PAYMENT AND TRADE FINANCE - A Case Study- corporate finance involving Essay

PAYMENT AND TRADE FINANCE - A Case Study- corporate finance involving law - Essay Example Saida tenders to Big Bank plc a pre-printed â€Å"shipped on-board† bill of lading with an issuance date of 31 March. There is also a notation referring to â€Å"10,002 tonnes Class A cement fully loaded on 1 April with 5% on deck†. Saida has also tendered a word-processed cover note referring to 10,000 tonnes Grade A cement marked â€Å"as original† but not signed, and an invoice for â€Å"approximately 10,000 tonnes high grade cement†. It is generally known in the industry that Class A means cement with a purity percentage of at least 98%†. A surveyor’s certificate is also tendered which states that the cement is slightly discoloured. Big Bank has reservations about the documents and pays Saida â€Å"under reserve† and â€Å"without prejudice†. Armita, Small Bank’s manager, refuses to reimburse Big Bank on the basis of non-compliance. She also suspects that the date entered by the shipmaster on the bill of lading is fals e. Armita also demands to see a certificate of origin because it is her bank’s policy not to deal with goods emanating from certain countries. Saida has also contracted to sell a consignment of sulphur to Turhan. The contract requires Saida to secure for Turhan’s benefit, a performance guarantee to the amount of ?30,000 issued by Nidhi Bank, a bank in London, England, guaranteeing Saida’s performance. That guarantee is expressed in the following terms: â€Å"We undertake to pay you on your assertion of Saida’s default or breach of Contract No 34/06 in writing being received at this office and bearing our reference Guarantee No 666/05A ... † Saida refuses to ship when she discovers Turhan has failed to open a letter of credit in her favour. Turhan’s bank has declined to issue the letter of credit because of liquidity problems. Turhan makes a demand under the guarantee on Nidhi Bank by making a statement asserting Saida’s failure to shi p but the demand refers to "Guarantee No 666/05". Discuss the rights and liabilities of the parties under English law. Ans# Trade credit is often used as a method of payment for both the domestic as well as the international trade business. However, it is mostly used in international trade considering the overall risks involved in the international trade transactions as well as the role of banks in facilitating the payments between the parties. As such the credit used for the purchase and financing of the inventories and current assets is called short term credit whereas the credit used for the financing of the capital expenditure is considered as the long term finance and both types of finances can be availed through international trade transactions.1 It is important to understand however, that the payments in the international trade finance are often governed through different laws. Most importantly laws and regulations set by the International Chamber of Commerce or ICC are consi dered as binding on the parties involved in the international trade transactions. The major set of rules governing the international trade transactions include UCP 600 which actually provide a detailed overview of the rights and obligations of each party to the transaction in the international trade besides governing the swift completion of such transactions. 2 Under UCP 600, not only the rights and obligations of the parties are outlined but the overall role and responsibilities of the banks and