Study the following and answer the questions.

From the exporter to the agent bank:

The exporter will acknowledge the agent bank's letter, and send them the documents they asked for and their draft.

Delta Computers Ltd.   Bradfield Estate, Bradfield Road, Wellingborough, Northamptonshire NN84HB   Telephone: [phone] Reg. England 1831713 Telex: 485881 VAT-241962114 Fax: [phone] Your Ref. __________ Our Ref: ___________   Mr. P.Medway 24 May 20— Eastland Bank Ltd. 401 Aldgate, London EC 1   Dear Mr. Medway,   Thank you for your advice of the 15 May. We have now effected shipment to our customers in New Zealand and enclose the shipping documents you asked for and our draft for £23,100, which includes your discount, commission, plus charges. Will you please accept the draft and remit the proceeds to our account at the Midland Bank, Oxford Street, London Wl. Yours sincerely,   N. Smith Senior Shipping Clerk     Enc. Bill of lading (6 copies) Commercial invoice c.i.f. Wellington (four copies) A.R. Insurance certificate for £24,200 Draft 2152/J  

From the exporter to the importer:

Delta Computers notify their customers in New Zealand that the consignment is on its way to them.

Delta Computers Ltd. Bradfield Estate, Bradfield Road, Wellingborough, Northamptonshire NN8 4HB   Telephone; 0933 16431/2/3/4 Reg. England 1831713 Telex: 485881 VAT 2419 62114 Fax. [phone] Your Ref.__________ Our Ref.___________ V. Mr. M. Tanner 25 May 20— N.Z. Business Machines Pty. 100 South Street Wellington New Zealand   Dear Mr. Tanner,   We are pleased to inform you that your order, No. 8815, has been shipped today on the SS Northern Cross, which is due in Wellington in four weeks. The shipping documents, including bill of lading, invoice, and insurance have been passed to the Eastland Bank, London, and willbeforwarded to the New Zealand Bank, Wellington, who will advise you. As agreed, we have drawn on the Eastland Bank at 60 days for the net amount of £23,100 which includes the bank's discount commission and charges. We are sure that you will be pleased with the consignment, and look forward to hearing from you soon. Yours sincerely,   N. Smith Senior Shipping Clerk

Questions:

1. When will the consignment arrive?

2. What has happened to the shipping documents?

3. How has the bank earned money on the transaction?

4. Who is the agent bank in this transaction?

5. What do the letters SS stand for?

6. What expressions are used to mean: arrive; sent; made out a b/e; notify?

From the importer's bank to the importer:

The New Zealand Bank now advises NZ Business Machines that their account has been debited, and that the documents are ready for collection. When he has picked up the documents, Mr Tanner will be able to take delivery of his goods.

New Zealand Bank Chairman: Sir Francis Tuckmon Directors: L.N Bowman, P.O. Shearing. L.D. Nesterman Takapuna House, Takapuna Street, Wellington 8 Telephone: [phone] Telex: Newbon NZ 28131 Fox: 806358 Mr. M. Tanner 29 May 20— N.Z. Business Machines Pty. 100 South Street Wellington   Dear Mr. Tanner,   In accordance with your instructions of 3 May our agents, Eastland Bank, London, accepted a draft for £23,100 drawn by Delta Computers Ltd. on presentation of shipping documents for a consignment sent to you on 24 May. We have debited your account with the amount plus our charges of $280 NZ. The documents are now with us and will be handed to you when you call. Yours sincerely,   I. Close Manager

From the importer to the exporter:

This letter, from the buyer (importer) in London to the seller (exporter) in Hong Kong, is the first step in our second example of a documentary credit transaction. Note that international Crafts ask for a certificate of origin, which they need since they intend to re­export the dinghies to France, which is an EEC country. Note also that they will use their bank's agents to verify the quality of the boats.

International Crafts Ltd.   Thameside, Walworth, London SE3 2EL Chairman: B. Valour   Telephone: [phone].081834 2710 Cable: INTERCRA Telex: 315620 Fax:[phone]   Lee Boat Builders Ltd. 9 Aprils 20__ Dock 23 Mainway HONG KONG   Dear Sirs,   We spoke to your representative, Mr. Chai, at the Earls Court Boat Show in London last week, and he showed us a number of dinghies which you produce, and informed us of your terms and conditions. We were impressed with the craft, and have decided to place a trial order for ten of them, your Cat. No. NR17. The enclosed order, No. 90103, is for delivery as soon as possible as the summer season is only a few weeks away. As Mr. Chai assured us that you could meet any order from stock, we have instructed our bank, Northern City Ltd., to open a confirmed irrevocable letter of credit for £7,300 in your favour, and valid until 1 June 19—. Our bank informs us that the credit will be confirmed by their agents, Cooper & Deal Merchant Bank, Pekin Road, Hong Kong, once you have contacted them, and they will also supply us with a certificate of quality once you have informed them that the order has been made up and they have checked it. You may draw on the agents for the full amount of the invoice at 60 days,andyour draft should be presented with the following documents: Six copies of the bill of lading. Five copies of the commercial invoice, c.i.f.London Insurance certificate for £7,140 (A.R.) Certificate of origin Certificate of quality The credit will cover the invoice, discounting, and any other bank charges. Please cable us confirming that the order has been accepted and the craftcanbe delivered within the next six weeks. Yours faithfully,   B. Valour International Crafts Ltd.   Enc. Order No. 90103

From the exporter to the importer:

Northern City Ltd., who are International Crafts' bankers, have now notified their agents in Hong Kong, Cooper & Deal, who have in turn advised Lee Boat Builders that the credit is available -Meanwhile Lee have cabled International Crafts confirming that they have accepted the order, and can deliver within six weeks. They follow this by sending this letter, advising shipment.

Lee Boat Builders Ltd. Dock 23, Mainway, Hong Kong Telephone: 385162 Telex: 349512 Fax: 662553 Cable: LEBATS International Crafts Ltd., 6 May 20— Thameside, Walworth, London SE3 2EL UNITED KINGDOM Dear Mr Valour, Order No. 90103 We are pleased to inform you that the above order has been loaded on to the SS Orient which sails tomorrow and is due in Tilbury (London) on 3 June. The dinghies and their equipment have been packed in polystyrene boxes in ten separate wooden crates marked 1-10, and bearing our brand A. The shipping documents (see list attached) have been handed to Cooper & Deal, Hong Kong, with our draft for £7,293.50 at 60 d/s. This covers all, charges and discounting. Cooper & Deal will forward the documents to Northern City Bank Ltd. who will advise you within the next few weeks. We are sure you will be extremely pleased with the consignment. We noticed that you require a certificate of origin, and have supplied one. However, we wondered if this was for re-exporting purposes. We should point out that your customers will have the same guarantee as yourself only if the boats are not modified in any way, as this will be outside the terms of the guarantee. Thank you for your order, and we hope you will contact us again in the future. Meanwhile, please confirm delivery, when you receive the consignment. Yours sincerely,   J.Lee Director

Questions:

1. When will the consignment arrive in London?

2. How have the dinghies been packed?

3. What documents were requiredbyInternational Crafts Ltd.?

4. What does '60 d/s' mean?

5. Who are Cooper & Deal, and what role do they play in the transaction?

6. What will the Northern City Bank advise International Crafts?

7. What restrictions do Lee Boat Builders put on their guarantee?

8. What must International Crafts do once they have received the consignment?

9. Which words in the letter correspond to the following: should arrive; small boats; boxes; pays for; send; warranty?

Points to remember:

1. Merchant banks and commercial banks in the UK offer similar services, but commercial banks encourage private account holders to use their facilities, as well as commercial concerns.

2. Commercial bank facilities include current accounts, deposit accounts, credit cards, standing orders, loans, and overdrafts.

3. The two main methods used in settling overseas accounts - bills of exchange and documentary credits-involve banks at home and abroad.

4. Bills of exchange can be at sight, i.e. payable on presentation, or after sight, payable at a stipulated date in the future. The exporter can send the bill to the importer direct, or to his bank with the documents and will obtain either payment on presentation, or acceptance against the bill. The advantage of a bill is that the exporter can get money immediately if the bill is discounted, and the importer can obtain credit if the bill is not a sight draft. The disadvantage is that the bill can be cancelled, or not paid on the due date.

5. A confirmed irrevocable documentary credit cannot be cancelled (unlike a revocable credit), and the importer's bank and its agent can guarantee payment. The importer is protected by the bank checking documents and can get a certificate of quality to ensure that the goods are up to standard. The exporter is assured of payment, and, with discounting facilities, does not have to wait for his -money if the bank agrees that he can draw against the credit.

Words to remember:

a commercial bank a merchant bank to open an account a current/deposit/savings/budget account a specimen signature a balance a transaction Giro system a cheque/Eurocheque/traveller's cheque a cheque card cash card cash dispenser a credit card to honour a cheque to cancel a cheque. to stop a cheque a paying-in/withdrawal/transfer slip notice of withdrawal a counterfoil a cashier negotiable securities a guarantor a loan an overdraft to overdraw overdraft facilities to call in an overdraft interest minimum lending rate (MLR) inflation

bank charges a standing order a direct debit overseas customer credit status confirming houses new issue/bullion/Euro-bond market shipping/insurance/foreign exchange market a bill ofexchange a drawer a drawee a sight draft/bill days after sight (d/s) documents against payment (D/P) documents against acceptance (D/A) a foreign bill an inland bill a clean bill to discount a bill to endorse a bill a dishonoured bill to protest a bill a letter of credit (L/C) a revocable/irrevocableletter of credit an importer an exporter an agent confirmed credit commission confirming bank

UNIT IV

Text A

Wholesale banks

The wholesale banks represent a diverse group of institutions within the UK financial system. They comprise three broad groups:

- British merchant bank;

- Other British banks;

- Overseas banks, which in turn are divided into American, Japanese and “other overseas banks”.

British merchant banks

The group of wholesale banks called the British merchant banks comprises around 40 institutions, with assets totalling £ 44.8bn in April 2000. Histori­cally, a major element of their business lay in the 'acceptance' of bills of exchange. This involves the bank in guaranteeing payment of the bill upon maturity to whoever is then holding the bill. The bank receives a fee for fulfilling this underwriting role. and hence acceptances are an early example of a bank providing non-intermediary services. Such acceptances feature on the balance sheets of the accepting bank only as a footnote - contingent liabilities offset by contingent (possible) claims against the drawers if the bills. Once a bill is accepted by a reputable bank it becomes much more market­able, and as a consequence the merchant banks facilitate the use of bills as a significant source of short-term corporate finance.

The risk involved in accepting bills of exchange is that the debtor may default when the bill matures. As a consequence, the key to running a profitable acceptance activity was being able to evaluate accurately the default risk associated with bills, and to do this the merchant banks had to acquire con­siderable information and expertise. Subsequently, they found they could use tills information and expertise in other areas, and as a result the British mer­chant banks have progressively diversified away from acceptances as the main element of their business. The majority now offer a wide range of banking services to corporate customers so that in addition to taking in deposits and making loans on a wholesale basis and the acceptance activity, the merchant banks as a group now offer:

- Management and underwriting of capital issues by companies:

- Management consultancy services, especially with regard to financial aspects;

- Advice on mergers and takeovers:

- Fund management services for pension funds, insurance companies, unit and investment trusts;

- Trading in foreign exchange markets:

- Trading in the bullion (gold and silver) markets;

- Trading in the eurocurrency markets:

- Trading in the derivatives markets.

Like the retail banks, the British merchant banks have also suffered from increased competition within their spheres of activity. Many have perceived themselves to be too small to withstand this competition, especially from in­stitutions abroad, as their activities become increasingly international in character. In addition, the ability to participate in the capital markets has become increasingly attractive to the retail banks. This has meant that many of the merchant banks have become part of larger banking groups, either UK-based or overseas. For other merchant banks the consequence has been a rethinking of their strategy and the basis of future competition, which has led to some of the smaller banks competing on the basis of expertise within specialist market niches. The larger ones are tending to be known as invest­ment banks, derived from their trading in investments.

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