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IS480 Team wiki: 2015T1 A3xy ProjectOverview

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PROJECT OVERVIEW

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Project Description

The purpose of the project is to develop a Trade Finance portal and integrate it into the existing SMU tBank architecture. This application will be a self-service channel for “corporate customers” (students) to implement a number of financial instruments related to international trade, such as; Letter of Credit, Bill of Exchange, Bill of Lading, Bank Guarantee, Documentary Collection, Open Account, Export Factoring. Another deliverable will be an end-to-end trade simulator that can be used in the classroom to illustrate the movement of goods and trade documents across the relevant parties, eg; Importer, Exporter, Freight Forwarder, Issuing Bank, Advising Bank.

The proposed web application, SMU tBank Trade Finance will consist of the following modules:

Importer
LC Application
LC Amendment
Document Acceptance
Import Notifications
Request Shipping Guarantee
Request Trust Receipt
LC Status
Payment


Exporter
Accept LC
Accept LC Amendment
Document Presentation
Import Notifications
Request Banker's Guarantee
Request Bill Discounting
LC Status
Payment


Business Scenario

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  1. Sally, in Singapore, wants to buy widgets from George, in China
  2. Sally does not want to pay up front, and George does not want to build the widgets until he’s confident that he’ll get paid
  3. Sally and George agree on price, quantity, shipment date, and other terms
  4. Sally asks her bank for a letter of credit, and provides details about her agreement with George to the bank
  5. Sally's bank forwards the letter to a bank in China (we’ll call that bank George’s bank)
  6. George’s bank provides the letter of credit to George, who reviews it to make sure he can meet the requirements
  7. George produces the widgets, and ships them to Sally
  8. George provides documents to his bank to prove that he has made shipment
  9. George's bank reviews the documents to make sure they meet the requirements in the letter of credit, and forwards the documents to Sally’s bank (at this point, George might get paid, or he might have to wait)
  10. Sally’s bank reviews the documents to make sure they meet the requirements, and if they do, Sally’s bank sends payment to George’s bank
  11. Sally’s bank provides the documents to sally, including documents she’ll need to claim the shipment when it arrives in Singapore
  12. George’s bank pays George


Source: Irrevocable Letter of Credit

Terms and Definitions

Importer (applicant)
the party who buys goods from a foreign country for future sale or trade, and who is liable for the payment.

Exporter (beneficiary)
the party who sells its goods to an importer in another country for sale, exchange,etc.

Letter of Credit
a letter issued by a bank to another bank in a different country to serve as a guarantee for payments made to a specified person under specified conditions.

Issuing Bank
buyer’s or importer's bank which establishes (opens) a letter of credit (L/C) in favor of a beneficiary (seller or exporter), forwards it to an advising bank (seller’s or exporter’s bank) for delivery to the beneficiary, and commits itself to honor demand drafts drawn by the beneficiary against the amount specified in the L/C.

Advising Bank
seller’s or exporter’s that receives a letter of credit (L/C) from the issuing bank for authenticating it and informing ('advising') the exporter (the L/C's beneficiary) that a L/C has been opened by the importer in the exporter's favor.

Bill of Lading
a legal document between an exporter of a good and a transporter or carrier as a contract of carriage of goods and details a shipment of merchandise and gives title of that shipment to a specified party

Bill of Exchange
a written order to a person requiring them to make a specified payment to the signatory or to a named payee; a promissory note.

Banker’s Guarantee
a guarantee from the advising bank to the exporter ensuring that if the importer fails to settle a debt, the bank will cover it

Shipping Guarantee
a written guarantee, issued by the bank which will bear joint liability, and is presented by the importer to the carrier for picking up the goods in the case of arrival of cargo prior to the shipping documents (bill of lading)

Trust Receipt
a type of short-term loan to provide the importer with financing to settle goods imported under Letter of Credit where title of goods is held by the bank (e.g. taken when importer can’t pay back before reselling the goods)

Bill Discounting
cashing or trading a bill of exchange at less than its par value and before its maturity date (When a buyer buys goods from the seller, the payment is usually made through letter of credit. The credit period may vary from 30 days to 120 days. Depending upon the creditworthiness of the buyer, the advising bank discounts the amount that needs to be paid at the end of credit period.)