Concept of research topic Yertayeva Assylaiym

Literature review

Feel yourself as a professor!

From all the subjects that I had during three years of my Bachelor studies are subjects given by professor
Cseko Katalin, in due of her lectures, which were given in the proficient way and on the advanced level of
English, I have gained considerable insights on the important terms of International Trade financing and its
instruments. On her classes, I was interested so I started to deepen my knowledge about the methods of
payment and trade crediting, which emerged because of increasing amount of multinational companies in the
current economy. I truly believe that this field interests me a lot and this was the main perquisite of my choice
of the dissertation topic. Since I am a Stipendium Hungaricum student, I saw the potential of investigating the
issue of trade financing in Kazakhstan, particularly, how does it work, is it popular enough and what is the
stage of development.

Reasons behind the selection of the topic (relevance, significance, practical advantages)
Research objectives in the form of questions
Hypothesis (if any)

History.
Credit risk in 10th century commerce.
Schmitthoff: The law and practice of international trade.

Bill of exchange.
The clause dealing with payment of purchase price embodies:
1) Time;
2) Mode;
3) Place;
4) Currency of payment.
Mercantile custom has developed methods of payment, which attempt to reconcile the conflicting economic
interests involved in export transactions. To achieve a reconciliation of these conflicting interests, the
interposition of a bank, or of banks, is necessary.
Collection arrangement and payment under letter of credit described.
Collection arrangement - the exchange of the documents of title representing the goods and the payment of
the price is normally effected at the place at which the buyer carries on business. The bank receives its
instructions from the seller.
Payment under letter of credit the instructions emanate from buyer. The exchange of documents and the
price is normally effected at the sellers place of business.
Documentary bill of exchange B/E, to which the bill of lading is attached.
Methods of payment, which do not involve the interposition of a bank - deals with a B/E.

Payment on open account.

Concept of research topic Yertayeva Assylaiym
Payment in advance cash with order
A payment term whereby the buyer remits the money at the time the order is placed. Under this term, the
buyer is actually extending credit to the seller. Also called payment in advance.
Sight payment buyer has to remit the purchase price when presented with the documents of title to the
goods sold. Usually between parent and offspring companies.
If the exporter is not familiar with financial status of the buyer => Cash against documents/Cash on
delivery (COD) is a type of transaction in which the recipient makes payment for a good at the time of
delivery. If the purchaser does not make payment when the good is delivered, then the good is returned to the
seller. Usage: Ex works, transportation of goods by land under the CMR.

Payment by bill of exchange.

The exporter obtains a negotiable instrument which he can turn into cash by negotiation at once, and the
buyer is allowed a definite period of credit for settlement unless the bill is payable at sight.

Nature of the B/E.

According to the Bill of Exchange Act 1882 Bill of Exchange is:
A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the
person giving it, requiring the person to whom it is addressed to pay, on demand or at a fixed or determinable
future time, a sum certain in money to or to the order of a specified person or to bearer.
Parties of bill of exchange: the drawer, the drawee and the payee.
Eun Sup Lee: Management of International Trade
The parties concerned to the draft as follows:
1. Drawer party that issues and signs the drafts.
2. Drawee
3. Payee
4. Acceptor
Options: drawer=payee, drawee=payee, drawer=drawee=>P/N.
The characteristics of a bill of exchange:
a) Every obligation arising under the bill must be expressed in writing on the bill and signed by the
party liable.
b) The obligation stipulated in the bill can be transferred easily by negotiation of the bill. The
negotiation is done:
By mere delivery of the bill=> Bill to bearer
By mere delivery + endorsement=> Bill to order
c) Performance of the obligations stipulated in the bill can only be claimed by a person holding the
document- holder, who is in possession of the bill.
d) The person to whom a bill is negotiated may acquire a better right under it than his predecessors
possess.
Holder vs holder in due course.
Concept of research topic Yertayeva Assylaiym
Holder in due course has elevated rights and privileges comparing with pure holders, since he fulfilled some
requirements to get this status, which is almost equal to status of the drawer (seller) himself.
To qualify HDC must:

Take the instrument for value;

In good faith (without the intent to defraud anyone).
Without notice that there is a valid defense to enforcement of the instrument.
Holder in due course doesnt have to prove his rights if attacked (attacking does prove), meanwhile mere
holder has to protect his rights if attacked.
Liability level in B/E.
Bill of exchange contains number of obligations. Three original parties are liable to honor the bill: the
drawer, the drawee and payee.

Negative the liability as drawer/ endorser=> add without recourse

Negative the liability as drawer, endorser, or acceptor=> add words indicating he signs for/on behalf
of a principal or as a representative.
Adding descriptive commission agent/company director=> not exemption from personal liability
Primary liability rests upon the drawee. The drawer and endorsers are only liable on course (B/E
with recourse).
Dishonored bills of exchange:
a) in case of sight bill: not paid on presentation.
b) in case of time bill: not accepted by the drawee when presented to him for acceptance or if not paid by him
on maturity date
Parties who can accept payment on honoring and present bill of exchange: holder or by some person
authorized to receive payment on his behalf. Who can pay? The person designated by the bill as payer/ some
person authorized to pay or refuse payment on his behalf if with the exercise of reasonable diligence.
Referee in case of need: person to whom the holder may resort if the bill is dishonored by the non-
acceptance or non-payment usually indicated by the drawer or any endorser. The bill must be protested or
noted before it can be presented to the referee.
The time of payment

Sight bill (on demand/ at sight/ on presentation Time bill (in banking: term
bill/usance bill) bill drawn for a period customary in a part trade
Ninety days after sight
Place of payment and of sue for payment (Example?)

Foreign bills => additional, since the book looks from the perspective of Bill of Exchange Act 1882
The UN Convention on International Bills of Exchange and International Promissory Notes
=reconciliation of two systems of b/e rules (Geneva system and Anglo-American system).
The claused bill
Concept of research topic Yertayeva Assylaiym
The draft customary in the export trade contains several clauses: clauses providing for payment at a specific
rate of exchange (due to the unforeseen fluctuations in the rate of exchange the financial obligations of
parties have to be defined with certainty) or adding to the sum payable interest or specified charges
(bankers charges or foreign stamp duties).
Exchange clauses:

Exchange as per endorsement

Charges and interest related clauses:

Payable with interest at x percent per annum from date hereof to due date of arrival of remittance in
London
Payable without loss in exchange
Draft expressed in foreign currency.

The documentary bill

Purpose: to ensure that the buyer shall not receive the bill of lading and with it, the right of disposal of the
goods, unless he has first accepted or paid the attached bill of exchange according to the arrangement
between the parties.
Occasionally, the tenor of the documentary bill contains a clear reference to the export transaction to which
the bill relates = NOT VOID

Avalised bills
An aval is the signature on a bill of exchange by a person who wants to back it and to guarantee
its payment to the holder in due course. Although, avaliser incurs the liabilities of an endorser to
HDC, he is not in the position of an endorser; instead, he is a guarantor of the liabilities of an
immediate party to the bill.
Only a time bill can be avalised. Aval, by its nature, is the added liability of another person.
As a rule, a bill is avalised only after it has been accepted by the drawee. Bills are avalised by banks,
but anybody whose signature carries weight may avalise the bill. The aval of the bank of good
standing and reputation is one of the forms of security which a finance house (Exim bank) requires
when providing non-recourse finance to an exporter by way of a forfaiting arrangement or a similar
transaction.
Charges: high
Avals used in connection with the transport docs
collection arrangement: release of the docs and the procurement of the aval (conditions and
time)
Irrevocable and confirmed L/C.
Bills drawn in the set
Where a bill is drawn in a set, each part of the set being numbered, and containing the reference to the
other parts. The whole of the parts constitute 1 bill.

Negotiation of bills by exporter

Concept of research topic Yertayeva Assylaiym
Fine trade bill- a bill which bears a banks acceptance. A bill of exchange which has little risk of not being
paid, and is therefore sold at a lower discount=> in rembours documentary credit???

Financing based upon bill of exchange.

B/E on forfeiting deal.
B/E risks credit risk and exposure in securitization
Credit management handbook
Discounting and avalization
For Kazakh Bank:
Discounting
Endorsement
What guarantees do they use when they pay B/E in advance?
Risks of bill of exchange

1) What kind of operations Kazkommertsbank carries out with bills of exchange?

2) Discounting. What are the conditions and terms of this operation?
3) Endorsement. How the bank endorses the bill of exchange?
4) What guarantees does Kazkommertsbank use when they pay B/E in advance?
5) What are the risks of bill of exchange from the banks point of view.
6) Customer Creditworthiness Evaluation before discounting.

3) How the bank endorses the bill of exchange?