Letter of Credit 101

1. CMA Webinar Series T R E A S U R Y S E R V I C E S William Hindon Vice President LC 101 + 9AM – 10AM (PST) Tuesday, January 16, 2007

4. Sales Contract Buyer Issuing Bank Formal Agreement Proforma Invoice Purchase Order Exchange of Telexes CONTRACT = OFFER + ACCEPTANCE Seller

6. Incoterms 2000 EXW FCA FAS FOB DAF DES DEQ DDU DDP CFR CIF CPT CIP Dock of Exportation Dock of Importation Transportation to Dock Transportation to Buyer Import Duty Loading onto Vessel Ocean Freight Marine Insurance Unloading Charges Price/Shipping Terms Cost - Risk Equation Beneficiary (Seller) Applicant (Buyer)

9. Sales Contract Bank Cash in Advance Open Account L/C Collections Bank Signing Shipment Receipt of Documents Receipt of Goods/ Acceptance JAN FEB MAR APR MAY JUN JUL Seller Buyer

10. Documentary Collections

13. Draft/Bill of Exchange TO: (TENOR) PAYEE DRAWEE (IMPORTER) EXPORTER DRAWER

14. Collection Cycle Draft B/L Invoice Instruction Letter (1) (1) (1) (2) (10) Seller (Drawer) Buyer (Drawee) Remitting Bank Sales Contract Collection Document Collecting Bank

16. Documentary Letters Of Credit

18. Parties Involved Seller Beneficiary Exporter Buyer Applicant Importer

19. Applicant (Buyer) Issuing Bank Beneficiary (Seller) Sales Contract Beneficiary (Seller) Letter of Credit Applicant (Buyer) Bank Opening Bank SUBSTITUTES ITS NAME FOR THAT OF “ We the Buyer Obligate to pay Seller.” “ We the Bank Obligate to pay Seller.”

20. Letter of Credit Application & Security Agreement Applicant (Buyer) Sales Contract Beneficiary (Seller) Letter of Credit Opening Bank (2) L/C Application and Security Agreement (1) (3)

31. Sight Letters of Credit Payment effected immediately after presentation of conforming draft(s) and/or document(s) = $$

32. Time/Usance Letters of Credit Payment made at some specified time after presentation of conforming draft(s) and/or document(s) + = 2001 $$

44. Standby Letters of Credit

50. Risk-based Capital Adequacy Conversion Factor Commercial L/C 20% Performance Standby 50% Financial Standby 100%

51. Commercial L/C Standby L/C Primary Bank of Obligation Primary Primary Payment Mechanism for Underlying Transaction Secondary Commercial Documents: Financial Documents: Invoice, Packing List Statement, Certificate of Origin Certificate, Inspection Certificates, Draft Transport Document

52. COMPARISON