On the date of maturity of a foreign currency acceptance, the bank's foreign correspondent charges its account with the accept ance, and this wipes out the liability. The department then prepares a double ticket, charging Acceptances of Foreign Banks under Commercial Credits, and crediting Customers' Liability : Acceptances of Foreign Banks under Commercial Credits. Like wise, on the maturity date of a dollar acceptance, it is paid by crediting the holder's account, if there is such an account at the bank, or by issuing a cashier's check and crediting Cashier's Check account. The department then puts through a double ticket, charging Acceptances of This Bank under Commercial Credits, Foreign, and crediting Customers' Liability: Acceptances of This Bank under Commercial Credits, Foreign, Import.
In case drafts are drawn for only a part of the credit, the un used balance still shows in the Commercial Credits Issued account and is not booked out until a reasonable time has elapsed after the fixed date when the credit expires. This delay is to allow documents to reach the bank which may have been negotiated prior to the expiration of the credit.
Drafts or payments under revolving credits are not credited to Commercial Credits Issued account until after the date of expiration of the credit, when the full amount of the credit is taken out.
If an importer prefers to anticipate payment of a draft ac cepted under a credit, interest is rebated to him, on the amount of the draft, from the date of payment until the New York ma turity date. If the acceptance is under sterling credit the depart ment credits its regular London account with the amount of the draft, and thereby reduces its stock of sterling exchange; but at the same time it credits Customers' Liability account and charges Acceptances of Foreign Banks under Commercial Credits. The London correspondent is asked to make entries in conformity with the department's tickets. Twelve days before maturity the department charges the Anticipated Payments of Acceptances under Commercial Letters of Credit and credits its special ac ceptance account with the London bank, and the London bank is asked to make conforming entries.
The Export Commercial Credit Department This department handles the issuance of commercial letters of credit used in the export business and the documents and drafts drawn under the credits. In its operations and functions it is very similar to the import commercial credit department de scribed above. Its organization also follows the same plan.
The making of payments against documents2. etc., constitutes a larger part of the operations of the export than of the import commerdal credit department. It is understood, of course, that in the description below only the more typical operations are treated.
Method of Handling Exportation Under Letters of Credit The methods of handling exports under letters of credit differ, depending upon the consignee country, the commodity, the terms of sale, and other factors. It will suffice to describe the pro cedure of financing exportations through dollar credits and acceptances.
The American exporter who has sold goods, say, to an Eng lish importer arranges through his local bank for such credit; accordingly the local bank requests its American bank corre spondent to open a credit in favor of the American exporter, available by his drafts drawn, say, for 6o days' sight on the Ameri can bank and accompanied by certain specified shipping documents.
The American exporter then prepares his shipment, secures the bill of lading and other required documents, draws a draft against the designated American bank, and presents the draft to the bank for acceptance, together with the needed documents. The bank accepts the draft and thus fixes the maturity date 6o days hence; it separates the documents from the acceptance, returns the acceptance to the exporter, and forwards the docu ments to the foreign bank or other party designated by that bank.
The foreign bank delivers the documents to the English im porter against such security as it deems fit. It is understood and agreed that the English bank will provide the American bank with funds to meet the acceptance before its maturity.
In the meantime the American exporter either discounts his dollar bank acceptance with his own bank or sells it in the open market at the prevailing rate of discount and thus realizes money for his goods.
The American exporter might have demanded from the Eng lish importer a sight credit instead of an acceptance credit. Under the sight credit he would receive cash against documents instead of the acceptance. What he would realize, of course, from the acceptance would depend upon the market, whereas the sum realized under the cash credit would be more definite and constant.