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Amity Business School MBA Class of 2013, Semester 4 COMMERCIAL BANKING Module BHAVNA RANJAN
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UCP 600 guidelines

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In order to bring uniformity in matters pertaining to LCs, International Chambers of Commerce (ICC) established in 1919

and headquartered in Paris, has framed uniform rules and

procedures for issuance and handling of transactions under letters of credit. These rules and procedures are called Uniform Customs and Practices for Documentary Credits (UCPDC). The UCPDC was first brought out in 1933, and has been revised from

time to time with the last revision in 2007. The current update
of UCPDC is the publication No. 600 of ICC, which has been implemented with effect from 1.7.2007.

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IncoTerms Incoterms are the international set of rules published by the International Chambers of Commerce (ICC) for the

interpretation of trade terms. The ICC publication has been updated several times, with latest version being in 2011.

ii) Bank Guarantee

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A contract of guarantee can be defined as a contract to perform the promise, or discharge the liability of a third person in case of default. There are three parties in a guarantee: a) Principal debtor : the person who has to discharge the liability and for whose default the guarantee is given b) Principal creditor: the person to whom the guarantee is given for due fulfillment of contract c) Guarantor: the person who gives the guarantee (banker in Bank Guarantee)

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ii)Types of Bank Guarantee Bank provides guarantee facilities to its customers that can be divided into the following categories: a) Financial guarantee b) Performance guarantee c) Bid Bond

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Financial Guarantee These are guarantees provided by banks to discharge financial obligations of the customers, for example a customer having some financial obligation towards the electricity board and is asked by Electricity board to get a guarantee from his bank.

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Performance Guarantee These guarantees are issued by banks for due performance of a contract and do not involve a financial commitment but in case of default by the customer, the financial loss incurred by the principal creditor will have to be borne by the bank.

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Bid bond Guarantee Also known as Tender bond, the purpose of a tender bond is to prevent a company from submitting a tender, winning the contract and then declining to accept it. Tender bonds offer buyers security against dubious or unqualified bids.

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Deferred Payment Guarantee (DPG) Deferred Payment guarantee is a bank facility where the bank does not directly extend a loan to a unit for acquiring equipment. Instead, it extends a guarantee

to the equipment manufacturer on behalf of its

client that the finance extended by the manufacturer

would be repaid as per the terms agreed upon