Letters of Credit Essay Example for Free

Letters of Credit Essay The use of the letter of credit in international trade has for a long time been an easy way of carrying out business operations without really having to use the credit of the applicant’s bank. Letters of credit usually take the place of a bank’s credit and enhances the speed of transactions when used properly.[1] Usually, the letter of credit serves to give an importer of goods as well as the exporter a chance to go a head with their business transactions even when there is no real liquid money available to either party. Letters of credit, however, present very many challenges to both the exporter and the issuing bank because they are usually documents that cannot be revoked under certain circumstances and so exposes some players to a lot of risk. A key concern has been the nature of the conditions that ought to be met before such documents can be honored by the exporter’s bank which usually has to rely on information from the importer’s bank.[2] It is on the basis of the intricate issues that surround the letter of credit and its use that this paper seeks to critically discuss it especially when used in the context of international trade. Of particular interest, though, is a discussion of the undue exposure to losses and other risks on the issuer of the letter of credit, particularly in instances when the applicant or beneficiary of the letter of credit does not duly perform one’s obligations or wrongfully obtains payment. The Working of a Letter of Credit From a business point of view, it is usually very important for an importer of goods and who holds an account with a local bank to seek for the financing of the bank for goods that are to be sourced from another country.[3] The reasons this is appropriate range from an ability to facilitate the business transactions and ensure a faster and timely transfer of the goods from the exporter’s location to that of the importer, and to reduce the costs that could be incurred in having to use other means of payment to pay for goods in another country – means of which are not always available. Therefore, from the business point of view, a letter of credit serves to enhance the general business transactions involving international trade. Where the challenge comes in is that point when it is never drawn or requested unless there is some form of credit that needs to be transferred. Actually, the letter of credit is used as an exchange of the credit of the bank and that of the buyer. Here, issues of compliance with the terms and conditions of the letter of credit poses many challenges and risks to the issuing bank as well as the advising bank which literally transfers the credit to the exporter’s account. This results because of the manner in which the transactions are conducted. First, an importer in the United Kingdom orders for coffee beans from a farmer in Brazil. The farmer insists that the coffee beans can only be exported or ferried on condition that the payment for them is paid within forty days from the time the transaction is entered into. The UK importer cannot get to Brazil to make the payments but there is a way that the exporter’s bank can communicate with the importer so that the credit can be transferred. However, the buyer does not want any undue risks so he does not offer cash to his bank but asks for a letter of credit to be drafted with the Brazilian coffee exporter as the beneficiary. The UK bank makes an arrangement with this importer and because he satisfies the conditions required, the bank drafts a letter of credits and transfers it to the beneficiary’s bank in Brazil. That advising bank then verifies the details of and terms of the letter of credit and duly pays the exporter. Once this is done, it is all to the exporter to ship the coffee beans to the UK. Only then can the advising bank (the exporter’s bank) be able to seek for the payment for the goods in accordance with the terms and conditions of the letter of credit. As can be clearly seen, there are so many processes involved and it all boils down to four main players who are bound to lose or benefit. There are the bank of the exporter, the bank of the importer, the exporter and the importer. Commercial Letter of Credit and Standby Letter of Credit It is always important to draw a distinction between two types of letters of credit commonly used in international trade and to ascertain the roles each plays towards enhancing payments for imports by a customer.[4] The commercial letter of credit is the most widely used and its use is restricted to the actual exchange of credit on behalf of the customer of a bank. It is the commercial letter of credit that will be needed by the advising bank or the exporter’s bank in order to effect payments. However, owing to the risks to the issuing bank regarding defaulting on the part of the importer who is also its customer, the issuing bank usually drafts and issues another letter of credit for the purposes of proving the credit worthiness of the importer. This particular letter of credit, therefore, serves the function of guaranteeing the advising bank and the exporter that the importer will actually pay for the goods. This reduces the risks inherent in international trade.[5] Based on this fact, it can be fairly argued that an issuer of the commercial letter of credit will be protected significantly in the event of failure by the beneficiary to adhere to the terms and conditions of the letter of credit. To a significant level, having the standby letter of credit protects the issuer because it cannot be allowed to pursue the property of the importer and recover the money; or it can fail to pass the money to the advising bank. In accordance to the UCP provisions, the banks are protected only mildly when it comes to failure by trader to honor their part of the contract regarding payments to be submitted. For instance, the UCP never really form part of the official international trade rules and are only applicable when the parties to the trade deal believe it is right for them. The absence of a clear law, therefore, that emphatically seeks to help issuers of letters of credit means that they are exposed to many risks. The law in this country regarding international trade in general and letters of credit in particular tend to offer protection to consumers more than the issuer of the letters of credit. It is almost always believed that banks have the right and the capacity to set up their own terms and conditions which they believe are sufficient enough to protect them from any acts of fraud by traders; and as such not a lot of protection is offered them under the law. International trade law will also protect the local bank and not the foreign bank, meaning that in the event the local bank, which is the issuer of the letter of credit, has already passed on the money to the advising bank, then there is little that can be done to recover the money especially in cases where the trader fails to honor the obligations to pay the bank due to bankruptcy or any other reason. This is because the law on bankruptcy protects the importer from the actions of banks that can lead to further legal battles. If such an importer files for bankruptcy during the period when the goods are yet to be delivered to him, then there is nothing the bank can do to recover its money.[6] A person declared bankrupt is protected from his debtors until at such a time when the bankruptcy can be lifted. This clearly renders the issuer of the letter of credit to such a trader incapable of recovering its owed monies. [1] Campbell, Dennis. REMEDIES FOR INTERNATIONAL SELLERS OF GOODS [2008] Volume II. Lulu.com, 2008 [2] Edwards, George. Foreign Commercial Credits; A Study in the Financing of Foreign Trade. General Books LLC, 2009 [3] Great Britain. Law Commission. Company security interests: a consultative report. Routledge, 2005 [4] Credit research Foundation. â€Å"Understanding and Using Letters of Credit, Part I† (1999). Retrieved 08/16/2010 from: http://www.crfonline.org/orc/cro/cro-9-1.html [5] Warner, Susan. The Letter of Credit. Kessinger Publishing, 2007 [6] LLL. â€Å"U.C.C. ARTICLE 5 LETTERS OF CREDIT .† (2005). http://www.law.cornell.edu/ucc/5/article5.htm

Comparing Two Magazines Essay -- Compare and Contrast

Comparing Two Magazines For my compare and contrast essay, I have decided to compare two magazines in the financial and business world of entrepreneurs. The name of the first magazine is † Small business opportunities† and the second magazine is â€Å"Entrepreneurs – Be your own boss† The theme of the first magazine is to highlight, how and what type of businesses to start and make money without putting in much of the hard work. The very first page of the magazine shows an absolute image of the man and women dressed up with lots of money and a road of success. The magazine rapidity claims† Sure ways to make money†. It seems like editor is personally involved in guaranteeing the success of the business with highlighting text displaying â€Å"Make $40 Million with eco-friendly herbs and sprouts† or â€Å"Make 15 million in the first year with Dollar Varity stores† As I am turning and reading pages more and more, I realize that this magazine is not meant to show issues, techniques, pros and cons of starting up a business but it is more like infomercials showing the top returns one can reap from his investments. The magazine forces me to realize that I am missing a essential experience in my life by not starting up the business. The magazine displays beautiful color and picture schemes. The magazine also highlights few of the success stories of the entrepreneurs. Overall this magazine makes business as a seamless transition of normal day today activity to a profit generating machine, ...

Chernobyl Informative Speech

Attention Getter: There are currently 442 active nuclear power reactors worldwide according to the Nuclear Energy Institute. Of all of the reactors worldwide, 14 have been classified as accidents where the public has been exposed to radiation. The most devastating of these incidents was the core meltdown of reactor 4 at Chernobyl, better known as the Chernobyl disaster. Introduction: Today I am going to tell you 3 things about Chernobyl.First, I am going to tell you what Chernobyl was.Second, I will tell you Why it happened and Finally, I will tell you what the effects were and why it’s relevant today.Body 1 â€Å"What was Chernobyl†? :April 26, 1986 in the early morning hours, an explosion rocked a thriving city near the heart of Ukraine.Within days 150 nearby towns had been evacuated.This explosion would become the beginning to the worst nuclear disaster in history.Chernobyl’s power reactors were graphic reactors, not commonly used anywhere outside of the Sovie t Union.In certain circumstances, the graphite reactors could speed up the nuclear reaction. This was a flawed Russian Design that ultimately led to the disaster.Chernobyl was classified as a category 7 nuclear event, the most severe classification according to the Nuclear Event Scale.Comparatively Three Mile Island was only classified as a category 5.Body 2 â€Å"Why did it happen? †:Next I am going to tell you why it happened.The disaster occurred due to an experiment which was being run by the reactor engineers.The purpose of the experiment was to determine whether electricity could be drawn from a turbine and redirected to the water pumps. High electrical demand during the day time meant they could not run the experiment until 11pm.The engineers grew impatient, reducing the rate of nuclear reaction too rapidly.Reducing the rate this quickly caused a rapid buildup of radiation poisons.To counteract this build up, the control rods were withdrawn. This meant they were no lon ger able to control the rate of reaction.These 2 critical errors (withdrawing the rods and slowing the reaction too rapidly) made the engineers incapable of increasing the power within the reactor. This was a safety precaution that the engineers overrode.Normally, in a situation where the reactor becomes unstable two fail safe measures were in place.   First, the power of the reactor could be increased to re-stabilize the nuclear reaction And Second, the engineers could wait 24 hours to allow the reaction chemicals to dissipateThe Engineers however, had already disabled the first failsafe be removing the control rods.The engineers also continued to turn off addition safety precautions including the emergency reactor cooling system. This system was designed to help stop the reaction if too much heat was generated.The emergency energy supply was also shut down, meaning there was no additional energy to run the plant.The experiment continued and the turbine generators were also shutdown.The electrical supply to the reactors water pumps was reduced as a result of the experiment, reducing the amount of cooling water passing through the reactor.Because of this, water within the reactor core began to boil.This was troublesome, since the cool water was used to reduce the heat of the reaction. As the rate of nuclear reaction continued to ac celerate, addition graphite tipped control rods were released by the engineers.Under normal circumstances, the control rods were designed to slow the rate of reaction.However, with the reaction already accelerating out of control, the insertion of the graphite rods further increased the reaction.After disabling or exhausting all potential failsafe methods, the engineers had run out of possibilities and had lost complete control of the nuclear reactor.Enough pressure had built up within the reactor to cause an explosion, leading to the collapse of reactor 4. Following the explosion, the engineers and reactor workers attempted to hide the incident from authorities.This meant that evacuation effort could not fully begin for 36 hours after the explosion.Because the incident was not immediately reported and the public was never made fully aware, farm produce, dairy and the air was contaminated with extremely high levels of radiation and extremely high levels of radiation and subsequently consumed by the residents in regions surrounding Chernobyl.Within hours of the explosion, residents of the nearby city of Prypiat began to fall ill.Body 3: How is it relevant to us? Finally, I’m going to tell you what the effects were and why Chernobyl is still relevant today.Hundreds of thousands of people were affected by the accident150 villages and towns were abandoned displacing thousands of people from their homes.As a result of the widespread release of radiation scientists estimate t hats 100,000 miles square miles surrounding Chernobyl had been significantly contaminated.Significant levels of radiation from Chernobyl were recorded at the Forsmark Nuclear power plant about 600 miles away from Chernobyl.Over 600,000 workers were involved in the cleanup of Chernobyl. Many of these workers received significant levels of radiation.The international atomic energy agency noted more than 1800 documented cases of thyroid cancer in children 14 and under immediately following the disaster, much higher than normal.Most of these were identified early and successfully treated.The disaster brought to light the severe effects of radiation poisoning on the body according to the international Nuclear safety group: â€Å"Krypton 85 affects the entire body and can increase the likelihood of developing cancer such as leukemia within two years of exposure. Cesium 137 can attack the entire body, centering on the liver, spleen and the muscles. Barium 140, gathers in the bones and can cause tumors as late as thirty years after exposure. Iodine 131 gathers in the thyroid. It can trigger cancer in the thyroid decades following exposure†.The event brought awareness to the dangers of radiation not only from nuclear reactors but also from everyday occurrences such as getting an X-Ray at the hospital.Conclusion:Nuclear reactors are used more today than ever. The nearest one is in Chicago, IL. The disaster of Chernobyl made people more aware of the dangers.More safety measures were put into place because of Chernobyl. These safety measures meant that containment and disaster relief was much faster and more effective during the 2010 Fukushima nuclear disaster in Japan. In conclusion I have told you what Chernobyl is, why it happened, what the effects and why it is still relevant to us today.ReferencesChernobyl | Nuclear Reaction | FRONTLINE | PBS. (n. d. ). PBS: Public Broadcasting Service. Retrieved  October  23, 2012, from http://www. pbs. org/wgbh/pages/frontline/shows/reaction/readings/chernobyl. tmlChernobyl: Cause and Effect. (n. d. ). RichEast. Retrieved  October  23, 2012, from http://www. richeast. org/htwm/chernobyl/chernobyl. html International Nuclear Events Scale (INES). (2012, September 25).Nuclear Safety and Security. Retrieved  October  22, 2012, from http://www-ns. iaea. org/tech-areas/emergency/ines. asp Nuclear Energy Institute – U. S. Nuclear Power Plants. (n. d. ).Nuclear Energy Institute – Clean-Air Energy. Retrieved  October  23, 2012, from http://www. nei. org/resourcesandstats/nuclear_statistics/usnuclearpowerplants/

A Photo Tour of Ithaca College in Central New York