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Re: [infoguys-list] I have a question.....SLC vs LC

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  • oracleintl@aol.com
    In a message dated 1/13/2006 9:52:39 A.M. Eastern Standard Time, rmriinc@yahoo.com writes: Is there a difference between a Standby Letter of Credit and a
    Message 1 of 3 , Jan 13, 2006
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      In a message dated 1/13/2006 9:52:39 A.M. Eastern Standard Time,
      rmriinc@... writes:

      Is there a difference between a "Standby Letter of Credit" and
      a "Letter of Credit"? If so, would someone please be kind enough to
      explain it to me?





      The Standby Letter of Credit (SLC), and Letter of Credit (LC) are two very
      different instruments, although the both serve the same function, which is
      typically to facilitate international trade by providing security to trading
      partners.

      Suppose Joe in Malaysia wants to buy a million widgets, at $50 each, from
      Sam in Ontario, but neither know the other well enough to be trusting - and when
      a large trade deal is involved, nobody is trusting who stays in business
      very long.

      Joe isn't going to send Sam any money til he sees his widgets, and Sam isn't
      sending widget one halfway around the globe without the security of knowing
      he will be paid. Joe and Sam both know the Royal Bank of Canada (RBC), one
      of the world's largest international banks, which has something like half a
      trillion USD in assets.

      Joe might go to RBC and have a Letter of Credit issued with Sam as
      beneficiary in the amount of $50 M - either by credit, or by putting up the cash. Sam
      would typically have his financial institution contact RBC and verify the
      legitimacy of the instrument, and once it is verified proceed. The instrument
      is cashed once the deal is done - either by Joe agreeing, or by Sam proving
      performance over Joe's objection.

      In other words, the Letter of Credit is like a cashiers check with a
      condition attached. Once the terms of the contract are met, the Beneficiary cashes
      the check. Please note - as this is the basis of the distinction - the LC is
      always cashed by the Beneficiary when everything goes right, and can be
      cashed by the Beneficiary over the Buyer's objection if the Beneficiary proves
      they met the terms of the contract.

      The Standby Letter of Credit is very similar, except that when all goes
      well, it is not cashed. The buyer makes payment as per the terms of the contract
      - whatever those terms are. It serves as security for when something goes
      wrong. In that case, the Beneficiary must prove that the Buyer defaulted on
      payment, AND prove that he (Beneficiary) met the terms of the contract and
      didn't do anything wrong.

      Consequently, the SLC may not be tied to a specific deal, and it may not be
      drafted for the amount of any specific deal. For example, using the facts
      above, let's suppose that this is not intended to be a one time purchase.

      Joe might go to RBC and have an SLC issued in the amount of $100M even
      though the instant deal is only worth $50M. It serves as a bond assuring Sam that
      he can have faith that Joe is "good" for up to $100M. If Sam ships
      perfectly good widgets, and receives his initial 50% payment on delivery as agreed,
      but Joe defaults on the second payment due in 30 days, Sam moves to execute
      against the SLC for $25M.

      The reality is, these instruments make international trade possible because
      many businesses cannot float their own deals. What may happen is Sam agrees
      to ship a million widgets within 120 days of receipt of an instrument -
      either one, but in this case, let's say an SLC.

      Upon receipt, Sam will start making widgets - but he doesn't have the cash
      flow to buy the raw materials out-of-pocket. His bank accepts Joe's SLC as
      collateral to issue an SLC to Mike who contracts to supply the raw materials.
      Mike sends the stuff to Sam so he can start making widgets knowing that if
      Sam doesn't pay, Sam's Bank will.

      Sam makes and ships a million widgets, knowing that RBC will pay him if Joe
      defaults, making it possible for him to pay Mike. If all goes well, Joe pays
      Sam and Sam pays Mike and the SLC's make it possible for all of them to keep
      doing deals.

      That's the true difference, but in my mind, the principle difference between
      the Standby Letter of Credit and a Letter of Credit is that scam artists
      love the term, Standby Letter of Credit, and they often use the concept in
      conjunction with some sort of fraud - not that there is anything inherently
      sinister about the SLC, it's just that the term seems to sound good.

      Bill E. Branscum, Investigator
      Oracle International
      _http://www.fraudsandscams.com/_ (http://www.fraudsandscams.com/)
      _http://www.oracleinternational.com/_ (http://www.oracleinternational.com/)
      PO Box 10728
      Naples, FL 34101
      (239) 304-1639
      (239) 304-1640 Fax







      [Non-text portions of this message have been removed]
    • Vicki Siedow
      Dang! And to think he did all that with two fingers! ;) Vicki Siedow Siedow & Associates Investigations & Legal Support Services 2629 Foothill Blvd. #262 La
      Message 2 of 3 , Jan 13, 2006
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        Dang! And to think he did all that with two fingers! ;)

        Vicki Siedow
        Siedow & Associates Investigations
        & Legal Support Services
        2629 Foothill Blvd. #262
        La Crescenta, CA 91214
        Los Angeles County
        CA PI License # 22852
        800.448.6431 toll free
        818.242.0130 local
        818.688.3295 fax
        http://Siedow.LawAndOrder.com
        Siedow@...
        Member NCISS, IWWA

        Need economical legal help?
        Concerned about Identity Theft?
        If you need legal advice, I know some really good attorneys.
        Check the links on my site, or contact me directly.

        Stop the Sexual Slavery of Children
        Project Child Save
        Drawing the line to keep our children safe
        http://www.projectchildsave.org/
        8-PROTECT-911


        -----Original Message-----
        From: infoguys-list@yahoogroups.com [mailto:infoguys-list@yahoogroups.com]
        On Behalf Of oracleintl@...
        Sent: Friday, January 13, 2006 10:39 AM
        To: infoguys-list@yahoogroups.com
        Subject: Re: [infoguys-list] I have a question.....SLC vs LC


        In a message dated 1/13/2006 9:52:39 A.M. Eastern Standard Time,
        rmriinc@... writes:

        Is there a difference between a "Standby Letter of Credit" and
        a "Letter of Credit"? If so, would someone please be kind enough to
        explain it to me?





        The Standby Letter of Credit (SLC), and Letter of Credit (LC) are two very
        different instruments, although the both serve the same function, which is
        typically to facilitate international trade by providing security to trading

        partners.

        Suppose Joe in Malaysia wants to buy a million widgets, at $50 each, from
        Sam in Ontario, but neither know the other well enough to be trusting - and
        when
        a large trade deal is involved, nobody is trusting who stays in business
        very long.

        Joe isn't going to send Sam any money til he sees his widgets, and Sam
        isn't
        sending widget one halfway around the globe without the security of knowing

        he will be paid. Joe and Sam both know the Royal Bank of Canada (RBC), one

        of the world's largest international banks, which has something like half a

        trillion USD in assets.

        Joe might go to RBC and have a Letter of Credit issued with Sam as
        beneficiary in the amount of $50 M - either by credit, or by putting up the
        cash. Sam
        would typically have his financial institution contact RBC and verify the
        legitimacy of the instrument, and once it is verified proceed. The
        instrument
        is cashed once the deal is done - either by Joe agreeing, or by Sam proving

        performance over Joe's objection.

        In other words, the Letter of Credit is like a cashiers check with a
        condition attached. Once the terms of the contract are met, the
        Beneficiary cashes
        the check. Please note - as this is the basis of the distinction - the LC
        is
        always cashed by the Beneficiary when everything goes right, and can be
        cashed by the Beneficiary over the Buyer's objection if the Beneficiary
        proves
        they met the terms of the contract.

        The Standby Letter of Credit is very similar, except that when all goes
        well, it is not cashed. The buyer makes payment as per the terms of the
        contract
        - whatever those terms are. It serves as security for when something goes
        wrong. In that case, the Beneficiary must prove that the Buyer defaulted
        on
        payment, AND prove that he (Beneficiary) met the terms of the contract and
        didn't do anything wrong.

        Consequently, the SLC may not be tied to a specific deal, and it may not be

        drafted for the amount of any specific deal. For example, using the facts
        above, let's suppose that this is not intended to be a one time purchase.

        Joe might go to RBC and have an SLC issued in the amount of $100M even
        though the instant deal is only worth $50M. It serves as a bond assuring
        Sam that
        he can have faith that Joe is "good" for up to $100M. If Sam ships
        perfectly good widgets, and receives his initial 50% payment on delivery as
        agreed,
        but Joe defaults on the second payment due in 30 days, Sam moves to execute

        against the SLC for $25M.

        The reality is, these instruments make international trade possible because

        many businesses cannot float their own deals. What may happen is Sam
        agrees
        to ship a million widgets within 120 days of receipt of an instrument -
        either one, but in this case, let's say an SLC.

        Upon receipt, Sam will start making widgets - but he doesn't have the cash
        flow to buy the raw materials out-of-pocket. His bank accepts Joe's SLC as

        collateral to issue an SLC to Mike who contracts to supply the raw
        materials.
        Mike sends the stuff to Sam so he can start making widgets knowing that if
        Sam doesn't pay, Sam's Bank will.

        Sam makes and ships a million widgets, knowing that RBC will pay him if Joe

        defaults, making it possible for him to pay Mike. If all goes well, Joe
        pays
        Sam and Sam pays Mike and the SLC's make it possible for all of them to
        keep
        doing deals.

        That's the true difference, but in my mind, the principle difference
        between
        the Standby Letter of Credit and a Letter of Credit is that scam artists
        love the term, Standby Letter of Credit, and they often use the concept in
        conjunction with some sort of fraud - not that there is anything inherently

        sinister about the SLC, it's just that the term seems to sound good.

        Bill E. Branscum, Investigator
        Oracle International
        _http://www.fraudsandscams.com/_ (http://www.fraudsandscams.com/)
        _http://www.oracleinternational.com/_ (http://www.oracleinternational.com/)
        PO Box 10728
        Naples, FL 34101
        (239) 304-1639
        (239) 304-1640 Fax







        [Non-text portions of this message have been removed]
      • oracleintl@aol.com
        In a message dated 1/13/2006 10:51:09 P.M. Eastern Standard Time, Siedow@LawAndOrder.com writes: Dang! And to think he did all that with two fingers! ;) One
        Message 3 of 3 , Jan 14, 2006
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          In a message dated 1/13/2006 10:51:09 P.M. Eastern Standard Time,
          Siedow@... writes:

          Dang! And to think he did all that with two fingers! ;)




          One day, I'll learn to type, but til then, I'll just bang away with two
          fingers.

          It's not the handicap that you'd think though. The limiting factor is the
          time it takes me to figure out what I am trying to say, and word it the way I
          want it. If I could type, I'd probably just blast out a lot of drivel I'd
          end up redacting and revising anyway.

          Vickster, you of all people must surely agree that "Faster" isn't
          necessarily better.

          LOL

          Bill



          [Non-text portions of this message have been removed]
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