Glossary on Trade Financing Terms - A
A share or a bond whose market value
is higher than its nominal value
or face value. For example, if long-term interest rates decrease after the issue of the bond, the bond's price will increase above par. Opposite: Below par
A time draft
(or bill of Exchange
) on which the drawee has written the word "accepted" over his signature, thereby becoming unconditionally obliged to pay at maturity. The draft must first be presented for acceptance, by which the drawee becomes the "acceptor", and then for payment.
(1) Bank(er's) Acceptance
:a draft of which a bank is both drawee and acceptor; i.e. the bank gives its guarantee to make the payment should the buyer default.
(2) Trade acceptance
: a draft, usually issued from the sales of merchandise, whose drawee and acceptor is an individual or a business entity.
Short-term loan by which the bank allows the customer to draw bills on it up to a certain amount (line of credit). The bills are then accepted and usually also discounted by the bank. Most frequently used in international trade.
In the underwriting business, the price paid by the banks to the issuers for underwriting a new securities' issue. The acceptance price is lower than the issue price to the general public, the difference being the banks' gross profit margin or commission.
The party which addresses the bank for the issue of a letter of credit , e.g. the account party can be an importer, a buyer, a construction contractor or a supplier bidding on a contract.
Money due to suppliers. Also called payables and trade payables.
Money due from customers. Also called receivables and trade receivables.
An accounting method where revenues are recognized when earned and expenses when incurred, regardless of the actual timing of the cash receipts and expenditures. Compare with cash accounting.
(1) Interest earned but not collected.
(2) Interest earned, but still unpaid, since the latest payment date.
(3) Interest due from the date of issue or the last coupon date on an interest-bearing security, or from the last date of payment on a loan.
Accounting items entered on the liabilities side of the balance sheet which relate to previous operations; such as income received during the past financial year but which relates to the new fiscal year, or expenses incurred during the past year but not payable until the following year.
Acid test / Quick ratio:
A liquidity ratios measuring a company's ability to pay immediate liabilities. It is expressed as: current assets less inventories, divided by current liabilities. Compare with Quick ratio.
Income resulting from the active conduct of trade or business.
The physical commodity or security underlying a futures contract. It may also be designated "cash" or "physicals".
Ad Valorem Duty (According to value):
Any charge, tax, or duty (tariff) calculated and applied as a percentage of the value (price) of the item. The higher the value of an item, the higher the ad valorem duty. See duty.
A loan, usually short-term (i.e. one to three years), taking the form of an overdraft to a company or individual.
Advance against documents (A/D):
A loan secured by the documents covering the shipments, which remain in control of the creditor.
Advance import deposits:
A foreign exchange control technique whereby importers are required to deposit a percentage of the value of a product with the designated authorities for a specified period of time.
Advanced Payment Bond/Guarantee:
(1) A bond provided by a supplier to a buyer to assure him that advance payments made to the supplier will be returned if the contractual obligations are not fulfilled. The bond is issued up to the amount of the advance payments specified in the contract. The value of the bond normally decreases as the supplier fulfils the obligations for which the advance payments were made. Such bond may be either conditional or unconditional.
(2) An arrangement whereby a company employing a contractor makes funds available to him to purchase equipment and to cover the organizational expenses involved in getting the construction under way.
Advised letter of credit:
A commercial letter of credit whose authenticity has been verified by a bank, usually located in the beneficiary's country. The bank then advises the beneficiary of the authenticity of the letter of credit, without however undertaking any payment obligation.
Also known as the notifying bank. This is the bank operating in the exporter's country which handles letter of credit on behalf of the foreign bank, by notifying the exporter that the credit has been opened in his favour and informing him of the terms and conditions of the letter of credit. It does not necessarily have responsibility for payment.
A term designating the fact that the powers of a shipper's agent or representative abroad are limited, and that he is not authorized to take decisions or make adjustments without previously referring to his principals. Compare with without reserve.
This expression is written on a draft
or other negotiable instrument, meaning that it becomes payable on a certain date after having been presented for acceptance (e.g. 90 days). The period starts the date the bill is signed and accepted by the drawee. In order to let the holder of the bill know when the bill becomes payable, the drawee must add the date of his acceptance.
After-tax cash flow:
The total cash generated by an investment annually. This is defined as profit after-tax plus depreciation, or operating income after tax plus the tax rate times depreciation.
After-tax real rate of return:
This is defined as the after-tax rate of return on an investment minus the inflation rate.
African Development Bank:
Established in 1963, with its headquarters in Abidjan, Côte d'Ivoire. The ADB provides financing through direct loans to African member states to cover the foreign exchange costs incurred in bank-approved development projects in these countries. Fifty-one African countries are members. The ADB is financed by member countries of the OECD.
African Development Foundation (ADF):
An independent, non-profit government corporation established to provide financial assistance to grass-roots organizations in Africa. The ADF became operational in 1984.
African Development Fund (ADF):
A fund managed by the ADB.
Agency fee (management fee):
An annual fee payable by the borrower, usually to cover the costs incurred by the lender in administering the loan.
Agency for International Development (AID):
Created in 1961 to administer foreign economic assistance programmes of the US government. AID has field missions and representatives in approximately 70 developing countries in Africa, Latin America, the Caribbean and the Near East.
A legally independent person, authorized by another person (the principal) to act on his behalf as an intermediary or to conclude business transactions. The agent usually receives a fee or a commission (often a percentage of the sale price) for the services rendered. In a syndicated loan, the agent is the bank which manages the loan on behalf of the participating banks.
Agent distributor service (ADS):
A fee-based service providing U.S. exporters with a customized overseas search for interested and qualified foreign representatives (such as foreign import agents and distributors).
A security sells at agio when its market value is higher than its nominal or par value. In foreign exchange operations this is the premium paid to exchange one currency for another. Opposite: Disagio.
This embodies the terms agreed upon in a Paris Club rescheduling meeting. It forms the basis for bilateral discussions between individual creditor governments (including export credit agencies) and debtor countries on agreements for implementation of the rescheduling. The Minute normally specifies the coverage of debt-service payments to be consolidated, the cut-off date, the consolidation period, the proportion to be rescheduled and the deferred debt.
A bill of lading used for the transportation of air freight, describing conditions, liability, shipping instructions, nature of the commodity and applicable transportation charges. It is a non-negotiable instrument of air transport acting as a receipt for the shipper, and indicating that the carrier has accepted the goods listed therein and is thereby committed to carry the consignment to the airport of destination, according to the specified conditions. Compare Inland Bill of Lading
, Through bill of lading.
Total costs, whether foreseeable or not.
All Risks Coverage:
A term referring to the side of a ship. Goods to be delivered alongside are to be placed on the dock or within reach of the transport ship's tackle so that they can be loaded on board. Goods are delivered alongside at the port of embarkation, excluding loading fees.
A Yield indicator based on the risk of a security or a portfolio in relation to the market risk. A positive Alpha indicates the extra yield of the security or portfolio awarded to the investor for having taken a risk, rather than simply accepting the average market return. Thus, an alpha of 0.5 means that the security or portfolio has outperformed the estimated market-based return by 0.5%. See also Beta.
American Depository Receipts (ADRs):
Domestically traded securities representing claims of foreign stocks.
An option which can be exercised at any time between the date of purchase and its expiry date. Compare with a European Option.
(1) The gradual reduction of a debt, through regular repayments of principal instalments and payment of current interest over an agreed period of time, so as to liquidate the debt.
(2) In accounting, a term indicating the systematic writing off of an account or asset over its estimated life. See Depreciation.
A group of Latin American countries formed in 1969 to promote regional economic integration among medium-sized countries. Its member states include Bolivia, Colombia, Ecuador, Peru and Venezuela.
A set of laws and practices intended to counteract dumping practices.
A/P (Authority to pay):
An authorization, usually by a bank to a seller, for the purchase, with or without recourse, of draft(s), document(s) and/or goods up to a designated amount.
Application for letter of credit:
A written request by an applicant (an importer or purchaser) to his bank to open a letter of credit. The notification of the opening of the letter of credit is usually done via a correspondent bank.
The purchase of financial instruments (e.g. foreign exchange or securities) or commodities on one market with the intention of selling them simultaneously on another market to take advantage of the price differential between the two markets. The arbitrageur (the person carrying on the business of arbitrage) may earn a profit by exploiting the differences in the rates of exchange or the prices of securities or commodities involved. Arbitrage is attractive only if the price difference is large enough to cover the costs incurred (such as the costs of transporting the goods from one market to the other).
Arrangement on Guidelines for Officially Supported Export Credits:
Generally speaking, debt-service payments not made by the due date. In the specific field of export credits, arrears are overdue payments by borrowers, which have not yet resulted in claims against the export credit agencies.
Asian Development Bank (ADB):
Established in 1966 to foster economic growth and co-operation in Asia and to help accelerate the economic development of members. The ADB headquarters are in the Philippines.
Asian Pacific Economic Co-operation (APEC):
The Asian Pacific Co-operation was initiated by Australia at the Canberra Conference (Australia) of 1989. Its members are: Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand (members of the Association of South-East Asian Nations countries), plus Australia, Canada, Chile, China, Hong Kong, Japan, New-Zealand, Papua-New-Guinea, South Korea, Taiwan and the United States.
The price at which securities (including foreign exchange or foreign bank notes) are offered for sale. Opposite: Bid.
A security issued by a financial institution and backed by an asset (e.g. a commodity).
The ratio of total assets to stockholder’s equity.
Asset turnover ratio:
A measure of asset efficiency, defined as net sales divided by total assets.
A term indicating everything a company owns which has a monetary value listed on the balance sheet (cash funds, credit balances, supplies, equipment and facilities, etc.). Assets can be financial assets (such as bills), fixed assets (equipment) and intangible assets (goodwill, patent). Opposite: liabilities.
The transfer of the legal right, interest or ownership (title) from a creditor (assignor
) to a new creditor (assignee). A distinction is made between a single assignment (where only a specific claim is assigned) and a blanket assignment where all receivables are assigned. In the case of an option, an assignment is made when the option writer (seller) receives an exercise notice obliging him to sell (in the case of a call) or to buy (in the case of a put) the underlying security at the specified strike price.
A credit granted against the fiduciary assignment of one or several receivables to a bank. The accounts receivable act as a security for lending. See Discount credit.
The person who transfers the title, interest or ownership to a third party. See Assignment.
Association of International Bond Dealers:
Association of South-East Asian Nations (ASEAN):
Established in 1967 to promote political, economic and social co-operation among its six member countries: Indonesia, Malaysia, Philippines, Singapore, Thailand and Brunei. Laos, Papua-New-Guinea and Vietnam are observers, whereas South Korea has special status.
A buying or selling order by a customer to a broker, to buy or sell a certain security at the best currently available price. In the case of a buying order it is therefore "at the lowest possible price", and "at the highest possible price" in the case of selling order. The buyer or seller does not have to specify any maximum or minimum price for the execution of the order by the broker.
Money deposited by a bank or at a bank, without any fixed maturity date. The money may be withdrawn at any time when the depositor "calls" for it.
A term meaning the "same value", implying that the price of the security is equal to its face value. Securities are issued at par, par price, par rate. Compare with above par
and below par.
A term indicating that payment on a draft or other negotiable instrument is due upon presentation or demand. Compare with After Date
, After Sight.
with an exercise price equal to, or close to, the current market price of the underlying security.
Authority to pay:
A bank allowed by a country’s public authorities to process the decentralized payment transfers.
A form of guarantee, generally given by a commercial bank, on a negotiable instrument. An aval is usually an unconditional guarantee of payment and is not affected by the terms of the underlying transaction. Avals are recognized only in certain countries (mainly European), though usually not in countries with an Anglo-Saxon legal base.
Average collection period:
Average due date:
The mean date of payment of several sums becoming payable at different dates (applies particularly to a bill of exchange
The sum of the amounts outstanding of the loan at the end of each year, throughout its entire life, divided by the total principal sum borrowed. It gives the average life of the loan in years.
Average payment period:
Average rate of return (ARR):
The ratio of average net earnings to average investment.
In relation to a bond issue, the maturity calculated on the date halfway between the earliest and the latest date stipulated for repayment.
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