Understanding and Using Letters of Credit Letters of credit accomplish their purpose by substituting the credit of thebank for

that of the customer, for the purpose of facilitating trade. Thereare basically two types: commercial and standby. The commercial letter of credit is the primary payment mechanism for a transaction, whereas thestandby letter of credit is a secondary payment mechanism. Commercial Letter of Credit Commercial letters of credit have been used for centuries to facilitate pay-ment in international trade. Their use will continue to increase as the glob-al economy evolves.Letters of credit used in international transactions are governed by the In-ternational Chamber of Commerce Uniform Customs and Practice for Doc-umentary Credits. The general provisions and definitions of the Interna-tional Chamber of Commerce are binding on all parties. Domestic collec-tions in the United States are governed by the Uniform Commercial Code.A commercial letter of credit is a contractual agreement between a bank,known as the issuing bank, on behalf of one of its customers, authorizinganother bank, known as the advising or confirming bank, to make pay-ment to the beneficiary. The issuing bank, on the request of its customer,opens the letter of credit. The issuing bank makes a commitment to honordrawings made under the credit. The beneficiary is normally the providerof goods and/or services. Essentially, the issuing bank replaces the bank'scustomer as the payee. Elements of a Letter of Credit A payment undertaking given by a bank (issuing bank) On behalf of a buyer (applicant) To pay a seller (beneficiary) for a given amount of money On presentation of specified documents representing the supply of goods Within specified time limits Documents must conform to terms and conditions set out in the let-ter of credit

Documents to be presented at a specified place Beneficiary The beneficiary is entitled to payment as long as he can provide the docu-mentary evidence required by the letter of credit. The letter of credit is adistinct and separate transaction from the contract on which it is based.All parties deal in documents and not in goods. The issuing bank is not li-able for performance of the underlying contract between the customer and beneficiary. The issuing bank's obligation to the buyer, is to examineall documents to insure that they meet all the terms and conditions of thecredit. Upon requesting demand for payment the beneficiary warrants thatall conditions of the agreement have been complied with. If the benefi-ciary (seller) conforms to the letter of credit, the seller must be paid bythe bank. Issuing Bank The issuing bank's liability to pay and to be reimbursed from its customerbecomes absolute upon the completion of the terms and conditions of theletter of credit. Under the provisions of the Uniform Customs and Practicefor Documentary Credits, the bank is given a reasonable amount of timeafter receipt of the documents to honor the draft. The issuing banks' role is to provide a guarantee to the seller that if com-pliant documents are presented, the bank will pay the seller the amountdue and to examine the documents, and only pay if these documentscomply with the terms and conditions set out in the letter of credit. Typically the documents requested will include a commercial invoice, atransport document such as a bill of lading or airway bill and an insurancedocument; but there are many others. Letters of credit deal in documents,not goods. Advising Bank An advising bank, usually a foreign correspondent bank of the issuingbank will advise the beneficiary. Generally, the beneficiary would want touse a local bank to insure that the letter of credit is valid. In addition, theadvising bank would be responsible for sending the documents to the issu-ing bank. The advising bank has no other obligation under the letter of credit. If the issuing bank does not pay the beneficiary, the advising bankis not obligated to pay. Confirming Bank The correspondent bank may confirm the letter of credit for the benefi-ciary. At the request of the issuing bank, the correspondent obligates itself to insure payment under the letter of credit. The confirming bank wouldnot confirm the credit until it evaluated the country and bank where theletter of credit originates. The confirming bank is usually the advisingbank. Letter of Credit Characteristics Negotiability

Letters of credit are usually negotiable. The issuing bank is obligated topay not only the beneficiary, but also any bank nominated by the benefi-ciary. Negotiable instruments are passed freely from one party to anotheralmost in the same way as money. To be negotiable, the letter of creditmust include an unconditional promise to pay, on demand or at a definitetime. The nominated bank becomes a holder in due course. As a holder indue course, the holder takes the letter of credit for value, in good faith,

without notice of any claims against it. A holder in due course is treatedfavorably under the UCC. The transaction is considered a straight negotiation if the issuing bank'spayment obligation extends only to the beneficiary of the credit. If a letterof credit is a straight negotiation it is referenced on its face by "we engagewith you" or "available with ourselves". Under these conditions the prom-ise does not pass to a purchaser of the draft as a holder in due course. Revocability Letters of credit may be either revocable or irrevocable. A revocable letterof credit may be revoked or modified for any reason, at any time by the is-suing bank without notification. A revocable letter of credi

Buyer's bank approves the credit risk of the buyer, issues and for-wards the credit to its correspondent bank (advising or confirming). The correspondent bank is usually located in the same geographicallocation as the seller (beneficiary). Advising bank will authenticate the credit and forward the originalcredit to the seller (beneficiary). Seller (beneficiary) ships the goods, then verifies and develops thedocumentary requirements to support the letter of credit. Docu-mentary requirements may vary greatly depending on the perceivedrisk involved in dealing with a particular company. Seller presents the required documents to the advising or confirm-ing bank to be processed for payment.

Advising or confirming bank examines the documents for compli-ance with the terms and conditions of the letter of credit. If the documents are correct, the advising or confirming bank willclaim the funds by: o Debiting the account of the issuing bank. o Waiting until the issuing bank remits, after receiving the docu-ments. o Reimburse on another bank as required in the credit. Advising or confirming bank will forward the documents to the issu-ing bank. Issuing bank will examine the documents for compliance. If they arein order, the issuing bank will debit the buyer's account. Issuing bank then forwards the documents to the buyer. Standard Forms of Documentation When making payment for product on behalf of its customer, the issuingbank must verify that all documents and drafts conform precisely to theterms and conditions of the letter of credit. Although the credit can requirean array of documents, the most common documents that must accom-pany the draft include: Commercial Invoice The billing for the goods and services. It includes a description of mer-chandise, price, FOB origin, and name and address of buyer and seller. The buyer and seller information must correspond exactly to the descrip-tion in the letter of credit. Unless the letter of credit specifically states oth-erwise, a generic description of the merchandise is usually acceptable inthe other accompanying documents.

Bill of Lading

A document evidencing the receipt of goods for shipment and issued by afreight carrier engaged in the business of forwarding or transportinggoods. The documents evidence control of goods. They also serve as a re-ceipt for the merchandise shipped and as evidence of the carrier's obliga-tion to transport the goods to their proper destination. Warranty of Title A warranty given by a seller to a buyer of goods that states that the titlebeing conveyed is good and that the transfer is rightful. This is a methodof certifying clear title to product transfer. It is generally issued to the pur-chaser and issuing bank expressing an agreement to indemnify and holdboth parties harmless. Letter of Indemnity Specifically indemnifies the purchaser against a certain stated circum-stance. Indemnification is generally used to guaranty that shipping docu-ments will be provided in good order when available. Common Defects in Documentation About half of all drawings presented contain discrepancies. A discrepancyis an irregularity in the documents that causes them to be in non-compli-ance to the letter of credit. Requirements set forth in the letter of creditcannot be waived or altered by the issuing bank without the express con-sent of the customer. The beneficiary should prepare and examine all doc-uments carefully before presentation to the paying bank to avoid anydelay in receipt of payment. Commonly found discrepancies between theletter of credit and supporting documents include: Letter of Credit has expired prior to presentation of draft. Bill of Lading evidences delivery prior to or after the date rangestated in the credit. Stale dated documents. Changes included in the invoice not authorized in the credit. Inconsistent description of goods.

Insurance document errors. Invoice amount not equal to draft amount. Ports of loading and destination not as specified in the credit. Description of merchandise is not as stated in credit. A document required by the credit is not presented. Documents are inconsistent as to general information such asvolume, quality, etc.

Names of documents not exact as described in the credit. Benefi-ciary information must be exact. Invoice or statement is not signed as stipulated in the letter of cred-it.When a discrepancy is detected by the negotiating bank, a correction tothe document may be allowed if it can be done quickly while remaining inthe control of the bank. If time is not a factor, the exporter should requestthat the negotiating bank return the documents for corrections.If there is not enough time to make corrections, the exporter should re-quest that the negotiating bank send the documents to the issuing bankon an approval basis or notify the issuing bank by wire, outline the dis-crepancies, and request authority to pay. Payment cannot be made untilall parties have agreed to jointly waive the discrepancy. Tips for Exporters Communicate with your customers in detail before they apply forletters of credit. Consider whether a confirmed letter of credit is needed.

Ask for a copy of the application to be fax to you, so you can checkfor terms or conditions that may cause you problems in compliance. Upon first advice of the letter of credit, check that all its terms andconditions can be complied with within the prescribed time limits. Many presentations of documents run into problems with time-lim-its. You must be aware of at least three time constraints - the expira-tion date of the credit, the latest shipping date and the maximumtime allowed between dispatch and presentation. If the letter of credit calls for documents supplied by third parties,make reasonable allowance for the time this may take to complete. After dispatch of the goods, check all the documents both againstthe terms of the credit and against each other for internal consist-ency. Summary The use of the letters of credit as a tool to reduce risk has grown substan-tially over the past decade. Letters of credit accomplish their purpose bysubstituting the credit of the bank for that of the customer, for the pur-pose of facilitating trade. The credit professional should be familiar with two types of letters of cred-it: commercial and standby. Commercial letters of credit are used primar-ily to facilitate foreign trade. The commercial letter of credit is the primarypayment mechanism for a transaction. The standby letter of credit serves a different function. The standby letterof credit serves as a secondary payment mechanism. The bank will issuethe credit on behalf of a customer to provide assurances of his ability toperform under the terms of a contract.Upon receipt of the letter of credit, the credit professional should reviewall items carefully to insure that what is expected of the seller is fully understood and that he can comply with all the terms and conditions. Whencompliance is in question, the buyer should be requested to amend thecredit

irregularity in the documents that causes them to be in non-compliance to the letter of credit. Requirements set forth in the letter of credit cannot be waived or altered by theissuing bank without the express consent of the customer. The beneficiary should prepareand examine all documents carefully before presentation to the paying bank to avoid anydelay in receipt of payment. Commonly found discrepancies between the letter of creditand supporting documents include: Letter of Credit has expired prior to presentation of draft. Bill of Lading evidences delivery prior to or after the date range stated in thecredit. Stale dated documents. Changes included in the invoice not authorized in the credit. Inconsistent description of goods. Insurance document errors. Invoice amount not equal to draft amount. Ports of loading and destination not as specified in the credit. Description of merchandise is not as stated in credit. A document required by the credit is not presented.

 Documents are inconsistent as to general information such as volume, quality, etc. Names of documents not exact as described in the credit. Beneficiary informationmust be exact. Invoice or statement is not signed as stipulated in the letter of credit.When a discrepancy is detected by the negotiating bank, a correction to the documentmay be allowed if it can be done quickly while remaining in the control of the bank. If time is not a factor, the exporter should request that the negotiating bank return thedocuments for corrections.If there is not enough time to make corrections, the exporter should request that thenegotiating bank send the documents to the issuing bank on an approval basis or notifythe issuing bank by wire, outline the discrepancies, and request authority to pay. Paymentcannot be made until all parties have agreed to jointly waive the discrepancy. Tips for Exporters Communicate with your customers in detail before they apply for letters of credit. Consider whether a confirmed letter of credit is needed. Ask for a copy of the application to be fax to you, so you can check for terms or conditions that may cause you problems in compliance. Upon first advice of the letter of credit, check that all its terms and conditions can be complied with within the prescribed time limits. Many presentations of documents run into problems with time-limits. You must be aware of at least three time constraints - the expiration date of the credit, thelatest shipping date and the maximum time allowed between dispatch and presentation.

If the letter of credit calls for documents supplied by third parties, makereasonable allowance for the time this may take to complete. After dispatch of the goods, check all the documents both against the terms of thecredit and against each other for internal consistency. Summary The use of the letters of credit as a tool to reduce risk has grown substantially over the past decade. Letters of credit accomplish their purpose by substituting the credit of the bank for that of the customer, for the purpose of facilitating trade.The credit professional should be familiar with two types of letters of credit: commercialand standby. Commercial letters of credit are used primarily to facilitate foreign trade.The commercial letter of credit is the primary payment mechanism for a transaction.The standby letter of credit serves a different function. The standby letter of credit servesas a secondary payment mechanism. The bank will issue the credit on behalf of acustomer to provide assurances of his ability to perform under the terms of a contract.Upon receipt of the letter of credit, the credit professional should review all itemscarefully to insure that what is expected of the seller is fully understood and that he cancomply with all the terms and conditions. When compliance is in question, the buyer should be requested to amend the credit.

CONTENTS OF LETTER OF CREDIT 1.Name and Complete address of opening bank, with other contacts etc.2.Test Code.3.Number of Letter of Credit.4.Date of issue of Letter of Credit.5.Sequence of Total (Number of L/Cs being transmitted)6.Form of documentary credit. Revocable or Irrevocable.7.Applicable rules.Latest UCP8.Dat e and place of expiry.9.Applicants Name and Complete address.10.Beneficiarys Name and Complete Address.11.Currency Code and amount.EUR 5000012.Bill of Exchange.Sight or Usance.13.Drawee of Bill of Exchange.Habib Bank Ltd.14.Partial Shipment.Allowed/NotAllowed.15.Transshipment.Allowed/NotAll owed16.Port of loading/ dispatch.London17.Port of destination.Karachi.18.Latest Date of Shipment.Not after that date.19.Complete Description of Goods.20.Documents Required.a)Signed Commercial Invoice in Octuplicate, not exceeding theamount of credit made out in the name of opener and certifyingmerchandise of German origin. b)

Insurance Covered by opener, all shipment under this creditmust be advised by you immediately after shipment direct toM/s Adamjee Insurance Company, 49-Hadi Road, Lahore,Pakistan and applicant, referring to their Cover Note #ADM/HBL/GM/2523/07 giving full detail of shipment. A copyof this advice must accompany with full set of documents. c)Full set of Clean Shipped on Board Bill of Lading, drawn or endorsed in the favour of Habib Bank Ltd, Showing FreightPre-Paid.d)Weight and packing list required in duplicate.e)Certificate of origin in duplicate, certifying goods to be of German Origin. Additional Conditions. 1.Shipping documents must evidence shipment accordingto the terms of L/C2.Stale, Claused, Blank Back Bill of Lading notacceptable. Bill of Lading prior to the date of this L/Cnot accepted. Shipment/Transshipment on Israeli Flag,Vessel not allowed.3.Goods are imported under L/C Number GM/0299/1355/07 H.S. Code Number 0801.1990which should appear on Bill of Lading, Invoices,Packing List and Certificate of Origin. WE HEREBY ENGAGE WITH THE DRAWER AND / OR BONAFIDE HOLDER THAT DRAFT DRAWN ANDNEGOTIATED IN CONFORMITY WITH TERMS OF THISCREDIT WILL BE DULY HONOURED.CHARGES. All charges outside Pakistan i.e. Advising, Negotiatingare on account of beneficiary. REIMBURSEMENT INSTRUCTIONS . We authorize you to debitour Nostro Account being maintained with you, if all the terms andconditions of this letter of credit have been complied, and you wouldcertify it on the covering schedule of documents to be sent by you. DOCUMENTS IN INTERNATIONAL TRADE

financial documents

Transport documents.

Commercial documents. FINANCIAL DOCUMENTS

Bill of exchange.

Both sight and usance. TRANSPORT DOCUMENTS

Bill of lading.

Airway bill / air consignment note.

Railway receipt.

Truck receipt.

Post parcel receipt COMMERCIAL DOCUMENTS

Commercial invoice.

Weight / packing list.

Inspection certificate.

insurance policy

Insurance cover note.

Certificate of origin. TYPES OF L/C

Revocable.

Irrevocable.

irrevocable confirmed TYPES OF L/C

Red claused.

Green claused. REVOCABLE

It can be cancelled any time by any party just by information or notimplementing on expiry.

this letter of credit is practically not operative IRREVOCABLE

It cannot be cancelled unless all the parties involved in letter of creditagree to it.

All parties means: - opener, opening bank, advising bank, negotiating bank and beneficiary. IRREVOCABLE CONFIRMED This letter of credit must be confirmed by any bank at the choice of beneficiary, it should be a negotiation bank.

This confirmation further provides guarantee to seller about gettingthe value of goods RED CLAUSED

Through this letter of credit, opening bank requests theadvising/negotiation bank to provide funds to the beneficiary inadvance.

This amount is adjusted at the time of negotiation. GREEN CLAUSED

Through this letter of credit, opening bank requests theadvising/negotiation bank not only to provide funds in advance, butalso storage and transportation facility. DOCUMENTS IN INTERNATIONAL TRADE

Financial documents

Transport documents.

Commercial documents. FINANCIAL DOCUMENTS

Bill of exchange.

Both sight and usance. BILL OF EXCHANGE

It is an instrument in writing, signed by a maker, containing an unconditional order, directing a certain person to pay a certain sum of money to or to the order of certain person on demand or futuredeterminable period.

It must be in writing.

It must signed by its maker.

It must be addressed to a certain person.

The instructions must be to pay certain sum of money only.

Money must be payable to a certain person.

Money could be paid on demand or at future fixed or determinable period.

Classification of Documents: (Used in International Trade) The international Trade documents may be classified as undera.Commercial documentsb.Official documentsc.Insurance documentsd.Transport documentse.Financial and financing documentsa.Commercial documents: Invoice:An invoice is a commercial document issued by a seller to a buyer,indicating the products, quantities and agreed prices for products or serviceswith which the seller has already provided the Buyer. An invoice indicatesthat, unless paid in advance, payment is due by the buyer to the seller,according to the agreed terms. Invoices are often called Bills.a)Proforma Invoice:It is a memorandum of the terms of a contract of sale wherein the seller gives the quotation to the potential buyer. If the buyer approves its terms, he sends a definite order for supply.Such an invoice is marked with the word Proforma Invoice. b)Commercial Invoice:A commercial invoice is a bill for the goodsfrom the seller to the buyer. Commercial invoice are utilized bycustoms officials to determine the value of the goods in order toassess customs duties and taxes.c)Certified Invoice:An invoice bearing a signed statement by someonein the importers country who has inspected the goods and found thatthe goods are in accordance with the specific contract of the proforma and that the goods are of a specific country of origin. Certificate of origin:It is a specified document certifying the country of originof the merchandise required by certain foreign countries for tariff purposes.This certificate is issued by Chamber of Commerce, Trade Association or anyother authorized body of the exporting country and it sometimes requires thesignature of the consul of the country to which it is destined. Weight notes or certificates: This certificate indicates the weight of the goodsissued by a public agency. It can be evidenced by means of a separatedocument, or by a weight stamp/declaration of weight superimposed on thetransport document by the carrier or his agent. Packing List:The exporter must prepare a packing list showing description of items, number of containers/boxes with specification of net weight & grossweight etc. to enable the importer of the goods to check the shipment Quality or Inspection certificate:This is a certificate declaring that the goodshave been examined and found to be in accordance with the contract of sale. Itis signed by the manufacturer or supplier or any recognized independentinspection body as required by the importer. b.Official documents:

 Consular Invoice: It is an invoice made out in a specially printed form of theexporter and is shown before the consul of importing country stationed in theexporters country as being correct in all respect. The consular of theimporting country then certifies the invoice. A consular invoice enables theimporter country to have all accurate record of the merchandise shipped. Legalized Invoice: Some Middle East countries require that the commercialinvoice should be countersigned and stamped by the authorized officer in their Embassy or the consulate in the exporters country instead of consular invoice. Black-listed Certificate: Under this certificate, the exporter has to provide aBlack-listed certificate evidencing that all parties involved including the bank and shipping line are not black-listed. Due to strained political relation or anyother reasons some countries do not allow transactions with some particular countries. These countries and the exporters are treated as Black-listed. Health, Veterinary and Sanitary Certificate/Photo Sanitary Certificate,Certificate of Analysis : This certificate is generally needed in purchase of foodstuff, hides and livestock and in the use of packing materials. It isissued by the recognized health authorities in the exporting countries. Thecertificate confirms that the shipment meets the required health, veterinaryand sanitary standards. c.Insurance documents There are some risks of damage, loss or destruction of goods during the time of transit.Marine Insurance plays a very vital role in this respect. The scope of Marine Insuranceextends to Sea, Land and Air conveyances only in respect of good from one country toanother country or one place to another place with short distance through the vessel, craftwhich the goods are carried or conveyed. Marine insurance comprises of the following: Marine Cargo Insurance

Marine Hull Insurance FreightThere are various types of marine insurance policies, which differ in respect of the cover provided to the insured. The main types are as follows:i)Floating policy:A floating policy is a contract of insurance means to cover a number of shipments, the details of which are not finalized when theinsurance contract is concluded. Under the floating policy, insurance cover is given in general terms and details of shipments are declaredsubsequently and endorsed in the policy.ii)Time policy:It covers the subject matter of insurance for a period of time.iii)Voyage policy:It insures the subject matter from one place to another irrespective of the length of time taken.iv)Mixed policy:It covers both a voyage and a period of time exceeding 30days.v)Open cover or Blank policy: This policy is automatically covers all theshipments of the exporter up to an estimated amount during a given period.vi)Specific policy: A specific policy is a contract of insurance, which coversa specific shipment.vii)Valued policy:A valued policy is one, which specifies the agreed value of merchandise insured.viii)Unvalued policy:In this type of policy, the value of the merchandiseinsured is not specified. The insurable value of the goods is ascertainedlater on subject to the limit of the sum insured. d.Transport Documents: This document indicates that the goods, which are delivered to the named shippers,airlines or transporters, must be carried to a named port, airport or place of delivery.Following transport documents are being used at present in the international trade:i) Airway Bill/Air consignment Note: This document confirms the delivery of goods to an airline or its agent for transportation by air to a named consigneeaccording to the defined and agreed terms.ii) Mates Receipt: It is a prima facie evidence of the quantity and condition of thegoods received. When the goods are delivered to the shipping company for transportation, at first a temporary receipt is issued by the ships Chief Officer acknowledging the delivery of the goods alongside the carrying vessel which isknown as Mates Receipt. On the basis of Mates receipt, the shipper has to paythe port dues and other charges.iii) Bill of Lading: A bill of lading is a document which is issued y the transportationcarrier to the shipper acknowledging that they have received the shipment of goods and that they have been placed on board a particular vessel which is boundfor a particular destination and states the terms in which these goods received areto be carried. Normally a bill of lading contains the port of shipment and of destination, thename of consignee, the number, contents and identification marks of the goodsshipped and the amount of freight paid or to pay.The bill of lading serves three main purposes

as a document of title of the goods as a receipt from the shipping company and as a contract for transportation of the goods.Classification of Bill of lading: Clear and clause of dirty or foul Bills of lading: On board or shipper and Received for shipment Bill of lading Through or Port to Port Bill of lading Stale Bill of lading Charter Party Bill of lading Negotiable or Non negotiable and straight or order Bill of lading Liner Bill of lading House bill of lading Short form or Blank Back Bill of Lading Third Party Bill of lading

 Combined Transport Bill of Ladingiv) Railway consignment Note/Railway Receipt: When the exporter or his agentdelivers a consignment to the railway authorities for its onward carriage to anamed destination, they issued a receipt, indicating the details of the consignmentand destination to which they would carry it. This document is called the RailConsignment Note or Railway Receipt.v) Roadway Bill: It is an internationally approved document of transaction whengoods are being sent by road through the countries that had ratified the CMR (Convention Merchandise Routers).vi) Post Parcel Documents: It is a receipt issued by Post Office for the parcel. The post office has received for direct delivery to the addressee. It is not a documentof title of goods and generally contains the post office stamp.e.Financial and financing documentsThere are some documents used for payment in international trade transaction such as: Bill of Exchange Promissory Note Trust Receipt Bill of Exchange:Bill of Exchange is one of the key financial instruments inInternational Trade. It is an instrument by which sellers can obtain the payment fromtheir buyers for the invoiced value of goods. As per section 5 of the Negotiable Instrument Act. 1881, A bill of Exchange is aninstrument in writing containing an unconditional order, signed by the market,directing a certain person to pay on demand or at a fixed or determinable futuretime a certain sum of money only to, or to the order of, a certain person or the bearer of the instrument. Features of a Bill of exchange: a.It must be unconditional order. b.It must be written order.c.Addressed by one person to another. The term person includescorporations, partnerships as well as natural persons.d.Dully signed by the

person giving the order.e.Bill must be payable on demand or on a determinable date.f.The Bill of Exchange must be make payable to order or to bearer.g.It must indicate the payment of a certain sum Parties of a Bill of exchange: There are six parties involved in a bill of exchange. They are:a.The Drawer: b.The drawee:c.The Payee:d.The endorser:e.The endorsee:f.The acceptor: Promissory Note: It is a negotiable instrument. As per section 4 of the NegotiableInstrument Act. 1881, A promissory note is an instrument in writing (not being a bank-note or a currency note) containing an unconditional undertaking signed by themaker, to pay on demand or at a fixed or determinable future time a certain sum of money only to, or to the order of a certain person, or to the bearer of the instrument.Features of a promissory note:a)It must be unconditional promise b)Must be written by one person to another c)Must be signed by the maker d)Promise to pay a sum of certain money to, or to the order a specific person or the bearer.e)Promissory note payable to the makers order must be endorsed bythe maker. Trust Receipt: The trust Receipt is a receipt for goods, documents of title to goods,securities, etc. executed by a person, signifying that he has received the specifiedgoods, title etc and will be holding them in trust for the person or institution fromwhom her has received them. The person who executes the receipt is called the trustee. The trustee undertakes to keep the goods fully insured against all risks andensure overall safety of the goods entrusted to him

Incoterms
The Incoterms rules or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) that are widely used in International commercial transactions or Procurement processes. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods. The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they [1] are regularly incorporated into sales contracts worldwide. First published in 1936, the Incoterms rules have been periodically updated, with the eighth version Incoterms 2010having been published on January 1, 2011. "Incoterms" is a registered trademark of the ICC

Definition of 'Incoterms'
Trade terms published by the International Chamber of Commerce (ICC) that are commonly used in both international and domestic trade contracts. Incoterms, short for "International Commercial Terms," are used to make international trade easier by helping traders in different countries understand one another. Incoterms were first developed in 1936 and are updated from time to time, in order to conform to current trade practices. Because of these updates, contracts should specify which version of Incoterms they are using (e.g., Incoterms 2010). Trade terms used in different countries may appear identical on the surface, but actually have different meanings as they are used domestically. Incoterms are internationally recognized and thus help to prevent confusion in terms of foreign trade contracts, by helping sellers and buyers understand their obligations in any transaction. Examples of Incoterms include "DAT" (Delivered at Terminal), "DDP" (Delivered Duty Paid) and "CIF" (Cost, Insurance and Freight).

International trade
International trade is the exchange of capital, goods, and services acrossinternational borders or [1] territories. In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced in technology transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders. International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production. Instead of importing a factor of production, a country can import goods that make intensive use of that factor of production and thus embody it. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor, the United States imports goods that were produced with Chinese labor. One report in 2010 suggested that international trade was increased when a country hosted a network of immigrants, but the trade effect was weakened when the immigrants [2] became assimilated into their new country. International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics. For more, see The Observatory of Economic Complexity. Trading is a value added function of the economic process of a product finding its market, where specific risks are to be borne by the trader, affecting the assets being traded which will be mitigated by performing specific functions.