MOHAMMAD BADRUL ALAM

SENIOR OFFICER
AGRANI BANK LTD
RAJBARI BR., RAJBARI
CELL NO-01725308970
FACEBOOK-MB ALAM ARIF

Sheet-3

Letter of Credit

51. Define Documentary Credit.

Transferable Letter of Credit
Confirmed Letter of Credit
Revocable Letters of Credit
Irrevocable Letter Of Credit
What is a Standby Letter of Credit?
Revolving LC
back to back LC
discrepant LC,

52.What is the operating procedure of transferable letter of credit?

55.What are the various parties involved in a letter of credit and discuss their
role?
56.Discuss the features of Documentary Credit/ Letter of Credit
57.The advantages of a Documentary Credit
58.Describe briefly the types of frauds that occur in connection with
documentary credit and how to mitigate those problem?
59. Discuss the responsibilityand rights of Opening Bank/ Issuing Bank under
confirmed L/C
60. Discuss the duty and responsibility of Advising Bank/ Corresponding Bank
61.Discuss the duty and responsibility of A confirming Bank
62.Discuss the duty and responsibility of reimbursing bank
63.Discuss the duty and responsibility of nominated/negotiating bank
66. Discuss the duty and responsibility of transferring bank

51. Define Documentary Credit.

A documentary creditalso called a letter of creditis a conditional guarantee of payment
in which an overseas bank takes responsibility for paying you after you ship your goods,
provided you present all the required documents (such as documents of title, insurance
policies, commercial invoices and regulatory documents).
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A documentary credit is a separate contract from an export contract. The parties to a
documentary credit deal with documents, not the goods that the documents relate to.
Documentary credits are a common method of payment in the international trade of goods as
they offer some protection to both you and your buyer.
Documentary credits are a common method of payment in the international trade of goods as
they offer some protection to both you and your buyer. 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.
Transferable Letter of Credit :
Transferable letter of credit is a special type of lc which is suitable for triangle trade.
Triangle trade is a type of international business transaction in which a middleman sits
between exporter and importer.
Middlemen or trade brokers have limited finance facilities. As a result they have to
rely on their buyers' finance support such as a transferable letter of credit.
Process of the transferable lc is as follows in a very simple term. Middleman's buyer
open a transferable letter of credit in favor of the middleman. Then middleman
transfers a part of this lc to his supplier. The difference between two lcs is the net
profit margin of the middleman.
Banks play a key role on transferable letters of credit. UCP 600 rules have special
articles about transferable letters of credit.
transferable letter of credit is a sort of a documentary credit which can be used in situations
where middlemen are playing a certain role. Usually middlemen (first beneficiary) do not
have enough capital establishment to buy the goods from their sources (second beneficiary)
before they re-sell them to their final customers (applicant). If the final buyer finds it
valuable working with a middleman for a definite foreign trade transaction, he can let the
middleman benefit from his credibility by supplying him a transferable letter of credit.
The middleman than have the part or all of the transferable letter of credit transferred to his
supplier who has gained considerable payment assurance to ship the goods. The supplier can
acquire its payment portion in exchange for the complying documents stated in the letter of
credit. The middleman is entitled to substitute its own invoice for the one of the supplier and
acquire the difference as his profit in transferable letter of credit mechanism.
Important Points of Consideration :
Transferable letters of credit should be issued in an irrevocable form.
A letter of credit can be transferred to the second beneficiary at the request of the first
beneficiary only if it expressly states that the letter of credit is "transferable".
A bank is not obligated to transfer a credit.
A transferable letter of credit can be transferred to more than one second beneficiary as long
as credit allows partial shipments.

The terms and conditions of the original credit must be indicated exactly in the transferred
credit. However, in order to keep the workability of the transferable letter of credit below
figures can be reduced or curtailed.
letter of credit amount
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 any unit price of the merchandise (if stated)
the expiry date
the presentation period or
the latest shipment date or given period for shipment.
The first beneficiary may demand from the transferring bank to substitute his name for that
of the applicant. However, if a document other than invoice required in the transferable
credit must be issued in a way to show the applicant's name, in such a case that requirement
must be indicated in the transferred credit.
Transferred credit can not be transferred once again to any third beneficiary according to the
request of the second beneficiary.
Confirmed Letter of Credit
After discussing the benefits of the confirmation in a letter of credit transaction, let us
examine the points that need to be take into consideration regarding the confirmed letters of
credit.

Only irrevocable letters of credit can be confirmed.

During the issuance phase of a letter of credit, the issuing bank should "authorize or
request" the potential confirming bank to add its confirmation to the letter of credit.
No bank can be forced to add its confirmation to any letter of credit.
If a bank is authorized or requested by the issuing bank to confirm a credit but is not
prepared to do so, it must inform the issuing bank without delay and may advise the
credit without confirmation. (UCP 600 article 8 ii-d)
Confirming a letter of credit does not mean that confirming bank is obligated to
confirm any subsequent amendment or amendments.
A confirming bank is irrevocably bound to honour or negotiate as of the time it adds
its confirmation to the letter of credit. (UCP 600 article 8 ii-b )
Revocable Letters of Credit : Revocable letter of credit can be modified or cancelled by the
issuing bank after its issuance at any moment without seeking the beneficiary's consent.
There is one exception regarding the revocation of the credit. Issuing bank must reimburse
any nominated or confirming bank with which the recovable letter of credit has been made
available if these banks fullfil their obligations under the documentary credit terms againist
complying presentation before they receive the amendment or cancellation notice from the
issuing bank.
A revocable letter of credit can serve as a limited security payment method to the
beneficiries because they are subject to amenmend or cancellation without their prior
knowledge. As a result revocable letters of credit are not used frequently in international
trade.

UCP 500,which is the previous letters of credit rules published by ICC, was indicated that a
letter of credit may be either revocable or irrevocable. UCP 500 assumed that a letter of
credit is irrevocable in default of the indication whether it is revocable or irrevocable.
Current letter of credit rules, UCP 600, do not cover revocable letters of credit. This point is
made clear in article 3 of UCP 600 :

A credit is irrevocable even if there is no indication to that effect.

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Irrevocable Letter Of Credit : Irrevocable Letter Of Credit (ILOC) is a letter of credit
type which can not be cancelled or amended by the issuing bank without the agreement of
the parties of the letter of credit transaction. For example, issuing bank has no power to
modify letter of credit terms if beneficiary does not find them acceptable. In other words,
every amendmend at least requires beneficiary's acceptance in order to be effective.
Irrevocable letters of credit give much more payment security to the beneficiaries than
revocable letters of credit because of the reasons explained above. As a result irrevocable
letters of credit are the types of LCs that dominantly seen on the market place.

Banks will only add their confirmation to the irrevocable letters of credit. A confirming bank
is not obligated to add its confirmation to any amendmend. Also, transferable letters of credit
should not be issued in a revocable form.

Letters of credits are transmitted through banks via a secure and authanticated system which
is called SWIFT. There are various swift message types for different situations. For example
banks use MT700 ( Message Type 700 ) when issuing a letter of credit. We will examine
SWIFT messages detailly later on. Here we want to explain one section of MT700 swift
message (Issue of a Documentary Credit) which contains the information regarding the type
of the documentary credit.

In order to understand the letter of credit type we need to check Field 40A in a MT700 swift
message. This field contains the necessary information regarding the form of the
documentary credit. There are seven possiblities as seen below.

IRREVOCABLE : The documentary credit is irrevocable.

REVOCABLE: The documentary credit is revocable.
IRREVOCABLE TRANSFERABLE: The documentary credit is irrevocable and
transferable.
REVOCABLE TRANSFERABLE: The documentary credit is revocable and
transferable.
IRREVOCABLE STANDBY: The standby letter of credit is irrevocable.
REVOCABLE STANDBY: The standby letter of credit is revocable.
IRREVOC TRANS STANDBY: The standby letter of credit is irrevocable and
transferable.

What is a Standby Letter of Credit?

A standby letter of credit (SLOC) is a guarantee of payment by a bank on behalf of their
client. It is a loan of last resort in which the bank fulfills payment obligations by the end of
the contract if their client cannot.
The standby letter of credit is never meant to be used, but prevents contracts from going
unfulfilled in the event your company closes down, declares bankruptcy, or is unable to pay
for goods or services provided. Standby letters of credit help prove a business credit quality
and repayment abilities.
ypes of Standby Letters of Credit
Performance SLOC
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 o Performance standby letters of credit ensure the nonfinancial contractual
obligations (quality of work, amount of work, time, cost, etc.) are performed in
a timely and satisfactory manner. If these obligations are not met, the bank will
pay the third party in full.
Financial SLOC
o Financial standby letters of credit ensure financial contractual obligations are
fulfilled. Most SLOCs are financial.
o Financial SLOCs are often required when performing international trade or
other large purchase contracts under which other forms of payment protections
(such as litigation in the event of non-payment) can be difficult to obtain.
How to Obtain a Standby Letter of Credit
The standby letter of credit process is similar to that of obtaining a commercial loan,
with a few key differences.
As with any business loan, you will need to provide proof of your creditworthiness to
the bank. However, the SLOC approval process is much quicker, with letters often
being issued within a week of all paperwork being submitted.
Unlike traditional loans, the bank will require a standby of letter of credit fee of
between 1-10% of the SLOC amount before issuing the letter. This fee is usually
charged per year that the letter of credit is in effect. If the terms of the contract are
fulfilled early, you can cancel the SLOC without incurring additional charges.
Standby letters of credit can help establish trust with your business partners and be a
powerful tool to help meet your business goals. Talk with your banker about how you
can use a standby letter of credit for your business. For more information, contact a
Revere Bank relationship manager at 866-950-5784 or
customerservice@reverebank.com.
What Is a Standby Letter of Credit?
A standby letter of credit is a document issued by a bank. This document serves as a
guarantee: the bank promises to pay a "beneficiary" if something fails to happen.
Standby letters of credit, like standard letters of credit, can be used for international trade as
well as domestic transactions in your home country.
The letter of credit provides security from the bank, which is presumably a disinterested third
party. If the bank's customer fails to do something (like pay on time, complete a project on
time, or satisfy certain terms of an agreement) the bank not the customer who failed to
deliver pays the beneficiary.
Example of a financial standby LOC: an exporter sells goods to a foreign buyer who
promises to pay within 60 days. If the payment never comes (and a standby letter of credit
was used) the exporter can collect payment from the importers bank. The importers bank
has already evaluated the importers credit, and the bank assumes (or hopes) that the
importer will repay the bank. Sometimes collateral is required to get the letter as well. This is
an example of a financial standby letter of credit.
Example of a performance standby LOC: a contractor agrees to complete a construction
project within a certain timeframe. When the deadline arrives, the project has not been
completed. If a standby letter of credit was used, the contractors customer can collect
payment from the contractors bank (those funds might serve as a penalty, funding to bring
in another contractor to take over mid-project, or "something for your time").
This is an example of a performance standby letter of credit.
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The process works like this:
1. Jack and Jill make a deal (perhaps Jack is an importer who wants Jill to ship him
10,000 widgets on open credit, or perhaps Jack promises to build a bridge for Jills
city by next August)
2. Jill does not want to take the risk of Jack failing to deliver on his promises, so she asks
Jack to obtain a letter of credit as part of their agreement
3. Jack asks his bank for a standby letter of credit. Because he has sufficient credit and
collateral, the bank issues the letter
4. Jacks bank sends the letter to Jills bank
5. Jill reviews the letter of credit to make sure it is acceptable, and decides that it is
6. If Jack fails to meet his obligations, Jill submits documentation to Jacks bank as
required by the letter of credit (possibly using her bank or other banks as
intermediaries)
7. Jacks bank pays Jill (again, possibly indirectly), and Jack will have to repay his bank
How to Get a Standby Letter of Credit
If you need a standby letter of credit, ask your bank to issue one. Youll most likely need to
talk with somebody in the banks commercial division or international trade department. Be
sure to take plenty of time to understand how it works and under what circumstances youll
be responsible for payment.
If you want somebody else to use a standby letter of credit, demand it as part of your
agreement and insist on an irrevocable letter of credit. Be sure to work closely with your
bank and your attorneys to understand what you need to do to collect payment letters of
credit are notoriously complex, and meeting all of the requirements is difficult. If you dont
meet all of the requirements exactly, you wont get paid.
Revolving LC
Single L/C that covers multiple-shipments over a long period. Instead of arranging a new
L/C for each separate shipment, the buyer establishes a L/C that revolves either in value (a
fixed amount is available which is replenished when exhausted) or in time (an amount is
available in fixed installments over a period such as week, month, or year). L/Cs revolving in
time are of two types: in the cumulative type, the sum unutilized in a period is carried over to
be utilized in the next period; whereas in the non-cumulative type, it is not carried over.

Read more: http://www.businessdictionary.com/definition/revolving-letter-of-credit-L-

C.html
back to back LC
Two letters of credit, one in favor of the buyer's agent and one financing the seller. A back-
to-back credit is created when an exporter holding an irrevocable Letter of Credit persuades
the buyer's bank (the advising bank) to open a second credit in favor of the merchandise
supplier. The two credits are identical in all respects, except that the supplier becomes the
Beneficiary of the back-to-back credit, and the amount of the second credit is less than the
original export credit. The difference is the import agent's commission.
discrepant LC,
Discrepant L/C is a kind of letter of credit that does not comply with the terms and
conditions under which it was established that is without a required item of information, or
the information provided is inconsistent with the associated documents. The issuing bank
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of a discrepancy L/C is not obliged to pay its beneficiary and (if it is a confirmed L/C) nor is
the confirming bank. Such L/Cs are normally referred back to the buyer or importer for
instructions.

52.What is the operating procedure of transferable letter of credit?

Transferable Letter of Credit process
A transferable documentary credit is a another type of credit under which the first
beneficiary usually a middleman requesting the nominated bank/beneficiary bank in which
the documentary credit is available for honour or negotiation to transfer in whole or in part
to the second beneficiary.

Here is a highlights the main steps in a transferable documentary credit by briefly

summarising the progress of a simple transaction.

1. The buyer (applicant) and the seller (trader) conclude their sales contract and buyer
agree to request its bank to issue a transferable documentary credit, in favour of the trader
2. The buyer requests the issuance of an irrevocable transferable documentary credit.
3. The issuing bank transmits the documentary credit details to an advising bank.
4. The advising bank advises the documentary credit to the trader (first beneficiary).
5. The trader/first beneficiary requests the advising bank transfer part or full of the
documentary credit to a supplier in the same country or in another country .
6. The transferring bank makes the transferred part or full of the documentary credit to the
second beneficiary, by issuing a transferred credit.
7. The transferred credit is advised to the second beneficiary.
8. The second beneficiary ships the goods in accordance with the requirements of the
transferred credit.
9. The second beneficiary prepares all of the documents stipulated in the transferred credit.
10.The second beneficiary sends the documents to the transferring bank.
11.When the transferring bank receives the documents, the trader (first beneficiary) will be
requested to present its own invoice and draft, if any.
12. The invoice and draft (if any) of the trader/first beneficiary, together with all of the
other documents, are sent to the issuing bank.

13. Issuing bank when receive the a comply document reimbursement tranfering bank as
transfering bank instruction
14. + Transferring bank reimburses second beneficiary bank as their instruction
+ Transferring bank credit first beneficiary/ trader account

15. Second beneficiary bank credits second beneficiary account

53.Discuss the duty and responsibility of nominated/negotiating bank under transferable

letter of credit.
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54. What is the operating procedure of LC of a currency

55.What are the various parties involved in a letter of credit and discuss their role?
Who are the parties involved in a Letter of Credit LC
The major parties involved in a letter of credit are discussed below. We can classify mainly
eight main parties involved in a Letter of Credit.
Applicant of Letter of Credit.
Applicant is one of the main parties involved in a Letter of Credit.
Applicant is the party who opens Letter of Credit. Normally, buyer of goods is the Applicant
who opens letter of credit with his bank as per the terms and conditions of Purchase order
and business contract between buyer and seller. So Applicant is one of the major parties
involved in a Letter of credit.
LC Issuing Bank
Issuing Bank is one of the other main parties involved in an LC.
Issuing Bank is the bank who opens letter of credit. Letter of credit is created by issuing bank
who takes responsibility to pay amount on receipt of documents from supplier of goods
(beneficiary under LC).
Beneficiary party
Beneficiary is one of the main parties under letter of credit. Beneficiary is the party under
letter of credit who receives amount under letter of credit. The LC is opened on Beneficiary
partys favor. Beneficiary party under letter of credit submits all required documents with is
bank in accordance with the terms and conditions under LC.
Advising Bank
Advising bank, as a part of letter of credit takes responsibility to communicate with
necessary parties under letter of credit and other required authorities. The advising bank is
the party who sends documents under Letter of Credit to opening bank.
Confirming Bank
Confirming bank as a party of letter of credit confirms and guarantee to undertake the
responsibility of payment or negotiation acceptance under the credit.
Negotiating Bank
Negotiating Bank, who negotiates documents delivered to bank by beneficiary of LC.
Negotiating bank is the bank who verifies documents and confirms the terms and conditions
under LC on behalf of beneficiary to avoid discrepancies
Reimbursing Bank
Reimbursing bank is the party who authorized to honor the the reimbursement claim of
negotiation/ payment/ acceptance.
Second Beneficiary
Second beneficiary who represent the first beneficiary or original beneficiary in their
absence, where in the credits belongs to original beneficiary is transferable as per terms.

56.Discuss the features of Documentary Credit/ Letter of Credit

Characteristics of a Documentary Letter of Credit:
1. a written obligation on the part of the bank to pay a specified amount subject to
meeting of the conditions of the letter of credit stipulated by the buyer
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2. the bank assumes the obligation towards the seller on the basis of request by the buyer
3. an irrevocable obligation
4. various types of letters of credit:
a. import, export (customer, supplier)
b. notified, confirmed
c. transferable, revolving, standby letter of credit
5. one of the most important and best elaborated payment instruments
6. used in international and domestic trade
7. certainty for the buyer that payment of a specific amount will not be made until the
seller meets the conditions set by the buyer
8. certainty for the seller that he or she will be paid for the goods after the conditions of the
letter of credit are met

57.The advantages of a Documentary Credit:

For the Exporter/Seller:
1. The seller has the obligation of buyer's bank's to pay for the shipped goods;
2. Reducing the production risk, if the buyer cancels or changes his order
3. The opportunity to get financing in the period between the shipment of the goods and
receipt of payment (especially, in case of deferred payment).
4. The seller is able to calculate the payment date for the goods.
5. The buyer will not be able to refuse to pay due to a complaint about the goods
For The Importer/Buyer:
1. The bank will pay the seller for the goods, on condition that the latter presents to the bank
the determined documents in line with the terms of the letter ofcredit;
2. The buyer can control the time period for shipping of the goods;
3. By a letter of credit, the buyer demonstrates his solvency;
4. In the case of issuing a letter of credit providing for delayed payment, the seller grants a
credit to the buyer.
5. Providing a letter of credit allows the buyer to avoid or reduce pre-payment.
58.Describe briefly the types of frauds that occur in connection with documentary
credit and how to mitigate those problem?

A letter of credit fraud is a type of scam in which the scammer attempts to make money via
faulty business transactions or tells victims that a letter of credit is an investment.
1. One way of performing letter of credit fraud is to create a fake company. The scammer
will tell the victim that he or she is a representative for a company that can ship goods to the
victim at very low costs. After the victim signs the letter of credit, the scammer goes to a
bank and collects the money. The company will then typically disappear, and the victim
either will receive nothing or will receive vastly inferior goods.
2. The second method of performing a letter of credit fraud is to tell the victim that the letter
represents an investment. The scammer tells the victim that he or she will receive a high
interest rate from purchasing the fake letter of credit. Letters of credit are not investments,
however, and cannot be used as such.

how to mitigate those problem

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Some Of The Problems Normally Encountered By Banks In Handling Letter Of Credit

The following are some of the problems normally encountered by banks in handling
letter of credit. How would you address these problems within the framework of
UCPDC-600?
a) Your exporter customer has submitted shipping documents for negotiations after the last
date of negotiation stipulated in the LC.
Solution : Article 16 Discrepant Documents, Waiver and Notice
a. the issuing bank may refuse to honour or negotiate.
c. must give a single notice to that effect to the presenter.
d. The notice must be given no later than the close of the fifth banking day following the day
of presentation.
e. may return the documents to the presenter at any time.
b) You receive a letter of credit from a foreign bank for advising to one of your customers
engaged in export trade but you are unable to verify the authenticity of the credit.
Solution : Article 9 Advising of Credits and Amendments
f. If a bank is requested to advise a credit or amendment but cannot satisfy itself as to the
apparent authenticity of the credit, the amendment or the advice, - it must so inform,
without delay, the bank from which the instructions appear to have been received.
- If the advising bank or second advising bank elects nonetheless to advise the credit or
amendment, it must inform the beneficiary or second advising bank that it has not been able
to satisfy itself as to the apparent authenticity of the credit, the amendment or the advice.
c) You are asked by your foreign correspondents to advise a credit to your customer. The
customer wants you to add your confirmation to the credit although the opening bank has not
specifically asked you to do so.
Solution : Article 8 Confirming Bank Undertaking
d. If a bank is authorized or requested by the issuing bank to confirm a credit but is not
prepared to do so, - it must inform the issuing bank without delay and may advise the credit
without confirmation.
d) Your bank has received an amendment advice from the letter of credit issuing bank for
advising it to the beneficiary. You find from your record that the original letter of credit was
advised through another bank, not your bank.
Solution : Article 9 Advising of Credits and Amendments
e. If a bank is requested to advise a credit or amendment but elects not to do so, - it must so
inform, without delay, the bank from which the credit, amendment or advice has been
received.

59. Discuss the responsibilityand rights of Opening Bank/ Issuing Bank under
confirmed L/C
According to UCP 600 - Article 7
Issuing Bank Undertaking
1. Provided that the stipulated documents are presented to the nominated bank or to the
issuing bank and that they constitute a complying presentation, the issuing bank must
honour if the credit is available by:
1. sight payment, deferred payment or acceptance with the issuing bank;
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 2. sight payment with a nominated bank and that nominated bank does not pay;
3. deferred payment with a nominated bank and that nominated bank does not incur its
deferred payment undertaking or, having incurred its deferred payment undertaking,
does not pay at maturity;
4. acceptance with a nominated bank and that nominated bank does not accept a draft
drawn on it or, having accepted a draft drawn on it, does not pay at maturity;
5. negotiation with a nominated bank and that nominated bank does not negotiate.
2. An issuing bank is irrevocably bound to honour as of the time it issues the credit.
3. An issuing bank undertakes to reimburse a nominated bank that has honoured or
negotiated a complying presentation and forwarded the documents to the issuing bank.
Reimbursement for the amount of a complying presentation under a credit available by
acceptance or deferred payment is due at maturity, whether or not the nominated bank
prepaid or purchased before maturity. An issuing bank's undertaking to reimburse a
nominated bank is independent of the issuing bank's undertaking to the beneficiary.
Right of issuing bank------
a. When a nominated bank acting on its nomination, a confirming bank, if any, or the
issuing bank determines that a presentation does not comply, it may refuse to honour
or negotiate.
b. When an issuing bank determines that a presentation does not comply, it may in its
sole judgement approach the applicant for a waiver of the discrepancies. This does not,
however, extend the period mentioned in sub-article 14(b)
c. When a nominated bank acting on its nomination, a confirming bank, if any, or the
issuing bank decides to refuse, it must give a single notice to that effect to the
presenter
The notice must state:
i. that the bank is refusing to honour or negotiate; and,
ii. each discrepancy in respect of which the bank refuses to honour or negotiate; and
iii. a) that the bank is holding the documents pending further instructions from the
presenter; or
b) the issuing bank is holding the documents until it receives a waiver from the
applicant and a gees to accept it, or receives further instructions from the presenter prior to
agreeing to accept a waiver; or
c) the link is returning the documents; or

d) the bank is acting in accordance with instructions previously received from the
presenter.
d. The notice required in sub-article 16 (c) must be given by telecommunication or, if
that is not possible, by other expeditious means no later than the close of-the fifth
banking day following the day of presentation.
e. A nominated bank acting on its nomination, a confirming bank, if any , or the issuing
bank may, after Providing notice requiring ring by sub-article 16(c) (iii) (a) or (b),
return the documents to the presenter at any time.

60. Discuss the duty and responsibility of Advising Bank/ Corresponding Bank
Correspondent bank (usually in the exporter's country) of an issuing bank (usually in the
importer's country) that receives a letter of credit (L/C) from the issuing bank for
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 authenticating it and informing ('advising') the exporter (the L/C's beneficiary) that a L/C has
been opened by the importer in the exporter's favor
An advising bank (also known as a notifying bank)
advises a beneficiary (exporter) that a letter of credit (L/C) opened by an issuing bank for
an applicant(importer) is available.

a. A credit and any amendment may be advised to a beneficiary through an advising

bank. An advising bank that is not a confirming bank advises the credit and any
amendment without any undertaking to honour or negotiate.
b. By advising the credit or amendment, the advising bank signifies that it has satisfied
itself as to the apparent authenticity of the credit or amendment and that the advice
accurately reflects the terms and conditions of the credit or amendment received.
c. An advising bank may utilize the services of another bank (second advising bank) to
advice the credit and any amendment to the beneficiary. By advising the credit or
amendment, the second advising bank signifies that it has satisfied itself as to the
apparent authenticity of the advice it has received and that the advice accurately
reflects the terms and conditions of the credit or amendment received.
d. A bank utilizing the services of an advising bank or second advising bank to advise a
credit must use the same bank to advise any amendment thereto.
e. If a bank is requested to advise a credit or amendment but elects not to do so it must so
inform, without delay, the bank from which the credit, amendment or advice has been
received.
f. If a bank is requested to advise a credit or amendment but cannot satisfy itself as to the
apparent authenticity of the credit, the amendment or the advice, it must so inform,
without delay, the bank from which the instructions appear to have been received. If
the advising bank or second advising bank elects nonetheless to advise the credit or
amendment, it must inform the beneficiary or second advising bank that it has not
been able to satisfy itself as to the apparent authenticity of the credit, the amendment
or the advice.
61.Discuss the duty and responsibility of A confirming Bank
According to UCP 600 - Article 8---
Confirming Bank Undertaking
1. Provided that the stipulated documents are presented to the confirming bank or to any
other nominated bank and that they constitute a complying presentation, the confirming
bank must:
a.honour, if the credit is available by
1.sight payment, deferred payment or acceptance with the confirming bank;
2.sight payment with another nominated bank and that nominated bank does not pay;
3.deferred payment with another nominated bank and that nominated bank does not incur
its deferred payment undertaking or, having incurred its deferred payment undertaking, does
not pay at maturity;
4.acceptance with another nominated bank and that nominated bank does not accept a
draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;
5.negotiation with another nominated bank and that nominated bank does not negotiate.
b.negotiate, without recourse, if the credit is available by negotiation with the confirming
bank.
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2. A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its
confirmation to the credit.
3. A confirming bank undertakes to reimburse another nominated bank that has honoured or
negotiated a complying presentation and forwarded the documents to the confirming bank.
Reimbursement for the amount of a complying presentation under a credit available by
acceptance or deferred payment is due at maturity, whether or not another nominated bank
prepaid or purchased before maturity. A confirming bank's undertaking to reimburse
another nominated bank is independent of the confirming bank's undertaking to the
beneficiary.
4. If a bank is authorized or requested by the issuing bank to confirm a credit but is not
prepared to do so, it must inform the issuing bank without delay and may advise the credit
without confirmation.
Right of cinfirming bank
i.if confirming bank make confirmation on letter of credit according to the request of issuing
bank and make payment to the negotiating/nominated bank according their claim for
payment; confirming bank has the right ot recovery the payment from issuing bank
2. according to the request letter from issuing bank, confirming bank deserve the right to
collect the commission/charge from the bank described in request letter.

62.Discuss the duty and responsibility of reimbursing bank

a. If a credit states that reimbursement is to be obtained by a nominated bank ("claiming
bank") claiming on another party ("reimbursing bank"), the credit must state if the
reimbursement is subject to the ICC rules for bankto-bank reimbursements in effect on
the date of issuance of the credit.
b. If a credit does not state that reimbursement is subject to the ICC rules for bank-to-
bank reimbursements, the following shall apply:
i. An issuing bank must provide a reimbursing bank with a reimbursement authorization
that conforms with the availability stated in the credit. The reimbursement
authorization should not be subject to an expiry date.
ii. A claiming bank shall not be required to supply a reimbursing bank with a certificate
of compliance with the terms and conditions of the credit.
iii. An issuing bank will be responsible for any loss of interest, together with any
expenses incurred, if reimbursement is not provided on first demand by a reimbursing
bank in accordance with the terms and conditions of the credit.
iv. A reimbursing bank's charges are for the account of the issuing bank. However, if the
charges are for the account of the beneficiary, it is the responsibility of an issuing bank
to so indicate in the credit and in the reimbursement authorization. If a reimbursing
bank's charges are for the account of the beneficiary, they shall be deducted from the
amount due to a claiming bank when reimbursement is made. If no reimbursement is
made, the reimbursing bank's charges remain the obligation of the issuing bank.
c. An issuing bank is not relieved of any of its obligations to provide reimbursement if
reimbursement is not made by a reimbursing bank on first demand.
Right
Reimbursing bank is not bound to pay without R/A from issuing bank
63.Discuss the duty and responsibility of nominated/negotiating bank

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 a. Unless a nominated bank is the confirming bank, an authorization to honour or
negotiate does not impose any obligation on that nominated bank to honour or
negotiate except when expressly agreed to by that nominated bank and so
communicated to the beneficiary.
b. By nominating a bank to accept a draft or incur a deferred payment undertaking, an
issuing bank authorizes that nominated bank to prepay or purchase a draft accepted or
a deferred payment undertaking incurred by that nominated bank.
c. Receipt or examination and forwarding of documents by a nominated bank that is not
a confirming bank does not make that nominated bank liable to honour or negotiate,
nor does it constitute honour or negotiation.

Complying presentation means a presentation that is in accordance with the terms and
conditions of the credit, the applicable provisions of these rules and international standard
banking practice.
Honour means:
a. to pay at sight if the credit is available by sight payment.
b. to incur a deferred payment undertaking and pay at maturity if the credit is available
by deferred payment.
c. to accept a bill of exchange ("draft") drawn by the beneficiary and pay at maturity if
the credit is available by acceptance.
d. Negotiation means the purchase by the nominated bank of drafts (drawn on a bank
other than the nominated bank) and/or documents under a complying presentation, by
advancing or agreeing to advance funds to the beneficiary on or before the banking
day on which reimbursement is due to the nominated bank.

64.Discuss the duty and responsibility of applicant/buyer for credi

65.Discuss the duty and responsibility of beneficiary/seller

66. Discuss the duty and responsibility of transferring bank

ARTICLE 38
Transferable Credits
a.A bank is under no obligation the transfer a credit accept to the extent and in the manner
expressly consented to by that bank.
b. For the purpose of this article: Transferable credit means a credit that specifically states it
is transferable. A transferable credit may be made available in whole or in part to another
beneficiary (second beneficiary) at the request of the beneficiary (first beneficiary).
Transfering bank means a nominated that transfers the credit or, in a credit available with
any bank, a bank that specifically authorized by the issuing bank to transfer and that transfers
the credit.An issuing bank may be a transferring bank. Transferred credit means a credit that
has been made available by the transferring bank to second beneficiary.
c. Unless otherwise agreed at the time of transfer, all charges (such as commissions, fees,
costs or expenses) incurred in respect of a transfer must be paid by the first beneficiary.

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d. A credit may be transferred in part to more than one second beneficiary provided partial
drawings or shipments are allowed. a transferred credit cannot be transferred at the request
of a second beneficiary to any subsequent beneficiary. The first beneficiary is not considered
to be a subsequent beneficiary.

e.Any request for transfer must indicate if andunder what conditions amendments may be
advised to the second beneficiary.The transfered credit must clearly indicate those
conditions.
f. If a credit is transfered to more than one second beneficiary, rejection of an amendment by
one or more second beneficiary does not invalidate the acceptance by any other seconds
beneficiary, respect to which the transfered credit will be amendment accordingly.For any
second beneficiary that rejected the amendment, the tramsfered credit will remain
unamended.The transfered credit must accurately reflect the terms and the conditions of the
credit, including confirmation, if any with the exeption of:
The amount of the credit,
Any unit price stated therein,
The expiry date,
The period for presentation, or
the latest shipment date or given periodfor shipment, If the name of the applicant is
specifically required by the credit to appear in any document other than the invoice, such
requirement must be reflected in the transfered credit.
h. The first beneficiary has the right substitute its own invoice and draft, if any, for those of
a second beneficiary for an amount not in excess of that stipulated in the credit,and upon
such substitution the first beneficiary can draw under the credit for the difference, if any,
between it is invoice and the invoice of a second beneficiary.
i. If the first beneficiary is to present it is own invoice and draft, if any, but fails to do so on
first demand, or if the invoices presented by the first beneficiary create discrepancies that
did not exist in the presentation made by the second beneficiary fails to correct them on
firstdemand, the transferring bank has the right to present the documents are as received
from the second beneficiary to the issuing bank, without further responsibility to the first
beneficiary.
j. The first beneficiary may, in it is request for transfer, indicate that honour or negotiation is
to be effected to a second beneficiary at the place to which the credit has been transfered, up
to and including the expiry date of the credit.This is without prejudice to the right of the first
beneficiary in accordance with sub-article 38 (h).
k. Presentation of documents by or on behalf of a second beneficiary must be made to the
transfering bank

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