(By Daniele Giovannucci )

A note on currencies and hedging

The U.S. dollar followed by the British pound, the deutschemark, the French franc and the Japanese yen are by far the most popular and the most easily convertible currencies. Typically the seller will request payment in his own preferred currency. Where the transaction value is considerable -- typically in excess of $50,000 -- there may be an opportunity to accept a foreign currency and hedge against the foreign exchange risk. While this may yield a better exchange advantage or provide an additional incentive for the buyer to participate in a transaction, it should not be attempted by novices without the support of an experienced international banker.

III. Resources and Annex

Select Resources

The International Chamber Of Commerce http://www.iccwbo.org offers excellent publications:

The Uniform Customs and Practices For Documentary Credits (UCP), Publication No. 500 contains the rules which government documentary credit and standby credits. Publication 522 defines the rights and responsibilities of the parties to a collection and defines various terms used in collections.

International Trade Procedures and Management, A. G. Walker, 1996,

Agricultural Export Transportation Handbook http://www.ams.usda.gov/

Annex 1

Seller’s Checklist

An LC can be customized via a number of special conditions, such as “approximately” or “partial shipments allowed”. Sometimes a word or two can change the requirements of the document. Here is a checklist that the seller can use to review the proposed letter of credit.

1. _____ Is the L/C irrevocable?

2. _____ Has the credit been confirmed, if requested?

3. _____ Is the type of credit (revolving, transferable, etc.) as agreed?

4. _____ Is the amount of the credit sufficient to cover all costs permitted by the terms of the contract? Are the Incoterms correct? Have the terms “about” or “approximately” been included?

5. _____ Is the credit available with your bank, freely negotiable, or available with any bank, or is it restricted to the issuing bank or any other designated bank?

6. _____ Are the descriptions of the goods and unit prices, if any, in accordance with the sale contract? Have the terms “about” or “approximately” been included, if requested?

7. _____ Are transshipment and partial shipments allowed, if necessary?

8. _____ Are the points of dispatch/taking in charge/loading on board of the goods, as the case may be, and of discharge/final destination as agreed?

9. _____ Do the shipping and expiry dates and the period for presentation of documents after issuance of the transport document allow sufficient time for processing the order, effecting shipment, and presenting the documents to the bank?

10. _____ Are the provisions for insurance in accordance with Incoterms?

11. _____ Can the necessary documents be obtained in the form required and in the timeframe allowed by the credit?

12. _____ Have any unacceptable conditions been added to the credit without your approval; e.g., an inspection certificate to be provided by the buyer?

Source: Firstar Bank from www.ams.usda.gov/ Pub. 

Annex 2

Common Discrepancies Which Can Lead To Non-payment

of a Commercial Letter of Credit

General

1. Documents inconsistent with each other.

2. Description of goods on invoice differs from that in the credit.

3. Marks and numbers differ between the documents.

4. Absence of documents called for in the credit.

5. Incorrect names and addresses.

Draft (Bill of Exchange)

1. Amount does not match invoice.

2. Drawn on wrong party.

3. Not endorsed correctly.

4. Drawn payable on an indeterminable date.

Transport Documents

1. Shipment made between ports other than those stated in the credit.

2. Signature on bill of lading does not specify on whose behalf it was signed.

3. Required number of originals not presented.

4. Bill of lading does not evidence whether freight is prepaid or collect.

5. No evidence of goods actually "shipped on board."

6. Bill of lading incorrectly consigned.

7. “To order” bills of lading not endorsed.

Insurance

1. Insurance document presented of a type other than that required by the credit.

2. Shipment is underinsured.

3. Insurance not effective for the date in the transport documents.

4. Insurance policy incorrectly endorsed.

Deadlines

1. Late shipment.

2. Late presentation of documents.

3. Credit expired.

Source: Firstar Bank from www.ams.usda.gov/ Pub.

(Edited by: China West Lawyer)