Nortel is a Mauritian company engaged in import of mobile phones from China and that are re-exported to African countries. Mobile phones are imported under 60 days Usance Letter of Credit; whilst exports to African countries are done under sight documentary collection. Following an explosion in imports of mobile phones in Africa, the African importers have asked Nortel to change payment mode to open account. This change in trading agreements will impact over the business of Nortel and the latter’s Management has requested a meeting with you, as their Bank Trade Advisor, to reply to certain interrogations enumerated below:
Problem1. What is the difference between documentary credit and documentary collection as used in international trade?
Problem2. Assess the risks of Open Account and describe how the risks can be mitigated.
Problem3. describe the difference between a Back-to-back Letter of credit and transferable letter of credit with the help of diagrams.
Problem4. Under the Article 10 of the UCP 600, banks have to follow certain rules in relation to amendments to be brought to letters of credit. Discuss on three of these rules to be followed.