Another line of classification is to specify the character of the instruments that will be accepted. A straight or simp/e credit is an advice to the beneficiary that the bank will honor his draft at sight, against documents specified. These credits are the usual ones and may be confirmed or unconfirmed. On payment of a straight credit the department charges the account of the foreign bank on the same date, plus its commission and other charges incurred.
An acceptance credit is an advice to the beneficiary that the bank will accept his time drafts on it, either clean or accompanied by the documents specified. Clean time drafts cannot legally be accepted unless the proceeds of the drafts are used to fi nance the importation and exportation of merchandise. Such credits may be confirmed or unconfirmed and differ from the straight credits in that they recite the tenor of the draft, with the words " to be accepted." When the bank accepts a draft under such credit its responsibility for payment at maturity is fixed.
A negotiation credit is an advice to the beneficiary that the bank will negotiate his draft on a foreign concern as instructed by the bank's correspondent, be it sight, 3o days, 6o days, or a longer period. When the draft is presented with documents attached, the bank buys it and pays the face amount less the following charges: the discount for the period of the draft, plus the time it takes the instrument to reach the drawee abroad and the time required for the collected amount to return to the bank; the charges for bill stamp, if any; and the bank's commission. The operation is simply the purchase of a bill of exchange with docu ments attached, but the bank has the added assurance that the bank abroad which authorized it to purchase the bill is satisfied that the drawee is solvent and responsible. Thus it occasionally happens that the bank will negotiate bills under this arrange ment which it might refuse to buy for its own account and rely only on the drawee's honoring it. Under this form of credit the bank is instructed by its correspondent as to the documents to require from the beneficiary and is given particulars concerning the merchandise to be shipped. Such an arrangement best serves the foreign buyer and safeguards the interest of the bank and its correspondent.
A reimbursement credit is a straight credit opened through the bank by banks or individuals who may have no account with the bank but whose standing and responsibility warrant the bank in according them credit recognition. After payment has been made according to instructions and the terms of the credit, the bank draws its own drafts against such banks or individuals for reimbursement of its outlay.
A guaranty credit is an advice by letter, but without responsi bility on the bank's part, to an exporter that his draft up to a certain amount will be duly honored by the bank's foreign corre spondent on arrival of the documents at their destination. If the exporter desires it, the bank will take the documents without making payment and forward them to the foreign correspond ent, who will later instruct the bank by cable or letter to pay the beneficiary the amount involved. In some instances re mittance is made directly between the parties or through intermediaries. In other instances, if the beneficiary of a guar anty credit wishes the bank to purchase his 'drafts, the bank will do so at very favorable rates. In handling them the bank assumes slight risk, as payment is guaranteed by the foreign bank.
A revolving credit is a credit established for a certain amount which as drawn against in stipulated or unstipulated sums is automatically replenished by the fulfilment of certain conditions, such as the payment of outstanding drafts, and against which further drafts may then be drawn. There are several forms of revolving credit: 1. The most common form is that established for a maximum amount against which drafts may be drawn for various sums and at various times against documents indicating shipments. When these drafts are paid, their amount is restored to the credit for further use; should the entire credit become exhausted, further drafts must await reimbursement of the original amount.
2. A second form enables the beneficiary to draw a certain sum at one time and in one draft; when that draft has matured and is paid, a similar sum may be drawn in a similar way.