International

Payment
Group Assignment


This assignment is designed to provide students with opportunities to explore
realistic situations by interacting with other people in a managed way in order to
make decisions in handling the method of payment named “documentary credit” for
a hypothesized case of an export transaction.

You will form a group of 8 persons: two (2) persons will act as an exporter (seller);
two (2) persons will act as an importer (buyer); two (2) persons will act as a L/C
issuing bank (the importer’s bank); and two (2) persons will act as a L/C
advising/negotiating bank (the exporter’s bank).

General description of the hypothesized case:
The case involves an export transaction which will be paid by a L/C at sight. The group
will allocate tasks to participants to execute different roles as mentioned above and
produce out “required documents”, which form a set of payment documents to submit
to the instructor.

Your task and “product”:
1. The seller and buyer will negotiate a foreign trade transaction and agree to a
sales contract. The contract should include basic terms and conditions. It also
reflects the following features:
- Commodity: any commodity that Vietnam exports (for example: rice,
coffee, instant noodle, pepper, fruit, sea food…)
- The seller is a Vietnamese exporter
- The buyer is an importer from a foreign country (Singapore, USA,
Canada…)
- Commodity description: reflects the nature of goods
- Trade term: either FOB or CIF
- Payment term: L/C at sight
The “product” of this task is the “sales contract” which is dully signed by the
representative of the buyer and the seller
2. Based on the signed sales contract, the buyer compiles an application for
issuing a L/C and submit it to the buyer’s bank. This bank is the L/C issuing
bank. The application should reflect the terms and condition of the sales
contract. You may refer to the sets of payment documents for practicing under
the method of documentary credit as examples. The “product” of this task is
the “application for issuing a L/C” dully signed by the representative of the
buyer.
 3. Based on the application for issuing a L/C by the buyer/importer, the buyer’s
bank (L/C issuing bank) issues a L/C and sends it to the exporter (the
beneficiary) through the exporter’s bank (advising bank). The “product” of this
task is the issued “letter of credit” in the format of MT 700 used in
communicating among banks through SWIFT. It will contain all the relevant
fields with relevant information.
4. Based on the received L/C, the exporter’s bank (L/C advising bank) compiles
and sends an advice of letter of credit to the exporter/beneficiary, which is also
dully signed. The product of this task is the “advice of letter of credit”.
5. Assume that the exporter/beneficiary agrees with the terms and conditions
specified in the received letter of credit. The exporter performs the delivery
obligation. Afterwards, the exporter prepares a set of doccuments as required
by the L/C and submit this set of documents to the negotiating bank being the
advising bank. The product of this task is the “set of documents” required by
L/C.
6. The advising bank/negotiating bank should check the presented documents
and compiles a cover leter and sends this letter together with the presented
documents to issuing bank. In the letter, the advising bank states about the
status of the documents (whether it is a complying presentation or not) and
gives relevant instructions to the L/C issuing bank. The product of this task is
the “cover leter” sent by the advising bank.
7. Upon the receipt of the cover letter and documents forwarded by the L/C
advising bank, the L/C issuing bank shoud check the documents and make a
decision about whether the presentation is complying or not. Then, the L/C
issuing bank compiles a message sent through SWIFT to the
advising/negotiating bank, in which it states whether it honours or not. The
product of this task if the “message” sent by the L/C issuing bank.

The criteria for marking:
- The fullness of the “required products” (5 marks)
- Presentation: professional presentation, grammar, sentence structure, spelling
(2 marks)
- The “documents” required by the L/C: consistency, no discrepancies (3 marks)