Foundation check0 / 1 answered · 0 correct
Check your understanding
Should your analysis stop once an MT700 or MT760 has been issued?
Settlement, Reimbursement and Recourse
Simple concepts first. Proper banking terminology second.
Settlement
Settlement is the actual movement that discharges a payment obligation. The exact route may involve accounts held directly or through correspondent banks.
Reimbursement
In documentary credits, a nominated or paying bank may be reimbursed by the issuing bank or an authorised reimbursing bank depending on the structure.
Applicant reimbursement
If the issuing bank pays under its undertaking, the applicant normally has reimbursement obligations to the issuing bank under its account, facility, security and application arrangements.
Recourse
Recourse means a party may have the right to claim repayment from another party if a financed or negotiated amount is not ultimately paid. Non-recourse structures shift more risk to the financier, so they are usually priced and approved differently.
Finish the transaction map
Do not stop your analysis when the SWIFT is issued. Always ask what event leads to payment, which bank pays, how that bank is reimbursed and who carries the final risk.
Remember thisIssuance starts the bank undertaking. Settlement tells you how the money finally gets where it needs to go.
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