Rare Gem

1278 Words Feb 13th, 2016 6 Pages
1. “In light of the entire transaction as it was outlined to them by Wisconsin, did First Midwestern provide the correct advice to their customer on how to structure the transactions? Did they appear to be fully diligent?”

First Midwestern was a well-known bank and has a good relationship with Wisconsin for several years. In my opinion the bank did not provide the correct advice to Wisconsin in structuring and financing the transaction. One of the main reason was, because Wisconsin did not advised their bank with all the details and negotiations happened between them and Vietnamese buyers. The management of Wisconsin had deal with Saigon jewels, (buyers) that they will buy back the finished polished stones and jewelry from Saigon over
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Also as mentioned above they were not fully aware of the side agreement of buying back the finished polished gems by Wisconsin. Also they accepted the drafts and made full payment to the applicant, which I suggest they shouldn’t do. Because the price of the gems went down and also the issuing bank who bought the drafts from Midwestern are unable to collect the money from the buyers. As Wisconsin denied the side agreement with the Vietnamese buyers and there was no clause present for that in the drafts, Midwestern cannot claim the money.

2. “What risks were faced by Wisconsin when they undertook to accept the guarantee and to ship the goods under it?”

Letter of guarantee is a type of commitment from the bank on behalf of its customers (buyer) to the third party (suppliers) and Promises to meet any financial obligations in case the customers fails to fulfill the requirement of the contract. The risks that Wisconsin faced when they agree to accept the letter of guarantee and ship the goods under it includes currency risk, commercial risk, risk of nonpayment.

One of the commercial risk involved the quality of goods delivered. When the Wisconsin made its first delivery to Saigon jewels, they indicated that not all of the jade gems received are of good quality. So, the delivered goods did not match the expectations of buyers. The other commercial risk Wisconsin faced was nonpayment and non-delivery or delay in
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