Biyani's Think Tank Concept

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Biyani's Think Tank
Concept based notes


B.K. Jain
Deptt. of Management Biyani Girls College, Jaipur

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LETTERS OF CREDIT (LC) OR BANKERS COMMERCIAL CREDIT (BCC) A letter of credit (LC) is a type of guarantee given by a bank on behalf of its customer that the bank would make payment of goods and services to the supplier on presentation of documents, as required as per terms of the contract and LC. This term LC is often used in international trade when buyer and seller are far away from each other having different legal system and each unaware of others financial position. In such case, both parties deal through their banks and the devise used by banks is called LC or BCC. Parties to LC are : i) ii) iii) iv) v) vi) Applicant/Buyer/Importer/Opener Issuing bank Beneficiary/Exporter/Seller Advising Bank/Notifying Bank – Bank in exporters country through which LC is advised to the seller. Negotiating bank/nominated bank/paying bank – Bank in exporters country which makes payment on bills drawn by seller. Reimbursing bank – bank appointed by issuing bank to reimburse payment to negotiating bank.

Procedure of L.C. Purchaser makes an application to his bank for opening a L.C in favour of seller of other country. The bank after verifying the credit worthiness of applicant opens a LC. This L.C is then forwarded to the sellers bank in other country. The sellers bank after confirming the authenticity of LC, forwards the same to seller. The seller confirms the authenticity of LC, ships the machinery to the purchaser. Seller collects the bills of lading handed over by shipping company alongwith other documents under L.C; present these documents to his bank for obtaining the payment. After verifying bills documents, bank makes payment to seller. These documents are then sent to the purchaser bank under intimation to purchaser. The purchaser accepts the bill, collects the documents and makes payment. The purchaser goes to the shipping company, produces the documents and takes delivery. The purchaser’s bank then forwards the payment to sellers bank. Documents under L.C 1. 2. 3. 4. 5. Bill of Exchange Invoice Transport documents e.g. bills of lading in case of a shipping company, airline bill in case of air transport, post parcel bill if sent by post Insurance documents signed by insurance company or his agent. Other documents as per terms of L.C e.g. certificate of weight, quality etc. For more detail :-

Benefits of L/C To Purchaser : - No advance payment is required. - Not worried as payment only after getting documents. - Not worried about quality as certificate to that effect is there in documents. - He is sure of payment as banks are involved. - There is no delay in payment. - Not worried about import regulations of buyer’s country. To Seller : He is sure of payment as banks are involved. There is no delay in payment. Not worried about import regulations of buyers country. Not worried about fluctuations in currency rates as he gets payment in his currency.

The bankers duty is primary for making payment as has been decided in many cases by various high courts and hence risk in L.C is minimum. Suggested Ref. Books 1. Principles of banking – Indian Institute of Banking & Finance, Mumbai. 2. Money, Banking & Finance – By N.K.Sinha

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Bank assurance
Bank assurance means distribution of insurance product through the distribution channels of banks. It is also known as “All Finanz” and constitutes package of financial services that can fulfill both banking and insurance needs at the same time. It is a packaged service of banking and insurance offered to customer at one place, under one roof and at one time. The motives behind ‘bancassurance’ For a Bank are : product diversification generating additional income

For a Insurance Company are : Increasing their market penetration Increasing premium...
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