Farm Technologies Ltd is an agrochemical company in Tokyo, Japan dealing in wholesale distribution. The company has entered into a contract to import agricultural chemical products from Bayer AG in Leverkusen, Germany. The suppliers have insisted on the use of documentary credit which has been agreed by Farm Technologies Ltd. Some of the major terms under this credit are as follows:

• In favour of                   : Bayer AG, Leverkusen.

• For the account of      : Farm Technologies Ltd, Tokyo

• Expiring                       : November 25

• Amount                        :About JPY12,900,000

• Covering                     : About 600 metric tons of agrochemicals to be shipped in

two approximately equal installments, one during the first half of July and one during the first

half of August

• Price           : JPY21, 500 per metric ton CIF Tokyo.

Drawings under the credit will be as follows:

• 95% of the value of a provisional invoice upon presentation of documents strictly in order.

The remaining 5% will be available against final invoice accompanied by an independent weight and analysis certificate showing the final weight and chemical analysis.

On 25 May the beneficiary asks you to cover their receivables forward in the foreign exchange market as follows:

i. Arrange forward cover immediately in respect of each of the value of 300 metric tons shipment.

ii. Upon presentation of documents, close out any differences between the forward contract amounts and the actual values claimed.

iii. Ignore forward cover for the balance to be claimed in October.

The documents were presented in order on the following dates:

15 July:                Documents showing shipment of exactly 294 metric tons

10 August:           Documents showing shipment of exactly 315.79 metric tons

31 October:           Final invoice claiming an agreed figure of JPY48, 950. This figure represents the

net settlement of the remaining 5%.

You were asked in early May to confirm this irrevocable documentary credit on behalf of a Japanese correspondent bank.

REQUIRED

Using the following rates of exchange between Euro and JPY displayed by Commerzbank, Frankfurt, where you work at the Trade Finance Department, calculate the Euro sums Bayer AG will receive on the appropriate presentation dates.

25 May Spot       134.95           135.45

1 month forward         1.30 yen              1.15 yen          premium

2 months forward       2.15 yen              1.95 yen          premium

3 months forward       2.50 yen             2.30 yen         premium

6 months forward       4.75 yen             4.65 yen            premium

15 July Spot                130.00                132.00

10 August Spot           140.50                142.25

31 October Spot          133.80               135.25

Note:

1. For the purpose of this question, Commerzbank and the beneficiary assume that shipments and presentation of documents will be made on the same day.

2. Ignore letter of credit charges as these are for buyer’s account.
3. Ignore any close out of figures of less than 100 yen.

[Total Marks 20]