1. What is Contract? Mention components of contract.

Contact is an Agreement Between Buyer and Seller by which a seller agrees to sell and a
buyer agrees to buy, under certain terms and conditions spelled out in writing in the
document signed by both parties.

Components of contract.

 Which conditions to apply?

 Definition of the terms.
 Conclusion of the contract.
 Assignment (Transfer of the right and obligations to a third party)
 Trade terms.
 Quality and Quantity.
 Pre-shipment inspection.
 Price and payment.
 Patent rights and indemnity.
 Delivery.
 Warranty/Guarantee.
 Liquidated damages (Penalty for late delivery)
 Force Majeure (In the situations like natural disaster, war, revolutions, the
performance of a contract becomes impossible, then how to sort out the rights and
obligations of each party).
 Packing and Marking.
 Shipping documents
 Dispute settlement.
 Validity of Contract

2. What are documents? Mention different types of documents used under contract.
Documents are an official paper that gives information about something or that is used as
evidence of something.

Different types of documents used under contract.

The following documents are usually used in contract as per URC 522, Articles 2b:
 Financial Documents
- Bill of Exchange
 Commercial Documents
– Commercial Invoice
– Transport Documents
– Insurance Documents
– Others Documents
3. What is bill of exchange? What are the main parties of bill of exchange?

“A bill of exchange is a negotiable instrument and is payable to the bearer or to the person in
whose favor it is endorsed.”
There are six parties involved in a bill of exchange. They are:
 the drawer
 the drawee
 the payee
 the endorser
 the endorsee, and
 the acceptor

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 4. What is Commercial Invoice? What is its characteristics?

A Commercial Invoice is the seller’s bill for the merchandise. The document describes the
goods which are subject of contract of sale between the buyer and seller

Characteristics of a commercial Invoice:

i. Must appear to have been issued by the beneficiary.
ii. Must be made out in the name of the applicant.
iii. Must be made out in the same currency as the credit.

5. What is transport document? What are the main components of transport

document?

These are the documents which evidence that the goods have been delivered to the
named shippers, airlines or transporters for the carriage to a named port, airport or place
of delivery.

Transport documents contains -

1. Carriage of contract
2. Evidence of receiving goods for transportation purpose.
3. It holds the title of goods
4.
Following transport documents are being used at present in the international trade:
 Bill of Lading
 Airway Bill/Air Consignment Note
 Railway consignment note/ Railway Receipt
 Road Bill
 Post Parcel Documents
 Mate’s Receipt

6. Describe different types of Transport Document.

Bill of lading - It is an acknowledgement receipt by master of the ship or

Shipping company of specified goods on board the vessel for carriage which are deliverable to
consign named in the bill.

The bill of leading serves three main purposes.

 as a document of title to the goods
 as a receipt from the shipping company
 as a contract for transportation of the goods

Airway Bill: It is a type of bill of lading that serves as a receipt of goods by an airline
(carrier) and as a contract of carriage between the shipper and the carrier.
It includes
(a) Conditions of carriage that define (among other terms and conditions) the carrier's
limits of liability and claims procedures,
(b) A description of the goods
(c) Applicable charges.

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Railway consignment note/ Railway Receipt

Railway consignment note or Railway Receipt is a transport document used in rail shipments.
Rail consignment note confirms that the rail carrier has received the goods and that a
contract of carriage exists between trader and carrier.
It includes
A description of the goods;
The number of packages and their weight;
The names and addresses of the sender and recipient

Road Waybill - It is a Transport document is used to control shipments of goods via truck. It
contains the same information as an inland bill of lading, with freight and other charges, and
routing.

Mate’s Receipt - Document signed by an officer of a vessel evidencing receipt of a shipment

onboard the vessel. It is not a document of title and is issued as an interim measure until a
proper bill of lading can be issued.

7. What do you know about documentary collection? What are the basic difference
between DP & DA.?

Documentary collection is a mode of international trade payment. It is an agreement

between buyer and seller whereby exporter exports goods against documents. The
exporter presents the shipping and collection documents to his or her bank (Remitting
Bank) and which sends them to its collecting bank (importer' Bank). Collecting Bank
Deliver Documents against Payment/ Acceptance and Remits to Remitting Bank when
document against payment.

Risk - All Risks lie with the Exporter.

Banks’ role is limited and they do not guarantee payment. In documentary collection
Banks act as per instruction of the Seller & Buyer

Difference between DP & DA

DP DA
DP in payment term of imports and DA in payment term of international
exports means Documents against trade means, Documents against
Payments. Acceptance.
An arrangement under which an exporter An arrangement in which an exporter
instructs the Collecting bank to hand instructs a bank to hand over shipping
over shipping and title documents to the and title documents (see document of
importer only if the importer fully pays title) to an importer only if the importer
the accompanying bill of exchange or accepts the accompanying bill of
draft. It also called cash against exchange or draft by signing it.
documents.
The bank delivers documents required The importer collects shipping
for import clearance only after receiving documents required to take delivery of
the value of goods from the importer. imported goods from his bank after such
assurance on payment at mutually
agreed maturity date of payment.
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8. What are the main functions of Remitting Bank & Collecting Bank?

Remitting Bank: The Main function of remitting bank are that forwards an exporter’s
shipping documents to the collecting-bank, and the re payment in the opposite
direction.

Collecting Bank: The main function of collecting bank is that collects cash payment or
a time draft from a buyer, in exchange for bill of lading and/or other documents which
enable the buyer to take delivery of the shipment. The collecting bank then forwards
the payment to the remitting bank for eventual remittance to the exporter.

1. What is LC? LC protects interests of importer and exporter’s Discuss.

LC (letter of Credit) is a mode of international trade payment. It is a letter issued by
bank on behalf of importer in favor of exporter, mentioning some conditions, if the
beneficiary able to submit the documents in accordance with the terms and condition
of letter of credit. As per applicable position of UCPDC & ISBP then issuing bank are
obliged to make payment of bill value as per instruction.

LC protects interests of importer:

It protects buyers much more than a regular bank wire, since there is no upfront
deposit. Payment happens after shipment!

Shipment delays, since the letter of credit has an expiry date (which can be extended
by the importer).
Last-minute cost increases, since prices are written down and can only be modified by
the importer.
Product quality issues, if the buyer does not forget to request a certificate from a
third-party inspection company.

LC protects interests of Exporter:

Get assurance of payment from buyer before starting work or shipping an order.
Access funds immediately after shipment and preparation of required Letter of Credit
documentation.
Receive payment quickly, while minimizing the risk of non-acceptance documents by
the Letter of Credit-issuing bank.
By issuing a Letter of Credit, buyer's bank agrees to pay at a set date upon
presentation of export documents that comply with the terms and conditions of the
Letter of Credit.

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 2. What are the main function of issuing bank?
The Main function of issuing bank:
Issuing Bank Issuing a letter of credit (L/C) in favor of a beneficiary (seller or exporter),
forwards it to an advising bank for handover to the beneficiary, and commits, will make
payment if beneficiary submit the documents in accordance with the terms and condition of
letter of credit. For make payment, convey with acceptance if a received credit compliance
documents.

3. What are the main function of advising bank?

The Main function of advising bank:

The main function of is Advising bank that receives a letter of credit (L/C) from the issuing
bank for authenticating it and handover to the exporter that a L/C has been opened by the
issuing bank in the exporter's favor. It’s to advice the L/C, which it received from issuing
bank duly authentication.

4. What is negotiation? What are the main responsibility of Negotiate Bank?

Making payment credit compliance before receiving fund from issuing bank of bill value, after
receiving complying presentation documents from exporter, before receiving fund from
issuing bank.

The Main function of negotiating bank:

a. The main function of negotiating bank is to scrutinize the Documents as per LC term
UCPDC and ISBP.
b. Negotiating Bank make payment of bill value before receiving fund from issuing bank.
c. Negotiating bank forward the documents to the issuing bank and received payment
from issuing bank as per their commitment.

5. What are the basic difference between sight and deferred payment LC?

Sight LC Deferred LC
Under sight basis LC issuing bank obligation Deferred payment LC basically carriage
to effect payment immediately after supplier’s credit in this system importer are
receiving credit compliance documents. allows to certain period of time to effect
payment.
This is the example of cash payments.

6. What is PI? What are the difference between Indent and PI?
PI: PI means pro-forma invoice. It is an offer letter issued by seller or prepared by
importer in favor of buyer mentioning some conditions which are accepted by
buyer/seller.

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 Difference between Indent and PI

PI Indent
PI means pro-forma invoice. It is an offer Indent and pro-forma invoice are same
letter issued by seller or prepared by as its function. PI issued by seller
importer in favor of buyer mentioning directly but indent are issued by
some conditions which are accepted by exporter’s representative staying at
buyer. importers country on behalf of exporter.
PI is issued by Seller or Exporter Indent issued Indenter

7. Mention Documents requires to be Importer and open LC.

Documents requires to be Importer:

1. National ID
2. Trade License
3. IRC (Import registration certificate)
4. TIN ( Tax identification no)
5. VAT (Value added Tax) certificate.

Documents requires to open LC

Pro-forma Invoice/ Indent

Formal request Letter
LC Application Form
LCAF
IMP Form
Permission from Concerned Authority
Undertaking Regarding Rate Fluctuation
Declaration for Mode of Retirement
Insurance Policy etc.

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 8. Draw import flow chart Under LC.

Importer Applied for Opening a Letter of Credit

Issuing Bank Issues L/C and Recover Required Margin as well as Commission and sends it to Advising Bank

Advising Bank Advises the L/C to the Beneficiary with Duly Authentication

Beneficiary Receives L/C and Submits it to its Bank Pre-shipment Financing or Lien

Beneficiary then Procure or Produce the Commodity as per L/C Terms

The Beneficiary Arranges Shipment of the Commodities

Preparation and Procurement of Shipping Documents

Beneficiary Submits the Documents to the Counter Negotiating Bank

Beneficiary's Bank Scrutinize the Documents as per Article -14 of UCPDC, ISBP and LC Terms as well as
Negotiate the Documents.

Negotiating Bank Forward the Documents to the Issuing Bank after Necessary Endorsements Claiming
Payment or Acceptance

Issuing Bank Receives the Documents and scrutinizes it as Article 14 of UCPDC, ISBP as well as LC Terms. It
also Lodge the Documents for Next Course of Action

Applicant Arranges to Make Payment of Bill Value or Make the Arrangement and Retire the Shipping
Documents from Bank's Counter

The Applicant Releases the Goods and Obtains the Bill of Entry and submits it to the Bank which Reports it
to Bangladesh Bank

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Shahnoor Alom Mejan
Email ID – mejan1359@gmail.com
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