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EXAMINATION OF DOCUMENTS: METATRADE LTD
INSTRUCTIONS:
Answer all questions in Section’s A & B
Section A carries 60 marks
Section B caries 40 Marks
Time Allowed: 1 Hour. Clock starts reading immediately you access the portal.
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SECTION A
Your bank has recently established a new division offering trade facilities to a number of African commodity trading companies. You are an Relationship Manager within this division and one of your customers is Metatrade Ltd, a Kenyan based bulk metals trader. Two months ago, you agreed to add confirmation to a letter of credit issued by Maxima Bank in Zambia on behalf of Zambia Commodity Trading Inc in favour of Metatrade Ltd for USD3 million covering 1000 metric tons (MT) of aluminum ingots. Some three weeks ago, documents were presented at your counters for the full value of the letter of credit and proceeds were credited to Metatrade’s USD account with yourselves. Documents were forwarded by courier to Maxima Bank, Zambia for payments.
Required
State whether you agree or disagree with each of these discrepancies, providing your reason in the context of UCP600. (32 Marks)
Note:
Your assessment of the validity of the discrepancies should be derived purely from the articles contained within UCP600 (specific reference to article numbers is not required). You may assume there are no special terms/conditions in the letter of credit and that the descriptions of the discrepancies are factually correct.
This morning you have received a telex from Maxima Bank notifying you of their refusal of documents based on the following discrepancies:
1. Exporter is in breach of their contract of sale with the buyer.
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2. Packing list and bill of lading show differing shipping marks.
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3. Invoice describes goods as aluminum ingots as per letter of credit goods description but, certificates of origin describe the goods only as aluminum.
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4. Insurance certificate is dated the same as the bill of lading on board date, instead of before.
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5. Letter of credit calls for a certificate of inspection issued by a well-known inspection company; the certificate presented is issued by the shipping agent identified on the bill of lading.
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6. Letter of credit calls for certificate of weight issued by a competent authority; the certificate presented is issued by the letter of credit beneficiary.
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7. Letter of credit prohibits transshipment whereas bill of lading states that the carrier reserves the right to transship.
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8. Letter of credit contains no clauses relating to quantity tolerance but documents evidence 1035MT shipped.
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In the light of the above, explain the implications for your bank and Metatrade Ltd and suggest the action your bank may wish to take. (18 Marks)
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SECTION B
General Assessment Questions
1. What type of bill of lading would you expect a Kenyan Exporter to produce as proof of fulfillment of a contract with the term, ‘DDP buyer’s premises in Durban’?
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2. A Kenyan importer buys on FOB Dar- es-Salaam terms. What additional costs will he incur over and above the basic FOB price of the goods?
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3. Why will the granting of documentary credit restrict an applicant’s total borrowing facilities?
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4. A bank has issued a documentary credit which calls for a complete set of clean, shipped on board, bills of lading, blank endorsed. The credit call for sight drafts. On presentation, the documents are in order, but the applicant is insolvent, briefly explain what the issuing bank will do.
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5. The applicant is completing an application from a transaction with CFR Incoterms. Should he call for an insurance document?
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6. What is meant by cash cover in correction with an applicant’s contingent liability to the issuing bank?
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7. A documentary credit calls for air waybills that name the importer as consignee. Will the bank be able to look upon the goods as security for the contingent liability of the customers?
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8. Name one type or organization which could issue a third-party inspection certificate. In which country, the exporter’s or importers, is the organization situated?
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9. Documents are presented to the issuing bank under the terms of a documentary credit. What is the first act of the issuing bank if it sees a discrepancy in the documents
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10. What particular information would an issuing bank request if it took a status enquiry on the beneficiary of a documentary credit?
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Scenario for questions 11 -18:
Your customer, Mr. Midman, has arranged for a shipment of widgets from Brazil to Australia, but the Brazilian seller requires a documentary credit in his favour. You are unwilling to become involved in hazardous liabilities on behalf of Mr. Midman.
11. In what way can this deal be completed and a documentary credit arranged in favour of the Brazilian?
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12. Who are the applicant(s)/beneficiaries under credit(s)?
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13. The transaction consists of 1,000 tons of USD 5 per ton brought from Brazil, and sold to the Australian at USD 5.50. What amounts are advised to the various banks concerned? Assume for the purposes of this question that the credit specifically excludes any ‘5% tolerance’ regarding amounts.
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14. After the credit(s) have been issued and advised, who will actually present the documents?
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15. What changes will our bank make on receipt of the documents?
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16. If no forward contract has been arranged, at what rate will the proceeds be converted when they are credited to Midman’s KES account? (Specify buying or selling.)
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17. For how many dollars would the forward contract be arranged if our customer decided to cover forward?
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18. What happens if there is a discrepancy in the documents presented by the second beneficiary?
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19. Name a facility that can provide pre-shipment fiancé to the exporter in connection with documentary credits.
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20. A Kenyan exporter manufactures steel pipes and he has just obtained a sale abroad on confirmed irrevocable documentary credit terms. The credit has been issued, confirmed and advised to the exporter. The exporter needs to obtain supplies of steel locally and requires credit.
Explain how the exporter could use the documentary credit to help persuade his local steel supplier that payment for the steel would be forthcoming?
(40 Marks)
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