Finance of International Trade
Aydin Bankasi. If they are in order, the bank will pay the invoice amount,
courier the documents to Mid Orient Bank, London and claim reimburse-
ment from Bank of America, New York. Mid Orient will check the
documents and if there are no discrepancies, release them to Universal
Confirmation of a documentary credit
The beneficiary of a documentary credit may be reluctant to accept the risk
that a bank in a foreign country will honour its engagement, particularly if
the credit covers his first transaction with that country. He will be aware
that in countries with economic problems and which are short of foreign
exchange, the central bank may bar or delay payment under an import
credit. The solution for the beneficiary is to ask for the credit to be
confirmed by a bank in his own country. By adding its confirmation, the
confirming bank undertakes that, provided the stipulated documents are
presented to it or to any other nominated bank and that the terms and
conditions of the credit have been complied with, it will:
1 Pay at sight for a sight credit.
2 Pay at maturity for a deferred payment credit.
3 Accept drafts under a usance credit and pay them at maturity.
4 Pay at maturity drafts drawn on another drawee bank but not paid by
that bank at maturity.
5 Accept and pay at maturity drafts drawn on it by the beneficiary of a
credit in replacement of drafts drawn on another bank but not accepted
6 Negotiate drafts drawn by the beneficiary.
All the above undertakings are executed by the confirming bank without
recourse to the beneficiary (Article 9b).
Article 9b(iiib) can be dangerous for a confirming bank as it obliges the
bank to honour drafts drawn on it by the beneficiary if drafts drawn on
another drawee bank stipulated in the credit are not accepted or accepted
and not paid at maturity by that bank. Alternatively it may be obliged to
honour drafts accepted by another drawee bank but not paid at maturity.