International Business INB355 Study Guide - Final Guide: Force Majeure, The Seller, Credit Risk

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INB355 Exam Review
1. Interpret Uniform Rules for Collection ICC Publication 522.
See pages number4-18 to 4- 23
2. Compare clean vs. documentary collection.
See pages number 4-4 to 4-8
Clean Collection vs. Documentary collection
Risk of seller same as on open account, 100% security for buyer’s point of view. Seller
sends shipment and document directly to buyer, only draft goes through the bank.
It is clean because the commercial documents don’t go to the bank
If the commercial document go to the bank it is documentary collection
Gov’t control is the reason for clean collection
Again if the bank handles the draft it is a clean collection
3. Discuss how a documentary collection works and parties to a collection.
See pages number 4-1 to 4-8
How documentary collection works
Seller send shipment to buyer without consign to buyer, seller send collection order to his ban, remitting bank sends
collection order to collecting bank, collecting bank present documents, buyer (drawee) payment/acceptance to
collecting bank, collecting bank to remitting bank then to seller (principal).
Direct
Seller sends shipment to buyer, without consign to buyer, seller sends documents straight to importers bank, importers
bank pays seller.
The Parties in a collection
The Principal/seller/exporter/drawer/remitter
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The remitting/principal’s/exporter’s/drawer’s bank
The collection or presenting (buyer’s) bank
The drawee/importer/buyer
4. State the responsibilities of the banks when handling collections.
As discussed in class plus pages number 4-19 and 4-20 ( articles 9 to 15)
I. Follow instruction
II. Act in good faith
III. Safety of document
IV. Act fast
V. Forward payment immediately upon receive
VI. Contact seller agent in case of need
VII. Keep seller informed
Under URC 522
Article 9 Good faith and reasonable care
Banks will, in accordance with local practice and law, act in good faith with reasonable care
Article 10 document vs Goods/services/performances
Banks deal in documents, not goods. Goods should not be consigned to or dispatched directly to banks without prior
permission of theat bank. Banks are not liable to take action to protect the goods, and are not liable for the acts of third
parties if such protective action has been taken
Article 11 Disclaimer for Acts of an Instructed Party
The instructing party (principle) must bear the primary risk of the remitting bank using the services of another bank,
and the risk that instructions so given are not carried out
Article 12 Disclaimer on documents received
The principal and the remitting bank must list the individual documents and number of such documents in the
collection instruction. The collecting bank is obligated to advise the remitting bank if the documents received are as
listed
Article 13 Disclaimer on Effectiveness of Documents
Derived from the UCP500 article 15, banks have no liability from matters outside their control. See UCP600, article 34
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Article 14 Disclaimer on Delays, loss in transit and translation
Banks assume on liability for any delay and/or loss in transit of any communication, or for mutilation or other errors in
the transmission of any telecommunication or errors in translation or interpretation of technical terms
Article 15 Force Majeure
Standard disclaimer or liability for riots, civil commotion, insurrections, wars or other causes beyond their control or by
strikes or lockout
5. Define the security/risks afforded by documentary collections.
Highest risk: clean collection; lowest: D/P plus page number 2-11
Clean Collection (highest risk for the seller)
Risk from the seller point of view is high because there is full reliance on the buyer to pay when invoice is due
Risk from the buyer none
Documents Against Acceptance (D/A) *Note: Same as risk as CAD (Cash against documents)
Risk from the seller point of view is a possible none payment of draft at maturity and the buyer has the goods
Risk from the buyer point Minimal because they don’t have to pay until after receipt and control of goods.
Acceptance Documents Against Payment
Gives the buyer time to pay and gives the seller security but not used much in the real world
Documents Against Payment (greatest security risk for seller)
Risk from the sellers point Minimal almost none because the buyer must pay in full and immediate cash to have access
to the goods
6. Describe the stages of the collection process.
See pages number; 4-7 and 4-9
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