//Copyright-Author: Morris Ng function fnDefragLCExpIain1(){ document.writeln("

Applicant

The applicant is the party who requests and instructs the issuing bank to open a letter of credit \(L/C\) in favor of the beneficiary. The applicant usually is the importer or the buyer of goods and/or services. The applicant in the sample letter of credit is DEF Imports.") document.writeln("

The applicant can also be another party acting on behalf of the importer, such as a confirming house. The confirming house is equivalent to a buying office, it acts as an intermediary between importer and exporter, and it can be located in a third country or in the exporter's country. The confirming house negotiates and books the order on behalf of the importer and guarantees payment to the exporter, and often finances the importer. When dealing with importers in a country with a foreign exchange shortage, for example Nigeria, the exporter may deal with the confirming house in the United Kingdom \(U.K.\) or in other areas to ensure payment.

Beneficiary

The beneficiary is the party in whose favor a letter of credit \(L/C\) is opened by the issuing bank. The beneficiary usually is the exporter or the seller of goods and/or services. The beneficiary in the sample letter of credit is UVW Exports.

Issuing Bank

The issuing bank---opening bank---opens a letter of credit \(L/C\) in favor of the beneficiary, at the request and on the instructions of the applicant. The issuing bank usually is located in the applicant's country. The issuing bank in the sample letter of credit is The Sun Bank.

Advising Bank

The advising bank---notifying bank---advises the beneficiary that a letter of credit \(L/C\) opened by the issuing bank is available to him/her and informs the beneficiary about the terms and conditions of the L/C. The advising bank is not necessarily responsible for the payment of the credit which it advises.") document.writeln("

The advising bank can be a branch office of the issuing bank or a correspondent bank, which usually is located in the beneficiary's country. The advising bank in the sample letter of credit is The Moon Bank.

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The issuing bank most often sends the L/C through its branch office or correspondent bank to avoid fraud. The branch office or the correspondent bank maintains specimen signature\(s\) on file where it may counter-check the signature\(s\) on the L/C, and it has a coding system---secret test key---to distinguish a genuine L/C from a fraudulent one.

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The exporter can request the importer to specify his/her bank \(the exporter's bank\) as the advising bank in an L/C application. The exporter's bank may not be the issuing bank's correspondent bank, thus the issuing bank may use other bank as the advising bank.

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In many countries, it is beneficial to the exporter when the advising bank is the exporter's bank, where the exporter may avail the reduced bank charges and fees because of special relationships with the bank. In addition, it is more convenient to deal with the exporter's own bank over a bank with which the exporter does not maintain a business account.

Correspondent Bank

The term correspondent bank or correspondent used in international trade refers to another bank in another country with which the first bank maintains a banking service agreement. In the sample letter of credit the correspondent bank of The Sun Bank is The Moon Bank, and vice versa.

Confirming Bank

The advising bank which adds its confirmation to the credit, that is, adds its own promise to pay, upon authorization or request of the issuing bank is known as the confirming bank. The confirming bank in the sample letter of credit is The Moon Bank.

Nominated Bank

A bank designated by the issuing bank which is authorized to pay, to accept draft\(s\), to incur a deferred payment undertaking, or to negotiate the letter of credit \(L/C\) is known as the nominated bank. The nominated bank can be a party other than the advising bank. The nominated bank in the sample letter of credit is The Moon Bank.

Paying, Accepting or Negotiating Bank

The nominated bank which:

makes payment to the sight draft\(s\) drawn by the beneficiary is known as paying bank,
accepts the term draft\(s\) drawn by the beneficiary is known as accepting bank,
negotiates the draft\(s\) and/or documents presented by the beneficiary or bona fide holder is known as negotiating bank.

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When the bank negotiates the draft\(s\) and/or documents, that is, the negotiation, it gives value to such draft\(s\) and/or documents, not just examination of the documents.

Transferring Bank

The paying, accepting or negotiating bank that makes the credit available in whole or in part to one or more second beneficiaries at the request of the first beneficiary is known as the transferring bank.

Claiming Bank and Reimbursing Bank

The claiming bank is a paying, accepting or negotiating bank which claims for reimbursement on another party called the reimbursing bank. The reimbursing bank can be a party other than the issuing bank authorized \(by the issuing bank\) to reimburse the claiming bank.

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