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solemn and greetings to all in this video we shall look at the negotiation letter of credit negotiation generally I would say is the most confusing topic because the negotiability of a negotiation LC is actually not the LC itself aright by the Bills of exchange or in banking term it is called draft the draft is actually the subject matter that makes a negotiation LC negotiable so to understand a negotiation LC we must understand how the negotiability of draft works in the negotiation LC operations there are actually two things to look at number one is the function of a draft that is how the draft is used to transfer the proceeds from one party to another and the second one is the availability of the funds under negotiation LC so let's take a look at the draft briefly this is an example of a Bills of exchange or draft with all the basic features the date of issue the amount in figure the tenor of a draft in this example the draft is payable outside the amount in words the payee the pay is the person or the party who is entitled to the funds the drawee alright the draw B is the person or the party that is holding the money the money now is with Tony this is the person or the party who is showing the P in this example Tony is owing to John and it is signed or endorsed by John alright the draw of this draft now since the negotiability of a negotiation LC lies on the negotiability of a draft so let us look at how the negotiation of a draft takes place I take this draft as an example alright now to get the money John must present this draft to Tony when Tory received a draft Tony will arrange with his bank to send a TT or telegraphic transfer to credit John's account this process will probably take three to five days okay before John can get his money but what if Jon needs the cash urgently what if Jon needs the cash now alright what option does he have where he can literally exchange it for cash with anybody who is willing to accept it right now assuming that Barry is willing to accept it but Barry would like to negotiate the amount he would only agree to pay four thousand to John instead of five thousand so after negotiating with John finally John agrees to take four thousand now right instead of wait for three to five days to get five thousand from Tony so john delivers the draft Barry and Barry give to John four thousand dollars in advance as agreed so when John delivered a draft to Barry and accepted four thousand as the value for his draft legally speaking John has transferred his right to funds to bury the draft has been negotiated or purchased by Barry and the lingo session is complete when the draft is transferred to Barry and endorsed by Barry on the back of the job so Barry now is the holder in due course who has the right to the draft that means Barry is the rightful owner to the funds five thousand dollars the actual value of the draft and Tony now is liable to pay to Barry instead of John when Tony received a draft from Barry which is drawn on himself he has to honor it and play to bury the man of five thousand so what we can see here is that the negotiability of a draft is actually facilitating the funds from one party to another that is from John to Barry originally Tony was liable to join a sum of five thousand but when the drop is negotiated to another party Tony now is liable to another party that is Barry so this is basically how the negotiation of a draft takes place the same principle applies to negotiation LLC because it uses a draft as a means of negotiation in the context of letter of credit all right negotiation is specifically defined in article 2 of UCP 600 as the purchase all right the purchase by the nominated Bank of draft drawn on a bank other than the nominated Bank and all documents and a compliant present by advancing or agreeing to advance funds to the beneficiary on before the banking day on which reverse one is due to the nominated bank this article mentions few important elements of negotiation like purchase nominated bank draft advance fines and reimbursement so let's break it down this definition into smaller pieces so that we can digest much much easier what this article is trying to say is that it tells us what is negotiation what is it okay in a simple and plain language negotiation is d purchase the article also tell us who is purchasing it is the nominated Bank and the article clarifies one is the nominated bank purchasing it is a draft alright a draft which is not drawn on itself a draft are not drawn on the nominated bank in other words the nominator bank is purchasing a draft which which does not belong to it and the purchase is deemed completed or the purchases fulfill when the nominator bank has given an advance to the seller that means when the nominator bank purchases a draft okay together with the documents from the seller the seller must receive funds in advance from the nominated bank so we can see that negotiation is when the nominated bank purchased a draft which is not drawn on itself and as given funds in advance or has committed to advance to the seller this is what a negotiation is in the context of negotiation letter of credit basically now let's see how the negotiation LC operates when the issuing bank issues a negotiation LC to a seller okay the issuing bank will appoint the nominated bank it can be a specific bank okay or it can be any bank this is the example of a negotiation LC the nominated bank and either be specifically stated like in example one here or it can be stated as any bank like in example two in this example a draft is required to be drawn at site the draft is required to be drawn on the drawee Bank right the drawee Bank is the issuing Bank okay what this piece of people of this or this LC is trying to say is that the seller can obtain the payment directly from the issuing bank okay now to get the payment what the seller must do is to draw or to issue a sight draft on the issuing bank and present the draft and documents to the issuing bank this is a this is what the LC is saying because the issuing bank is the bank that is holding the funds for payment and it is also the bank that issues the irrevocable and definite undertaking to pay so once the seller has drawn a drop on the issuing bank and the seller can present it together with combined documents to the issuing bank when the issuing bank received the drafyn documents the issuing bank will pay they will pay the seller all right this is the basis of vow and LC works however all right however if the seller needs the funds urgently the seller can obtain funds in advance from the nominated bank that is to request the nominator bank to negotiate the draft which is drawn on the issuing bank together with E with the documents when the nominator bank agrees to negotiate the seller will present the draft and documents to the nominator bank the nominator bank will use its its own funds to purchase the draft and documents and give the funds in advance to the seller when the when the seller has obtained the funds in advance from the nominated bank okay legally speaking the seller has obtained the value for his draft the seller has transferred is right to the draft to the nominated bank the nominated bank now is the holder in due course of the drug and the issuing bank is liable to pay or inversely dominated bank for the draft amount the drafyn document and will be presented to the issuing bank when the issuing Bank received a draft and the complying documents the issuing bank will arrange to transfer the funds and pay denominated the nominated bank through a reimbursing bank so this is the function of a draft in negotiation LC and this is also how the negotiability of a draft works in a negotiation LC and how it makes a negotiation LC negotiable you