2. A credit card, on which all details pertaining to the new credit are given.
3. A Customer's card, which shows the total liabilities of each customer and is filed alphabetically.
4. A beneficiary's card, which shows the number of the credit and is filed alphabetically.
5. A guarantor's card, which shows the number and amount of guaranty and is filed alphabetically according to city.
The amount of each new credit is charged in a memorandum to a Commercial Credits Issued account, which constitutes the bank's contingent liability in this respect. Credits paid for in advance would not be charged to Commercial Credits Issued account, but would be credited to the correspondent's account oi to some such account as Sundries—Commercial Credits. If payment is made in advance no agreement is required with the customer.
According to the terms of the credit, insurance is effected either by the foreign shippers or by the client in America. If insurance is effected by the American client, the bank ascertains the name and address of the insurance company and advises it of the issuance of the credit, stating the number, the amount, the beneficiary, the party for whose account the credit is opened, and that the bank understands that shipments made under this credit are to be insured under a policy of the company; therefore the company is requested to take note of the bank's interest, as loss, if any, should be made payable to the bank.
A credit may be increased or its duration extended or certain of its conditions changed at the request of the client. In such cases the bank requires an additional guaranty.
The term of the letter of credit is fixed in the instrument in various ways. The naming of a specific expiration date or say ing that the credit is " available until" or " becomes void if not used on or before " a certain date, invites dispute whether the credit expires at the office of the negotiating or of the credit issuing bank. To provide that drafts drawn under the letter of credit must be " drawn prior to " a named date protects the issuer less than to require that they be " negotiated prior to" that date, for the beneficiary may postdate his drafts. The date of expiration may be set by stating the latest date at which: (I) drafts may be presented, (2) shipments may be completed and drafts drawn (or negotiated), or (3) bills of lading may be dated and drafts drawn. The most common method is to fix the latest
date for drawing drafts and completing shipments.
The two basic principles of a letter of credit are, first, author ization to draw drafts, and, second, a general promise to honor such drafts. The authority to draw is variously phrased, but all statements are practically equivalent to the simple words " we hereby authorize you to draw on " a named bank.
Forms of the Application and Letter The taker of the credit makes an application in somewhat the following form (Figure 4o): The agreement annexed to the dollar credit is almost the same in wording as that annexed to the sterling credit, except that the clause, " we hereby agree to its terms and bind ourselves to pay the amount of each acceptance under it to you, in cash, at least one day prior to the maturity of such acceptance, at any time you may request it," is substituted for the clause, "we here by agree to its terms and bind ourselves to furnish you, at any time you may request, but not later than 12 days before the ma turity of the acceptance under it, with first-class approved bankers' demand bills of exchange, for the same amount, payable in London and bearing our indorsement, or to pay the equivalent thereof in cash at the current rate of exchange for first-class bankers' bills." Handling of Documents Taking a sterling credit as an example, when the foreign ex porter has the goods ready for shipment he draws, say, a 4 months' sight draft for the amount of the shipment or part of it, ,according to the arrangement with the bank under the terms and conditions of the credit. The margin varies with the nature of the merchandise and other factors. The exporter then takes this draft with the documents to his banker and sells it at the pre vailing rates for 4 months' sight drafts on London. The bank negotiating the draft, or sometimes the exporter himself, will send one set of documents to the New York bank. The draft with the remaining documents and a statement that one set of documents has been sent direct to the New York bank is for warded to an agent in London, who presents the draft to the drawee London bank for acceptance. In accepting the draft the London bank detaches the documents and mails them to the New York bank, advising the amount of the draft and the date of maturity.