Trade Finance/Letter of Credit (LC)/Documentary Credit (DC)/DAP/DAA/Collection
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Trade can be defined as an action carried out between a buyer and a seller for the exchange of goods or services with money or any other goods or services.
INTERNATIONAL TRADE
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International trade is defined as trade between two or more parties from different countries (an exporter and an importer).
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METHODS OF TRADE SETTLEMENT
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Payment in advance
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Open account
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Collection
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Letter of Credit
TYPES OF LC
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Irrevocable Letter of Credit
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Sight Letter of Credit
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Acceptance or Time Letter of Credit (Usance)
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Deferred Payment Letter of Credit
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Confirmed Letter of Credit
DOCUMENTS UNDER LC
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Invoice
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Packing List
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Weight List
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Export/Import License
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Certificate of Origin
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Third Party Pre-shipment Inspection Certificate
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Quality Certificate
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Certificate of Analysis
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Health/Veterinary/Phyto-sanitary Certificate
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Bill of Lading
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Airway Bill or Air Consignment Note
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Rail or Road Consignment Note
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Post Parcel Receipt
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Insurance Policy
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Bill of Exchange or Draft
INCOTERMS
For Sea and Inland Waterway Transport:
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FOB - Free On Board: Buyer pays all transportation and insurance costs, once delivered on board the ship by the seller.
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CIF - Cost, Insurance and Freight: Seller arranges and pays cost, freight and insurance to destination port. Adds insurance costs to CFR.
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CFR - Cost and Freight: Seller arranges and pays cost and freight to the named destination port.
For Any Mode or Modes of Transportation:
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EXW - Ex Works: Seller delivers (without loading) the goods at disposal of buyer at seller’s premises.
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FCA - Free Carrier: Seller delivers the goods to the carrier at an agreed place and may be responsible for clearing the goods for export.
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CIP - Carriage and Insurance Paid To: Seller delivers goods to the carrier at an agreed place, but seller pays carriage and insurance to the named place of destination.
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CPT - Carriage Paid To: The seller clears the goods for export, delivers them to the Carrier, and is responsible for paying for carriage to named port of destination.
KEY NRB-FOREX GUIDELINES RELATING TO LC
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Charges / Margin can be deducted from applicant’s account only
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Firms other than companies cannot enjoy L/C facility more than 20 times their registered capital
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10% additional margin must be collected for Reimbursement L/Cs at the time of opening the L/C for trading units
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For Sight L/Cs equal or above $50K, Business Credibility Information (BCI) Report of the Beneficiary with satisfactory credit rating/conduct of account is required. BCI cannot be more than 1 year old. BCI obtained by one bank can be shared with others.
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All import Letters of credit shall compulsorily specify the border customs point through which the goods will be brought into Nepal
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LC’s can be sent/advised to the foreign beneficiaries through correspondent banks only
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LC Issuing Bank can accept shipping documents under LC’s (INR/FCY) received through correspondent banks only
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LC cannot be issued for an individual.
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Payment cannot be made directly to the beneficiary/individual under LC’s (INR/FCY)
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Usance facility for a trading unit cannot be more than 120 days (both in INR . For Industry the usance period can be of any number of days depending upon the agreement between the Applicant and Beneficiary. 10% NRB Margin also needs to be obtained while issuing BBN 4 for such LCs.
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Import exceeding INR 5 Crores can be done through LC only by obtaining 10% of LC value as NRB security margin.
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Extra caution has to be applied for LC opened in India in FCY. Only selected goods can be imported from India in FCY.