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4. Who is not involved in Sales Agreement? Banks 5. Can you recall the 4 methods of payments? List the basic features of each payment methods. a. Open Account
In open account method the importer is trusted to pay the exporter after receipt of goods. The main drawback of open account method is that exporter assumes all the risks while the importer get the advantage over the delay use of company's cash resources and is also not responsible for the risk associated with goods.
The Payment Collection of Bills also called Uniform Rules for Collections is published by International Chamber of Commerce (ICC) under the document number 522 (URC522) and is followed by more than 90% of the world's banks. In this method of payment in international trade the exporter entrusts the handling of commercial and often financial documents to banks and gives the banks necessary instructions concerning the release of these documents to the Importer. It is considered to be one of the cost effective methods of evidencing a transaction for buyers, where documents are manipulated via the banking system.
There are two methods of collections of bill:
c.
Letter of Credit also known as Documentary Credit is a written undertaking by the importers bank known as the issuing bank on behalf of its customer, the importer (applicant) or on its own, promising to effect payment in favour of the exporter (beneficiary) up to a stated sum of money, within a prescribed time limit and against stipulated documents. It is generally issued subject to the provision of Uniform Custom and Practices (UCP) brochure number 600. It provides the seller an independent bank undertaking of payment. The buyer on other hand knows that the payment will not be made unless the seller documentary evidence covering the goods and its shipment.
6.
a. Drawer It is the person who is the maker of the bill of exchange. It is the person who has sold the goods and for receiving the payment from the debtor he draws a bill of exchange.
b. Drawee or Acceptor It is the person on whom the bill of exchange is drawn and he has to make the payment to the supplier of goods. c. Payee It is the person to whom the payment has to be made. It may be the drawer himself if he has not discounted the bill with any third party. 8. What is an Aval? A guarantee added to a debt obligation by a third party who is not the payee the holder but who ensures payment, should the issuing party defaults. The debt obligation may be Note, Bond, Promissory note, bill of exchange. The aval is usually provided by bank or other lending institutions 9. What is forfaiting? Forfaiting is a method of trade finance whereby Lender purchases, on a without recourse basis debt obligations arising from the supply of goods and/or services. In a forfaiting transaction, the exporter agrees to assign its rights to claim for payment of goods or services delivered to an importer under a contract of sale, in return for a cash payment from Lender. In exchange for the payment, Lender takes over the exporter's debt instruments and assumes the full risk of payment by the importer. The exporter is thereby freed from any financial risk in the transaction and is liable only for the quality and reliability of the goods and/or services provided. 10. Why Documentary credit is preferred method of payment compared to other 3? In all the other payment methods (Open account payment- Seller has the risk of not receiving money. Advance Payment- Buyer have the risk of not receiving goods at all. Collections- Risk of buyer rejecting Docs or Seller sending inconsistent or false documents) either the buyer or the seller has to depend upon the good faith and performance of the other for the smooth exchange of the goods for payment. However, DC provides the buyer and seller with an independent assurance in the exchange of goods for payment: 1. The Seller has the undertaking of the issuing bank that it will receive payment if complying presentation is made. 2. Buyer has the undertaking that no payment will be made unless stipulated documents are provided and the LC terms and conditions are met. 11. Can you quote the relevant UCP article to Beneficiaries/Applicants that will show that you as bank are not concerned with contracts/goods/service performance? Article 5 Documents v. Goods, Services or Performance Banks deal with documents and not with goods, services or performance to which the documents may relate.
12. What is the possibly the only ground upon which the court should uphold an application for an injunction?