Problem:
Matts Ltd is a long-standing importer of rice and pulses from India. Import is done on ‘open account’ basis. Following the recent worldwide recession, the exporter has decided to terminate the Open Account agreement and has requested Matts Ltd to trade only under documentary credit. The director of Matts ltd comes to see you as their main banker for advice. During the discussion, several questions have been raised and you have been requested to answer the following questions.
Question1. Differentiate between Documentary Collection and letters of credit.
Question2. Explain the meaning of incoterms and assess how ‘incoterms’ affect the documents that exporters must produce.
Question3. Explain how bills of exchange can be used by exporters to help cash flow.
Question4. Having given the difference between Charter Party Bill of Lading and Combined Bill of Lading, clearly explain the importance of a bill of lading in trade.