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Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
Letter of credit
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Letter of credit

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  • 1. 1Principles Of Banking
  • 2. 2Presentation Topic:LETTER OF CREDIT
  • 3. 3Group Name:Principles Of Banking Hafsa Fakhar Tania Toufeeq Kanwal IjazDazzler’sPresented ByPresented By:
  • 4. 4Principles Of BankingThe original Habib Bank began modestly in Bombay in 1941 when itcommenced operations with a fixed capital of 25,000 rupees.Under the privatization policy of Government of Pakistan Bank AL Habib wasincorporated as a Public Limited Company in October 1991.The Bank has a network of three hundred and sixty six branches.
  • 5. 5Methods Of PaymentsPrinciples Of Banking Cash in Advance Documentary collection Open account Letter of Credit L/C
  • 6. 6What is a Letter Of Credit?Principles Of Banking• A documentary credit, or letter of credit is anundertaking issued by a bank for the account of thebuyer (applicant), to pay the seller (beneficiary)provided the terms and conditions of thedocumentary credit are complied with.• A documentary credit, or L/C, usually satisfies theseller’s desire for cash payment and the buyer’sdesire for credit.
  • 7. 7Parties involves in Letter of CreditPrinciples Of BankingImporter / BuyerIssuing Bank / Importer BankExporter / SellerPaying Bank / Negotiating Bank
  • 8. 8Types Of Letter Of CreditPrinciples Of Banking Irrevocable L/C Revocable L/C Confirmed L/C Unconfirmed L/C Deferred L/C With Resource L/C Without Resource L/C Documentary L/C Clean L/C Fixed L/C Revolving L/C Back to back L/C Red Clause L/C Green Clause L/C
  • 9. 9Benefits Of Letter Of CreditPrinciples Of BankingTo the Exporter: Payment protection Reliance on issuing bank’scredit rather than buyer’s Rapid, local sourcerepayable, if payable at aU.S. bankTo the Importer: Documentary evidence that theordered goods have been shipped ontime Assurance that necessary clearancedocuments will be provided Payment deferred until goods areshipped and documents presented
  • 10. 10Benefits Of Letter Of CreditPrinciples Of BankingTo the Bank: Source of Income Increase in Balance New Relations Better Reputation
  • 11. 11Procedure Of Opening Letter Of CreditPrinciples Of BankingAgreement ImporterExporter Importer and Exporter enter intoa sales agreement
  • 12. 12Principles Of BankingApplicationImporterIssuing Bank Importer applies for a letter ofcredit with the Issuing Bank
  • 13. 13Principles Of BankingLetter ofCreditIssuingBankU.S.Bank Issuing Bank advises the letter of credit toU.S. Bank, usually via SWIFTL/C
  • 14. 14Principles Of BankingBeneficiaryU.S. Bank U.S. Bank authenticates the L/Cand advises L/C to beneficiary
  • 15. 15Principles Of BankingExporterGoodsImporterGoods Exporter prepares the documentsand ships the goods
  • 16. 16Principles Of Banking Exporter sends shipping documentsto U.S Banks for examinationExporterDocumentsFBM U.S. Bank
  • 17. 17Principles Of Banking Assuming clean documents, U,S Bank pays exporterby debiting Issuing Banks’s account or upon receiptof funds from a separate reimbursing bank.Documents sent to Issuing Bank.DocumentsExporterIssuing BankU.S. Bank
  • 18. 18Principles Of Banking Issuing Bank examines documents and delivers toimporter against payment. Importer takespossession of goods by presenting documents.GoodsDocsIssuingBankDocumentsImporter
  • 19. 19Principles Of Banking The exporter has been paid, the importer has theirgoods, the banks have been reimbursed, and the cycleis complete!GoodsAgreementDocumentsLetter ofCredit Application DocumentsExporter ImporterIssuingBankLetter of creditDocumentsU.S. Bank
  • 20. 20Adding a confirmationor engagement topurchase documents:AgreementApplicationLetter ofCreditLetter ofCredit DocumentsDocumentsExporterIssuingBankAdvisingBankDocumentsGoodsImporterConfirm.Bank
  • 21. 21Documents of Letter of CreditPrinciples Of Banking Financial Documents:• Bill of Exchange• Co-accepted Draft Commercial Documents:• Invoice• Packing list Shipped Documents:• Insurance policy
  • 22. 22Documents of Letter of CreditPrinciples Of Banking Shipping Documents:• Transport Documents• Insurance Certificate• Commercial Documents• Legal Documents Transport Documents:• Bill of Lading• Airway Bill• Truck / Lorry receipt• Railway receipt
  • 23. 23Risk situation In Opening Letter of CreditPrinciples Of Banking Fraud Risks:The payment will be obtained for nonexistent or worthless merchandiseagainst presentation by the beneficiary of forged or falsified documents. Sovereign and regulatory Risks:Performance of the documentary credit may be prevented bygovernment action outside the control of the parties.
  • 24. 24Principles Of Banking Legal Risks:• Possibility that performance of a Documentary Credit may bedisturbed by legal action related directly to the parties andtheir rights and obligations under the documentary credit. Risks to the Applicant:• Non-Quality delivery of goods• Short shipment• Inferior• Early/Late Shipment• Damaged in transit• Failure of Bank via Issuing bank / Collection Bank
  • 25. 25Principles Of Banking Risk to the Issuing Bank:• Insolvency of the Applicant• Fraud Risk• Legal Risk Risks to the Reimbursing Bank:• No obligation to reimburse the Claiming Bank unless it has issueda reimbursement undertaking.
  • 26. 26Principles Of Banking
  • 27. 27Principles Of Banking
  • 28. 28Principles Of Banking
  • 29. 29References:Principles Of Banking http://en.wikipedia.org/wiki/Letter_of_credit Bank Al Habib Bo0ks
  • 30. 30Principles Of BankingQuestions?

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