CDCS MENTOR

…....for Professionals

CDCS exam 2016

(April Intake)
preparation Program

A
Md. Mohiuddin,
Mohiuddin, cdcs
PRESENTATION

1
CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com
 CDCS MENTOR
…....for Professionals

Disclaimer
DISCLAIMER

Materials provided in the following slides are for

educational and illustrative purposes only.
only. Although the
information contained herein is believed to be reliable,
the presenter does not assume any responsibility for any
loss that may result from the reliance by any person upon
any information set out hereunder..
hereunder..

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

2
 About the Facilitator
Md. Mohiuddin
Certified Documentary Credit Specialist (CDCS)
IFS School of Finance (UK)
Highest Marks achiever in Bangladesh (Exam 2014)

Studied Public Administration

At Chittagong University

Diplomaed Associate at Institute of Bankers,

Bangladesh (DAIBB)

Diploma in Islamic Banking (DIB)

Serving in the Banking industry since 2010

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

3
 What is a Documentary Credit?

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

4
What is a Documentary Credit?

Provided/Condition:
Undertaking: 1. Stipulated documents presented
1. Irrevocable Undertaking 2. All credit terms complied with
2. Issued by a bank
3. To make payment/honor
4. To a named beneficiary

UCP600 Article 02: Credit means any arrangement, however named or

described, that is irrevocable and thereby constitutes a definite
undertaking of the issuing bank to honour a complying presentation.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

5
 Methods of Payment
in International Trade
There are four main settlement terms in International trade:
1. Advance Payment/Payment in Advance
(Most desirable for the seller, least for buyer)
2. Documentary Collections
3. Documentary Credits &
4. Open Account
(Most desirable for Buyer, least for seller)

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

6
 Payment in advance
A buyer may make payment to a seller in advance before the goods
are shipped. The reasons for adopting this method may be
summarized as follows:
◆ The seller may be unwilling to ship goods to the country of the
buyer for reasons of country risk.
◆ The buyer may wish to encourage the seller into a long-term
trade relationship.
◆ The seller may not have finance with which to buy or prepare the
goods for shipment.
◆ The buyer feels comfortable with its relationship with the seller
and with both the credit and country risk of that seller.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

7
 Documentary credits
A documentary credit structure provides a seller with an
independent undertaking of a bank for payment.
payment. The buyer, on the
other hand, knows that payment will not be made unless the seller
presents documentary evidence covering the goods and their
shipment.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

8
 Documentary collections
Process of trading through documentary collection:
collection:
Step 01:
01: the seller ships the goods to the buyer in the importing
country.
Step 02:
02: It hands over to its bank shipping documents relating to the
goods and their shipment. Examples of common documents are bills
of lading, commercial invoices, insurance documents and certificates
of origin.
Step 03:
03: The bank forwards these to a correspondent bank in the
buyer’s country, which may be the bankers of the buyer, to handle the
documents in accordance with the instructions of the seller, as
instructed by the seller’s bank in its collection instruction usually
delivery against payment or Delivery against Acceptance.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

9
 Documentary collections

1. Under documentary collection, banks only manage or channeled

the documents, without giving any payment undertaking or
guarantee.
2. Documentary collection offers the seller less security than a
documentary credit but, in return, the costs are lower.
lower.
3. The full security of a documentary collection applies only if the
transport document is a negotiable bill of lading and / or if the
goods are consigned to the bank in the importing country, with the
consent of that bank.
4. Documentary collection may be used as a tool/medium for arranging
short term credit through accepted Draft or promissory note.
note.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

10
 Open Account
Process of Open Account Trading:
Trading:
Step 01:
01: the seller dispatches goods to the buyer without any
guarantee of payment.
Step 02:
02: the seller sends the buyer an invoice together with
other appropriate documents for payment on an agreed date or at
the end of an agreed period.
Step 03:03: The buyer makes arrangements to pay on the
relevant date according to the terms of the sale contract. The buyer
may use any appropriate payment method, such as an international
bank transfer or bank draft, absent any specific request of the
seller.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

11
 Open Account
A seller may make shipment to a buyer in advance before the
payments are received. The reasons for adopting this method may be
summarized as follows:
◆ The buyer may be unwilling to pay to the seller before satisfied of
the quality of the goods.
◆ The seller may wish to encourage the buyer into a long-term trade
relationship.

◆ The seller feels comfortable with its relationship with the buyer
and with both the credit and country risk of that buyer.
◆ Open account trading is most commonly used when the two
companies concerned have a long-
long-established trading relationship.
relationship.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

12
 Open Account

01. It is simple to administer.

02. involves minimal banking fees or other costs.
03. The system is particularly attractive to buyers because it affords
them the opportunity of examining the goods before they have to
make payment.
04. Sellers using open account methods obtain no security for
payment and have to rely entirely on the creditworthiness and good
faith of the buyer.
05. The only involvement by banks in open account trading is in the
transfer of funds on behalf of the buyer to the seller.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

13
 Who is it that undertakes to make payment under
a documentary credit?

a. The applicant.
b. The advising bank.
c. The issuing bank.
d. The nominated bank.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

14
 Name the main purpose of a documentary credit.

a. To undertake payment to a beneficiary.

b. To give shipping instructions to a beneficiary.

c. To eliminate risk in performance under the purchase

or sale contract.

d. To ensure the applicant receives transport documents.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

15
 What is the main benefit of an irrevocable documentary credit
to the beneficiary?

a. Assurance of receipt of goods.

b. Assurance of receipt of payment.
c. Assurance of importer’s creditworthiness.
d. Assurance of issuing bank’s creditworthiness.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

16
 Your customer is an exporter. Which payment term
exposes it to least risk?

a. Open account.
b. Documentary credit.
c. Payment in advance.
d. Documentary collection.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

17
 Your customer is an importer. Which payment term
exposes it to least risk?

a. Open account.
b. Documentary credit.
c. Payment in advance.
d. Documentary collection.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

18
 Which payment term is most desirable
to an exporter?

a. Open account.
b. Documentary credit.
c. Payment in advance.
d. Documentary collection.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

19
 Which payment term is most desirable
to an importer?

a. Open account.
b. Documentary credit.
c. Payment in advance.
d. Documentary collection.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

20
 Historians traced the use of letters of credit back as early as ancient
Egypt and Babylon.

In the eighteenth century the term ‘letter of credit’ became widely

used and recognized in connection with traveller’s letter of credit.

From the 1840s, among banks in London, documentary credits began

to serve as a means of facilitating payment for foreign trade
transactions.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

21
 Traveller’s Letters of Credit
Were issued by the banks in the western world to provide their clients
with a means of obtaining cash during their overseas travels.

Were issued in the form of a letter and were addressed to the bank’s
overseas correspondent or agent. It indicated that the issuing bank
would honour bills of exchange drawn on it by the correspondent or
agent in respect of amounts paid to the named traveller, plus any
charges incurred by the correspondent or agent.

A maximum amount that could be drawn and an

expiry date were indicated.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

22
 Traveller’s Letters of Credit
A prerequisite for the issuance of a traveller’s Letter of Credit was a
formal letter of introduction addressed to the to the issuing bank’s
overseas correspondent or agent. This letter, usually sent in advance of
travel, requesting that the correspondent or agent provide the client
with any necessary assistance.
The issuing bank’s client (beneficiary of the credit) always retained
possession of the original letter of credit.
Each correspondent or agent was required to indicate on the original
letter of credit details of amounts paid and the relevant dates so that the
next correspondent or agent to whom the client presented the credit
would be able to ascertain the balance available to be drawn.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

23
Traveler's-type letter of credit: From the archives of the US Library of Congress
Was issued by the
Washington. US of America. July 4. 1803. US govt. to facilitate
Dear Sir the Lewis & Clark
In the journey which you are about to undertake for the discovery of the
course and source of the Missouri and of the most convenient water
communication from thence to the Pacific ocean, your party being small,
it is to be expected that you will encounter considerable dangers from
the Indian inhabitants. Should you escape those dangers and reach the
Pacific ocean, you may find it imprudent to hazard a return the same
way, and be forced to seek a passage round by sea, in such vessels as you
Thomas Jefferson Meriwether may find on the Western coast. But you will be without money, without
3rd President of the Lewis clothes, & other necessaries; as a sufficient supply cannot be carried with
USA (1801–1809) American you from hence. Your resource in that case can only be in the credit of
explorer, the US for which purpose I hereby authorise you to draw on the
soldier, and Secretaries of State, of the Treasury, of War & of the Navy of the US
public according as you may find your draughts will be most negotiable, for the
administrator purpose of obtaining money or necessaries for yourself & your men: and
(2nd I solemnly pledge the faith of the United States that these draughts shall
Governor of be paid punctually at the date they are made payable. I also ask of the
Louisiana Consuls, agents, merchants & citizens of any nation with which we have
Territory) intercourse or amity to furnish you with those supplies which your
necessities may call for, assuring them of honorable and prompt
William Clark retribution. And our own Consuls in foreign parts where you may
American happen to be, are hereby instructed & required to be aiding & assisting to
explorer, you in whatsoever may be necessary for procuring your return back to
soldier, and the United States. And to give more entire satisfaction & confidence to
public those who may be disposed to aid you, I Thomas Jefferson, President of
administrator the United States of America, have written this letter of general credit
(4th Governor for you with my own hand, and signed it with my name....
of Missouri) Th: Jefferson
CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com
24
 The primary objective of Lewis and Clark Expedition was to
explore and map the newly acquired territory (through Louisiana
Purchase from France for USD15.00 Million dollar in 1803), find
a practical route across the Western half of the continent, and
establish an American presence in this territory before Britain and
other European powers tried to claim it.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

25
 What is UCPDC?
Ώ UCP IS A SET OF PRIVATE RULES

Ώ FORMULATED BY INTERNATIONAL CHAMBER OF COMMERCE (ICC)

Ώ USED IN GOVERNING LETTER OF CREDIT (DOCUMENTARY CREDIT)

PRACTICE.

Ώ MOST SUCCESSFUL SET OF PRIVATE RULES FOR TRADE EVER

DEVELOPED.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

26
 The
aftermath of
World War I
resulted
founding of
ICC and
ultimate
formulation
of UCP.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

27
ICC Was founded in 1919
with an aim to bring
economic prosperity to a
world that was reeling from
the devastation of World
War I.

The Merchants of Peace:

Founders of ICC
International Secretariat is
situated at Paris, France.

The largest and most

representative business
organization in the world.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

28
 Why UCP was introduced?
ICC HAD ITS PRIMARY OBJECTIVE TO FACILITATE THE FLOW OF
INTERNATIONAL TARADE AT A TIME WHEN NATIONALISM AND
PROTECTIONISM POSED SERIOUS THREATS TO THE WORLD
TRADING SYSTEM.

UCP WAS INTRODUCED TO ALLEVIATE THE CONFUSION CAUSED BY

INDIVIDUAL COUNTRIES’ PROMOTING THEIR OWN NATIONAL
RULES ON LETTER OF CREDIT PRACTICE.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

29
Why UCP was introduced?
1. To obtain global common understanding of Documentary credits.
2. To obtain global common interpretation of Documentary credits.
3. To obtain global common application of Documentary credits.

UCP supplemented by:

by:
1. ICC Uniform Rules for Bank to Bank Reimbursement Under
Documentary Credits (URR 725)
2. ICC supplement to the Uniform Customs and Practice for
Documentary Credits for Electronic Presentation (eUCP) version 1.1
3. International Standard Banking Practice for the examination of
Documents under Documentary Credits (ISBP 745); 2013 revision

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

30
 First UCP (UCP82)- 1933
Revision 01 (UCP 151)- 1951
Revision 02 (UCP 222)- 1962
Revision 03 (UCP 290)- 1974
Revision 04 (UCP 400)- 1983
Revision 05 (UCP 500)- 1993
Revision 06 (UCP 600)-
600)- 2007
(the latest version of UCP)

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

31
 Ώ Sixth revision of UCP
Ώ Came into effect on 1st July, 2007.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

32
 Fill in the gap.
UCP600 is the……………. Version of UCP.

A. 5th B. 6th
C. 7th D. 8th

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

33
 Implicit Assumption of UCP

BANKERS ARE NEUTRAL AND HONEST.

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

34
 CASES OF NON PERFORMANCE AND
FRAUD ARE NOT COVERED IN UCP.

WHEN IN CONFLICT WITH LOCAL

LAWS, LOCAL LAWS PREVAIL.

Limitations of UCP

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

35
 UCPDC stands for:

A. Uniform Customs and Practices for Documentary Credit

B. Uniform Customs and Practice for Documentary Credit
C. Uniform Customs and Practice for Documentary Credits
D. Uniform Custom and Practices for Documentary Credits
E. Uniform Custom and Practice for Documentary Credit

CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com

36
CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com
37
CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com
38