Foreign exchange;

              78 HASKINS & SELLS December
Foreign Exchange
Dollar Letters of Credit, Examination of Draft and Shipping Documents
IN previous articles the discussion of dol-lar
letters of credit and the specific
example of an exporter in Japan shipping
silk to an importer in New York have been
developed to the point where the merchan­dise
is on board the freight steamer bound
for New York. The draft with shipping
documents attached had been sold by the
shipper to his local bank in Yokohama.
The Yokohama bank had sent the draft
by first mail steamer to its New York cor­respondent,
who now presents it for ac­ceptance
to the New York bank which
issued the letter of credit.
According to custom in New York, one
day is allowed for the acceptance of time
drafts. So the draft is left for the foreign
department clerks to examine and accept
at their leisure, which is usually the even­ing
of the day the draft is presented.
The examination will begin by reading
the draft through, to see that it is regular
on its face. The draft will refer to the
letter of credit under which it is drawn by
number. This will enable the clerk to turn
to the proper account in the "Letter of
Credit Record" book, where a complete
resume of the terms and conditions of the
letter of credit are set forth. Here refer­ence
will be made to see that the draft is
drawn within the period provided for by
the letter of credit and according to the
dating of the bills of lading. Shippers
have been known, where they are late in
making shipment, to date their draft back
and thus mislead the accepting bank.
On the question of shipments made after
the period provided in the letter of credit,
it is interesting to note that a prominent
foreign exchange bank deliberately ac­cepted
a draft when shipment was made
one day late, and sued the New York im­porter,
claiming that there had been a sub­stantial
compliance with the agreement,
and that the importer was not injured by
the delay. This was done in order to pre­serve
the good name of the bank among
exporters abroad.
The draft will, of course, be examined
to see that it is drawn on the accepting
bank, and not some other bank with which
the importer also does business. The sig­nature
to the draft will be considered sat­isfactory
if it is official in form. The ac­cepting
bank has no way of verifying the
signatures of numerous foreign exporters,
but the draft is accompanied by a consular
invoice, which is evidence as to the identity
of the shippers. This completes the exam­ination
of the draft.
The accompanying documents will con­sist
at least of shipper's or commercial
invoice, consular invoice, insurance certifi­cates,
and two copies of bills of lading.
The commercial and consular invoices will
be examined together to see that the mer-