Sample Final: International Payments
I, MCQ
1, A shipping document indicating the details of the shipment and delivery of the goods and their ownership is a
A, B/L (True: This is the most important transport document)
B, Sight draft (False: This is a type of B/E)
C, Time draft (False: This is a type of B/E)
D, L/C (False: this is a method of payment)
2, A written statement by the exporter ordering the importer to pay a specific amount of money upon presentation to drawee to whom it is addressed is known as a
A, B/L (False: This is a transport document)
B, Sight draft (True: This is the type of B/E that requires payment upon presentation)
C, Time draft (False: This is the type of B/E that requires payment at a future date after presentation)
D, L/C (False: this is a method of payment)
3, L/C may be payable at all but one of the following locations:
A, Confirming Bank’s counters (False: Confirming Bank has irrevocable undertaking to Beneficiary)
B, Nominated Bank’s counters, or at the counters of any bank if L/C is freely negotiable (False: Nominated Bank pays Beneficiary on behalf of Issuing Bank (Confirming Bank))
C, Issuing Bank’s counters (False: Confirming Bank has irrevocable undertaking to Beneficiary)
D, Reimbursing Bank’s counters (True: Reimbursing Bank has no undertaking towards Beneficiary. It only functions to reimburse other banks with authorization of Issuing Bank)
4, Which of the following can be combined under a credit available with the Issuing Bank and require a draft drawn on the Issuing Bank I. Payment II. Deferred Payment III. Acceptance IV. Negotiation
A, 1 and 2 only (False: Payment and Deferred Payment cannot be combined; both don’t require drafts drawn on Issuing Bank)
B, 2 and 3 only (False: Deferred Payment and Acceptance cannot be combined; Deferred Payment doesn’t require drafts drawn on Issuing Bank)
C, 1 and 3 only (False: Payment and Acceptance cannot be combined; Payment doesn’t require drafts drawn on Issuing Bank)
D, 3 and 4 only (True: Negotiation can be combined with Acceptance; both require drafts drawn on Issuing Bank)
5, A L/C which allows partial shipments has the following shipment schedule:
1,000 units shipped between 01 June 200X and 30 June 200X
2,000 units shipped between 01 July 200X and 31 July 200X
2,000 units shipped between 01 August 200X and 31 August 200X
3,000 units shipped between 01 September 200X and 30 September 200X
The beneficiary shipped the goods and presented documents as follows: I. 1,000 units shipped between 15 June 200X and 30 June 200X II. 3,000 units shipped between 15 July 200X and 28 July 200X III. 2,000 units shipped between 31 July 200X and 15 August 200X IV. 3,000 units shipped between 15 September 200X and 30 September 200X
Which of the above sets of documents are complying?
A, 1 only (False: Because 4 is also complying)
B, 3 only (False: Because 3 is not complying. 2,000 units are allowed for shipment between 01 August and 31 August 200X while the second period is already overshipped)
C, 1 and 4 only (True: Both are complying)
D, 1, 2 and 4 only (False: Because 2 is not complying. Only 2,000 units are allowed for shipment between 01 July and 31 July 200X compared to the overshipped 3,000 units)

II, Short- answer Questions
1, Explain briefly the right and responsibility of the seller under FOB term. * Seller delivers the goods, thus transfer ownership and risks, when the goods are on board of vessel at loading port * Seller has to clear for exports but not imports and all costs prior to placing the goods on board * All actions taken by seller at request of buyer beyond this point is at the expense of buyer * If the goods are in containers, FCA should be used instead
2, Explain at least two of the circumstances under which Collection of payment method is applied.
Can choose from the following: * Buyer has low risk * Political, economic, legal environment of import country is stable * Little/ no threat of foreign exchange restrictions * To comply with some government regulations
3, In a documentary credit, when the seller has shipped the goods, what is the next step?
Seller will prepare documents for presentation to Nominated Bank, Issuing Bank or Confirming Bank if any to get payment.
4, What are the basic functions of a B/L? * Receipt for the goods being shipped * Proof of transport contract * Documents of title
5, What are the basic feature of a notice of refusal?
Notice of Refusal: Must be sent no later than COB of 5th banking days but should be ASAP, indicate all discrepancies (only one notice can be issued), state status of documents (whether they will be returned to Beneficiary or not). If violating 1 among above requirements, notice of refusal is not accepted and automatically, acceptance is announced.

III, Case studies
1, Case study about Collection fees:
The range of banking fees listed below relate to both importers and exporters using documentary collections (D/A and D/P terms). All figures are expressed in USD.
Min = minimum, qtr = quarter, mo = month, ba = by arrangement. Fee Usance draft collection $80 Sight draft collection $60 Direct collection $40 Amendment of Collection Instruction $20 Protest $25 Bill of Lading/ Air Waybill Releases $50 Task: Calculate total fees for the exporter, given the collection amount is $50,000 based on D/P term.
Based on the information provided: $60 for sight draft collection (D/P)
More information will involve more fees.
2, Responsibilities of banks under a collection instruction
The following documents were sent to Bank A, New Jersey for collection on a D/P basis: Bill No. Dated USD Date documents sent 1. LDH/ IST/ 024 15/3/97 39,657 20/3/97 2. LDH/ IST/ 026 12/4/97 37,435 17/4/97 3. LDH/ IST/ 021 8/3/97 33,550 12/3/97 Despite repeated reminders to the bank, no reply was forthcoming. Our enquiries reveal that delivery against orders against all three B/Ls was taken by manipulated B/Ls. The matter was brought to the notice of the bank’s head office, who responded that since documents were stolen from its branch and were used in the delivery of the goods. The bank argued that as the goods was released against B/Ls without permission of the bank by false signatures and stamps, no liability or responsibility existed on its bank. The principal though the bank couldn’t deny its responsibilities when the above documents were sent in March/ April 1997, and not until September 1997 the theft was informed, i.e. after six months. Question: Whether the collecting bank has to bear responsibilities under collection instrument if the documents are stolen and used in taking delivery of the goods. The collecting has assumed responsibilities for the documents by giving no reply as to their status as the Collecting Bank. In addition, while the documents were in their possession and not while in transit, they were stolen so the consequences are borne by Bank A. Finally, the Collecting Bank also fails to promptly advise the Principal of the theft, which is against “good faith and reasonable care” in URC 522 – Article 9. 3. Case study about Documentary Credit 3.1 Documentary Credit Fees The range of banking fees listed below is offered by Issuing Bank. All figures are expressed in USD.
Min = minimum, qtr = quarter, mo = month, ba = by arrangement. Fee Issuance 1/8%, $50 min/ qtr Amendment to Increase Value $50 Amendment w/o Increase in Value $40 Negotiation $1/8% $60 min Acceptance 2% per annum, $90 min Deferred Payment ba, $90 Transfer 1/4%, $100 min Assignment 1/8%, $85 min Air Waybill $50 Cancellation $50 The range of banking fees listed below is offered by Issuing Bank’s correspondent bank. All figures are expressed in USD.
Min = minimum, qtr = quarter, mo = month, ba = by arrangement. Fee Advice $35 Confirmation 1/10%/ qtr, $100 min Amendment $45 Amendment – confirmed DC 1/8%/ qtr, $85 min Negotiation 1/8%/ qtr, $85 min Documents sent unexamined $65 Acceptance ba, $90 min Reimbursement $65 Deferred Payment/ confirmed DC 2% annum, $75 min Deferred Payment/ unconfirmed DC $50 Discrepancy $40 Transfer 1/4%/ qtr, $100 min Assignment - pay proceeds 1/4%, $150 min Task 1: Calculate total fees for importer, given the documentary credit issued for USD 10,000 is confirmed by the Advising Bank and one amendment in shipment date. The credit states that fees outside country of import are borne by the exporter. List of fees based on given information: Issuance Task 2: Calculate total fees for exporter, given the same documentary credit with two discrepancies. List of fees based on given information: Advice, Confirmation, 2xDiscrepany 3.2 You are the document checker of the nominated confirming bank. Task: Identify 5 discrepancies on the following discrepancy checklist. A | Shipment not within period allowed | | B | Partial shipment effected | | C | Documentary credit overdrawn | | D | Documents do not evidence goods of Dutch orgin | | E | No B/E presented | | F | Amount of the commercial invoice incorrect | | G | Transport document not correctly issued to the order of the applicant | | H | Transport document not signed in accordance with UCP 600 | | I | Transport document no stamped and signed by the shipper | | J | The invoice covers merchandise not called for in documentary credit | | MT700 INCOMING SWIFT MT700 FROM ISSUING BANK MER BANK, ISTABUL, TURKEY TO ADVISING BANK ACB BANK, ROTTERDAM, THE NETHERLANDS 27: SEQUENCE OF TOTAL 1/1 40A: FORM OF DC IRREVOCABLE 20: DOCUMENTARY NO. 2003.AC.100 31C: DATE OF ISSUE 07 MAY 200X 40E: APPLICABLE RULES UCP, URR LATEST VERSION 31D: DATE AND PLACE OF EXPIRY 01 JULY 200X, ROTTERDAM, THE NETHERLANDS 50: APPLICANT FACTORING A.S.ISTANBUL, TURKEY 59: BENEFICIARY DE GROOT MACHINES B.V HAARLEM, THE NETHERLANDS 32: CURRENCY AND AMOUNT EUR 180,000 41: AVAILABLE WITH/ BY ACB BANK, ROTTERDAM BY DEF PAYMENT 42P: DEFERRED PAYMENT DETAILS 180 DAYS FROM DELIVERY DATE 43T: PARTIAL SHIPMENTS NOT ALLOWED 43T: TRANSHIPMENT NOT ALLOWED 44A: ON BOARD/ TAKING CHARGE HAARLEM, THE NETHERLANDS 44B: FOR TRANSPORTATION TO HALKALI FREE ZONE, ISTANBUL, TURKEY, BY TRUCK 44D: SHIPMENT PERIOD DURING MIDDLE OF JUNE 200X 45A: DESCRIPTION OF GOODS AND 1 UNIT “DE GROOT” BRAND ROTARY CUTTING MACHINE, /OR SERVICES TYPE 500, WITH ALL NECESSARY ACCESSORIES CUSTOMS TARIFF NO. 8462.8000 DELIVERY TERMS CIP HALKALI FREE ZONE, ISTANBUL, TURKEY 46A: DOCUMENTS REQUIRED + SIGNED COMMERCIAL INVOICE IN 3 FOLD INDICATING THE SERIAL NUBMER OF THE MACHINE AND CERTIFYING THAT THE MACHINE IS NEW AND NOT USED BEFORE + ORIGINAL TRANSPORT DOC. CONSIGNED TO THE ORDER FACTORING A.S.ISTANBUL, TURKEY AND MARKED FREIGHT PREPAID DOCUMENTS ISSUED PRIOR TO THE ISSUE DATE OF THIS DOCUMENTARY CREDIT ARE NOT ACCEPTABLE. 47A: ADDITIONAL CONDITIONS ALL DOCUMENTS MUST SHOW THE NUMBER OF THIS DOCUMENTARY CREDIT GOODS MUST BE OF DUTCH ORIGIN 71B: CHARGES ALL BANKING CHARGES AND COMMISSIONS ARE FOR ACCOUNT OF APPLICANT 48: PERIOD FOR PRESENTATION 10 DAYS 78: INSTR TO PAY/ NEGOTG BANK WE SHALL REIMBURSE YOU ON THE MATURITY DATE IN ACCORDANCE WITH YOUR INSTRUCTIONS PROVIDED THAT THAT DOCUENTS IN STRICT CONFORMITY WITH THE TERMS AND CONDITIONS OF THIS DOCUMENTARY CREDIT ARE DULY PRESENTED AT YOUR COUNTERS. 72: SENDER TO RECEIVER PLEASE ACKNOWLEDGE RECEIPT BY SWIFT MT730 INFORMATION ***MESSAGE PASSED AUTHENTICATION*** DEGROOT MACHINES B.V TEL: **31(0)2358999 HARRLEM, FAX: **31(0)2358888 THE NETHERLANDS COMMERCIAL INVOICE NO. 987 ORIGINAL TO: FACTORING A.S. ISTANBUL TURKEY HAARLEM, 21 JUNE 200X DESCRIPTIONS OF GOODS 1 UNIT “DE GROOT” BRAND ROTARY CUTTING MACHINE TYPE 500 SERIAL NUMBER 2003 CUSTOMS TARIFF NO. 8462.8000 WITH ALL NECESSARY ACCESSORIES INCLUDING A SET OF FREE ADVERTISING AND PROMOTION MATERIAL WE CERTIFY THAT THE MACHINE IS BRAND NEW AND WAS NOT USED BEFORE PRICE ROTARY CUTTING MACHINE EUR 180,000 ACCESSORIES EUR 20,000 TOTAL CIP HALKALI FREE ZONE, ISTANBUL, TURKEY EUR 200,000 MARKS: 2003 PALLET NO. 1/4 – 4/4 TOTAL 4 PALETS, GROSS WEIGHT 10,000 KG DOCUMENTARY CREDIT NO. 2003.AC.100 FOR AND ON BEHALF OF DE GROOT MACHINES B.V B. de Groot 1 Sender INTERNATIONAL CONSIGMENT NOTE DE GROOT MACHINES B.V. This transport is, unless otherwise specified, subject to the HAARLEM, Convention on the Contract for International Carriage of THE NETHERLANDS Goods by Road No.: 100 2, Consignee 3 Carrier FACTORING A.S. WINDMILL TRANSPORT ISTANBUL HAARLEM TURKEY THE NETHERLANDS 4 Place of delivery of the goods HALKALI FREE ZONE, ISTANBUL, TURKEY 5 Place of taking charge of the goods HAARLEM, THE NETHERLANDS 6 Marks and no. 7 No. of packages 8 Packing type 9 Goods description 10 Gross weight 10,000 KG 1 UNIT “DE GROOT” BRAND ROTARY CUTTING MACHINE 11 Volume TYPE 500 10 CBM SERIAL NUMBER 2003 MARKS: 2003 PALLET NO. 1/4 – 4/4, 4 WOODEN PALLETS DOCUMENTARY CREDIT NO. 2003.AC.100 12 Freight instructions FREIGHT PREPAID 13 Truck/ Lorry/ Vehicle details REGISTRATION NO.: 51 – BG –LN NATIONALITY: DUTCH 14 Place and date of issue: HAARLEM, 10 JUNE 200X 15 Stamp and signature of 16 Stamp and signature of 17 Stamp and signature of Shipper Carrier Consignee W. Mill Discrepancies: A: L/C specifies shipment period as “during middle of June 200X”, which is interpreted by UCP Article 3 as from June 11 to June 20. But consignment note shows date of issue (shipment date) is 10 June. B: Commercial invoice covers a set of free advertising and promotion material, which is not included in consignment note and requires another shipment, hence partial shipment is affected. C: Value of commercial invoice is EUR 200,000, which is greater than L/C value of EUR 180,000 H: According to article 19, 20 of UCP 600, transport document must be signed by carrier/ agent of carrier/ ship master and be identified as such. J: Commercial invoice covers as set of free advertising and promotion material not called for in L/C. 3.3 2/1/2006 NAMBEE Co., (Singapore) signed a contract with TANICO Co., (VN) with the following details: * Goods: Chemical X * Quantity: 300 tons * Total value: 312,000 USD FOB Quy Nhơn (VN) * Payment method: by irrevocable LC (UCP 600), by installments of which 50% contract value to be paid by T/T before shipment and 50% drawn upon presentation of documents. * Delivery: by 28/2/2006 * Two parties agreed on the application of Vienna Convention 1980 for the contract. * Only this contract bound the rights and obligations of two parties. On 5/1/2006 NAMBEE opened L/C, validity up to 15/3/2006. On 21/1/2006, TANCO received 50% contract value as per agreement (156,000 USD) On 28/2/2006 NAMBEE requested an amendment of L/C which extended the validity of L/C until 4/4/2006 and delayed delivery until 20/3/2006. Advising Bank received L/C amendment on 1/3/2006 and advised TANICO. On 2/3/2006 TANICO received the advice. On 9/3/2006 after thinking about the L/C amendment, TANICO terminate the contract and claimed NAMBEE for breaching the contract, at the same time refunded 156.000 USD advanced. The reason of TANICO was the chemical X was the longer storage, the more its quality and quantity could be diminished. Thus the sales of this type of chemical required timing performances of both parties to avoid loss. On 10/3/2006 NAMBEE sent two faxes to TANICO to inform that NAMBEE staff would come to Quy Nhơn on 11/3/2006 and the vessel would arrive at Quy Nhơn on 13/3/2006. However, when the vessel arrived, there was no delivery. NAMBEE sued TANICO for the loss. NAMBEE claimed that there was one clause in L/C that allowed the L/C opener to change the delivery time. Questions: 1, What special type of the L/C it was? Red clause L/C because 50% is paid in advance 2, Is it right for TANICO to terminate the contract? No, according to UCP 600, L/C is separate from sales contract and the contract is still effective. 3, Do you think the clause in L/C that allowed the L/C opener to change delivery time go against UCP. No, it does not go against UCP as it is irrevocable and all amendments must be agreed upon by the seller (TANICO) to be effective. Thus, the clause does not alone allow the buyer, L/C opener (NAMBEE) to change content of the contract and separation is still maintained.