Standby Letters of Credit Part I

Letters of credit do their purpose by replacing the credit of the bank for that of the buyer, for the sake of facilitating international trade.

There are two main types: commercial and standby letters of credit.

The commercial letter of credit is the primary payment mechanism for an exchange, while the standby letter of credit is a secondary payment mechanism. Commercial letters of credit have been employed for many years to aid payment in global trade. Their use may continue to increase as the world economy develops. Letters of credit utilized in global transactions are ruled by the World Chamber of Commerce Uniform Customs and Practice for Documentary Credits. The general provisions and definitions of the World Chamber of Commerce are binding on all parties. Domestic collections in the U. S. are ruled by the Uniform Commercial Code.

A commercial letter of credit is a contractual agreement between a bank, called the issuing bank, for one of its consumers, authorizing another bank, called the advising or confirming bank, to make payment to the beneficiary. The issuing bank, on the request of its customer, opens the letter of credit. The issuing bank makes a dedication to respect drawings made under the credit. The beneficiary is usually the provider of products and/or services.

Fundamentally, the issuing bank replaces the bank's shopper as the payee.

Elements of a Letter of Credit:

A payment undertaking given by a bank (issuing bank)  for a customer (candidate).

To pay a seller (beneficiary) for a fixed amount of cash.

On display of cited documents representing the provision of products.

Inside cited time boundaries.

Documents must comply with T&Cs laid out in the letter of credit.

Documents to be presented at a stated place. 

The beneficiary has entitlement to payment so long as he will be able to supply the documentary proof needed by the letter of credit. The letter of credit is a definite and separate exchange from the contract on which it is based. All parties deal in documents and not in products. The issuing bank isn't responsible for performance of the fundamental contract existing between the buyer and beneficiary. The issuing bank's requirement to the purchaser, is to look at all documents to insure that they meet all of the conditions of the credit. On asking for requirement for payment the beneficiary warrants that all conditions of the contract have been went along with.

If the beneficiary (seller) fits with the letter of credit, the vendor must be paid by the bank.  The issuing bank's culpability to pay and to be repaid from its client becomes profound on the completion of the conditions of the letter of credit. Under the provisions of the Uniform Customs and Practice for Documentary Credits, the bank is given a fair quantity of time after bill of the documents to laud the draft.

The issuing bank's role is to offer a guarantee to the vendor that if compliant documents are presented, the bank will pay the vendor the sum outstanding and to look at the documents, and only pay if these documents go along with the terms set down in the letter of credit. Generally the documents requested will include a commercial invoice, a transport document like a bill of lading or airway bill and an insurance document; but there are several others.

Letters of credit deal in documents, not products.  An advising bank, sometimes a foreign reporter bank of the issuing bank will counsel the beneficiary.  Usually, the beneficiary would like to utilize a local bank to insure the letter of credit is valid. Additionally, the advising bank would be answerable for sending the documents to the issuing bank. The advising bank has no other obligation under the letter of credit. If the issuing bank doesn't pay the beneficiary, the advising bank isn't responsible to pay.  The correspondent bank may confirm the letter of credit for the beneficiary at the request of the issuing bank, the correspondent obligates itself to insure payment under the letter of credit. The confirming bank wouldn't confirm the credit until it evaluated the country and bank where the letter of credit originates.

For more information please visit:  Professional Commodity Training 

Commodity Trading

Medium Term Notes Part II

More bond issues are truly medium-term notes because massive, underwritten offerings find the booming market efficient. Paying for the establishment efficiently and opportunistically today means understanding how to make the optimum use of the medium-term note market. Though some borrowers may borrow too small or be rated too low to exploit this expanding market, other constraints are disappearing swiftly. Treasury executives of investment-grade companies with healthy appetites for debt financing either use medium-term note programs cleverly or they pay too much. Once the illiquid personal playground of auto finance corporations, like GMAC, MTNs became the capital market of choice for many main line non-financial companies as well in the US and Europe. Why are issuers turning to MTNs? 

* Operational adaptability. For lower ranks public issuers, once shelf registration is authorized, you're licensed to sell. Just call your agents and post the paper you would like to sell or issue it opportunistically thru agents, without posting. You are out of and into the market, with little or big issues, whenever you need to be.

* Structural suppleness. No more fitting your debt into normal maturity boxes. The "medium-term" label is outmoded. Maturities now range all the way from 9 months to thirty years or maybe longer. Disney issued 100-year MTNs, (yes a 100 year medium term note a few years back). You can issue fixed or floating. Issues can be agented or underwritten, public or place notes secretly, without or with 144A standing. You can design structured notes of virtually any outline tying the coupon rate to a currency, equity index or commodity price and employing the same put or call provisions and covenants as bonds.

* Speed.  Gain advantage from the opportunities which appear and disappear by posting an offering as fast as you see a dip in IRs or an increase in requirement for paper you'd need to issue. An offering can be posted and sold between breakfast and lunch - often in an hour, and some of the deals happen within 30 minutes.

* Liquidity. Once thin, liquidity has risen seriously as the scale of the market has grown and as investment banks have gone up their market-making role, regularly underwriting issues and supporting a strong secondary market. 

For more information please visit Professional Commodity Training

The basics for bank guarantess, standby letters of credit, and medium term notes

There are countless financial instruments, such as bank guarantees, medium term notes, standby letters of credits, certificate of deposits, and business documents which are legitimate and have value. However, the con man, huckster, fraudster and scammer will use everyone and everything to part you from your money.   We believe it to be important to inform everyone we can to be able to weed out anything fraudulent and many legitimate systems are abused or simply overused. 

Here are a few recommendations we use to stay away from frauds, scams, abusers and thieves, one important aspect of any transaction, as this post will say in the last sentence is "take your time" which is paramount to success.  Nobody in the world is in a hurry to do a multi-thousand dollar deal, let alone in the millions.

• Take your time. The fraudster needs you to make a decision on the spot. If you are being rushed aggressively, slow down even more, or just stop right there.
• Check out every claim made in calls, written documentation and every website connected to the company.
• Do a web search on each person and each company's name. A lot of people think Google is the place to go. Google is great, but remember, there are a huge number of search engines, and even ones that will gather results from multiple search engines at the same time. This is known as a "meta-search."
• Call your state's securities regulatory office and check if the party has violated securities laws.
• If someone claims to be an expert in something that sounds too good to be true, and especially if your attorney, accountant or financial planner never heard of the program before, cross check with people you know to be true experts in the area, although the best course of action is to simply say 'no,' and move on.
• One of the best sources is to verify the location.
• The most successful frauds are schemes where many people are involved, and perhaps only one person knows all of the details, and multiple locations are involved. Keep looking until you find all the parts.
• Hire competent, respected and professional attorneys, accountants, and auditors.
• Does the company have a phone number that works? Call it. Also, call the phone company's information line and check if the phone number is for the same company.
• Call and reference the name against those whom you know in this business.
• Never send money to a P.O. Box, unless you already know the firm.
• Don’t buy anything from a new supplier or vendor until you have verified that the company exists.
• Remember that nothing is going to happen fast.  If it does that is a sign that it may be a fraud.