copies Article 18 - Commercial Invoice Article 19 - Transport Document Article 20 - Bill of Lading Article 21 - Non-Negotiable Sea Waybill Article 25 - Courier Receipt, Post Receipt or Certificate of Posting

PARTIES TO THE LETTER OF CREDIT

Opener (Importer/Buyer): Issuing Bank Advising Bank Beneficiary (seller/ exporter) Nominated Bank Confirming Bank Reimbursing Bank

TYPES OF LETTER OF CREDITS

Revocable / Irrevocable Letter of Credit Confirmed / Unconfirmed Letter of Credit Transferable or Divisible Letter of Credit Deferred Payment Letter of Credit Revolving Letter of Credit Anticipatory Credit Standby Letter of Credit Back-to back Letter of Credit

ADVANTAGES OF LETTER OF CREDIT

Exporters Guaranteed payment Reducing the production risk The ability to structure the delivery schedule according to the exporter's interests. The chance to obtain financing The buyer cannot refuse to pay due to a complaint about the goods.

Importer The possibility to structure the payment plan in the contract according to the importer's interests. Certainty that the payment Avoid or reduce pre-payment. Goodwill of buyer is potrays Can make use of favorable payment terms in the future.

DISADVANTAGES OF DOCUMENTARY CREDIT

Exporter Documents must be prepared and presented in strict compliance with the requirements stipulated in the Letter of Credit. Some Importers may not be able to open Letters of Credit due to the lack of credit facilities with their bank which consequently inhibits export growth. Importer No protection against exporter shipping inferior quality goods and/or a lesser quantity of goods. Necessary to have good Credit wothiness