THE INDIA RUBBER WORLD 



337 



drafts against the letter of credit 12 days prior to their maturity 

 in London, together with the banker's agreed commission; that 

 they will insure the shipment for the banker's interest; that the 

 title of the merchandise, bills of lading and insurance policies 

 shall remain vested in the bank until all indebtedness is paid; 

 that the bank is permitted to sell the merchandise for debt or 

 fur failure to supply security demanded in case the value of 

 the merchandise falls; that the importer has the privilege of 

 paying prior to maturity, interest being allowed at 1 per cent, 

 under the Bank of England discount rate. The allowance of 

 interest varies, and is a matter of agreement between banker 

 and importer. 



The letter of credit shown in Fig. 3 is issued and handed to 

 the importer who in turn gives it to the representative of Wil- 



SPECIMC/V CREDIT 





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Trust Company 





Fig. 3. — Letter of Credit. 



Ham Smith & Co. of Singapore. Being a cable credit, the bank 

 issuing it cables the essential particulars to its Singapore cor- 

 respondent either directly or via London. The Singapore bank 

 then notifies William Smith & Co. of the issuance of the credit 

 and they are free to make drafts against it under the conditions 

 set forth in the credit. 



It might properly be noted here that the letter of credit costs 

 William Smith & Co. nothing at the time of issue, the bank 

 receiving as remuneration a percentage of the amount of the 

 draft actually drawn against the credit. John Jones & Co.' pay 

 this commission when they settle for the draft. t-. 



William Smith & Co. in the meantime are arranging .^prythe 

 shipment of rubber, which may be sent in one or two "regular 

 ways, according to the terms of purchase. One method is 

 "f. o. b.," meaning free on board, or "c. i. f." (often prpnounced 

 "Siff"), the abbreviation for cost, insurance and freight. Large 

 importers find as a rule at the present time that they can 

 make more satisfactory purchases on the f. o. b. basis. 



With bottoms scarce and freight high, sellers are not particu- 

 larly anxious to go to the extra trouble and expense of c. i. f. 



shipments even if remunerated for the cost. If the terms are 

 f. o. b. all the seller has to do is to make delivery to the dock, 

 secure the necessary papers and get his money. As this rubber 

 is sold f. o. b., the shipper on delivery of goods to the dock pro- 



Fic. 4. — Dr.xft. 



cures steamer bill of lading show-ing consignment to the banker, 

 and consular invoice from the American Consul. 



He has nothing to do with the insurance in this case, because 

 by the terms of the credit, insurance, including war risk, is to be 

 effected in New York. Many New York importers place their 

 own insurance in the form of a blanket policy or a special policy 

 to cover each shipment, as they can usually obtain better rates 

 here than in the Far East, being in close touch with both the 

 New York and London companies. 



All arrangements having been made. William Smith & Co. 

 draw a draft in duplicate, as shown in Fig. 4 (without the "ac- 

 ceptance"), at 90 days' sight, and attach it to all documents, which 

 are the consular invoice and all negotiable copies of the bill of 

 lading, and if insurance is not covered in New York, the insur- 

 ance policies or certificates, usually in duplicate. 



Taking these to any local bank in Singapore that buys such 

 drafts, the draft is sold at the prevailing rate of exchange for 

 bankers' 50 days' sight drafts on London. The bank will, of 



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Fig. S.— Advice of Maturity. 



course, be particular to see that all documents conform in every 

 particular with the terms of credit. William Smith & Co. thus 

 receive their money, but neither John Jones & Co. nor the New 



