Question:

Tire Co Ltd, a Mauritian company, is engaged in the import and distribution of tyres from TZ Co Ltd established in Mozambique. Tire Co Ltd trades since 10 years under documentary credit with TZ Co Ltd. Tire Co Ltd has made a request to TZ Co Ltd to start trading on open accounts in coming months. TZ Co Ltd has approached your bank established in Mozambique to discuss this issue of open account with you as well as to clarify certain technical issues in relation to trade finance. You are requested to answer the following interrogations:

(a) What is the difference between open account and documentary collection used in international trade?

(b) Assess how ‘incoterms' affect the documents that exporters must produce.

(c) Discuss all the risks that TZ Co Ltd will take by dealing on open account with Tire Co Ltd

(d) Under Article 8 of UCP 600 (Uniform Customs and Practice for Documentary Credits 2007 Revision), it is clearly stipulated that ‘confirming banks' have got four clear responsibilities. Analyse two of them.