Glossary on Trade Financing Terms - L

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L

Lag strategy:

A foreign exchange management strategy consisting of delaying payments or receipts in a foreign currency, on the expectation of the evolution of the foreign exchange rate. Opposite: Lead strategy.

Français: Stratégie de retardement
Español: Estrategia de atraso

Latin American Integration Association (LAIA):

A regional economic and trade integration agreement involving most Latin American nations.

Français: Association d’intégration des pays d’Amérique Latine
Español: Asociación Latinoamericana de Integración (ALADI)

Last in, first out (LIFO):

LIFO is a method of evaluating and calculating a company's inventories (stocks, in the UK). See also First in, first out (FIFO).

Français: Dernier entré-premier sorti
Español: (método de) Ultima entrada, primera salida (UEPS)

L/C:

Abbreviation for Letter of credit.

Français: L/C
Español: L/C

The opposite of the lag strategy defined above. This strategy implies that firms will pay off foreign currency debts and collect foreign currency receipts early. This, typically, because the local currency is expected to weaken.

Français: Stratégie d'anticipation
Español: Estrategia de adelanto

Leasing:

A contract whereby an asset is supplied by its owner (the lessor) to another party (the lessee) for a specific period (usually long term), in return for periodic compensation (lease payments). The lessor retains title to the asset, while the lessee acquires the right to use it during the specified time without acquiring ownership rights. Leasing is an indirect form of financing, as it permits the use of an asset whose purchase would otherwise have had to be financed by a loan. It also entails fiscal advantages compared with long-term loans. Leasing contracts are usually signed for the use of industrial equipment, facilities and capital goods (such as machines, technical installations, vehicles, etc.). International leasing is a form of financing increasingly used in the export of equipment.

Français: Crédit-bail
Español: Arrendamiento financiero

Legal lien:

See Lien.

Français: Droit de rétention
Español: Legal lien

Lending limit:

The maximum value of a particular asset which may be used as collateral for a loan or mortgage (sometimes expressed as a percentage of the asset’s total value).

Français: Limite de crédit
Español: Límite de crédito

Letter of credit (L/C):

A financial document issued by an issuing bank at the request of a buyer (applicant) to a seller (beneficiary), which guarantees payment to the seller if the terms and conditions specified in the L/C are fulfilled. It usually contains a brief description of the goods, the documents required, shipping date and an expiry date after which payment will no longer be made. There are different types of L/C, according to the level of security they grant the beneficiary (seller/exporter).

(1) Irrevocable Letter of Credit: This can neither be modified nor cancelled without the agreement of all the parties concerned. The payment by the issuing bank is guaranteed provided that the beneficiary (seller/exporter) satisfies all the terms and conditions of the L/C.

(2) Revocable Letter of Credit: This may be modified or cancelled by the issuing bank at any time and without notice to the beneficiary. However, payments or drafts negotiated within the terms of the credit before receipt of the revocation or amendment notice from the issuing bank remain validly binding for all parties. Negotiability is restricted to the advising bank and confirmation is usually not available. The revocable letter of credit gives maximum flexibility to the buyer but involves risks for the seller.

(3) Confirmed Irrevocable Letter of Credit: A L/C in which the responsibility of another bank (the confirming bank, which is usually the same as the advising bank) has been added to that of the issuing bank, upon authorization or request of the latter. The confirmation represents a definite undertaking by the confirming bank, which obligates itself in the same manner as the issuing bank. It is used to back up the credit standing of the issuing bank and to mitigate risk by replacing a foreign bank risk with a domestic bank risk.

(4) Irrevocable Unconfirmed Letter of Credit: A L/C which has been advised through an advising bank, acting as an agent of the issuing bank, without however assuming any responsibility towards the beneficiary except for taking reasonable care to check the apparent authenticity of the documentary credit which it advises.

(5) Revolving Letter of Credit: A type of L/C issued only once and through which the money made available to the seller, after being drawn within a stated period of time, will again become available in the future, usually under the same terms and without another L/C being issued. This type of credit is used in connection with regular and ongoing purchases from a foreign supplier. Revolving L/Cs may be revocable or irrevocable, and the revolving element may be linked to time and/or value.

(6) Documentary Letter of Credit: A L/C where the issuing bank stipulates that certain documents should accompany the draft. These documents assure the applicant (buyer/importer) that the merchandise has been shipped, is in good condition and that title to the goods has been transferred to the importer.

(7) Negotiable Letter of Credit: A L/C issued in such form that it allows any bank to negotiate the documents.

Français: Lettre de crédit (L/C)
Español: Carta de crédito

Letter of Credit -Traveller’s (circular):

A L/C issued on behalf of a customer who plans to travel extensively. The customer pays for the L/C when it is issued and can request payments from the correspondent banks indicated by the issuing bank, during a specified period of time. The correspondent banks will honour the drafts up to the amount of credit. Each bank which honours a draft endorses the L/C with the date the payment was made, the bank's name, the amount drawn against the L/C and the charges to the issuing bank's account. See also Advised L/C.

Français: L/C lettre de voyage circulaire
Español: Carta di credito - Traveller's

Leverage:

A US term to indicate the degree to which a business is funded by loans rather than by shareholders' equity (i.e. the indebtedness of a firm compared to its equity structure). This is equivalent to gearing in UK terms.

Français: Effet de levier
Español: Apalancamiento financiero

Leveraged buy-out (LBO):

The take-over/acquisition of a company, financed largely by debt (i.e. loans and bonds) rather than equity. The loans extended and the bonds issued to finance the take-over are usually secured against the assets and cash flow of the target company (i.e. being bought). Due to the large amount of debt relative to equity in the newly bought company, its bonds are typically junk bonds.

Français: Acquisition par effet de levier
Español: Compra apalancada de empresas

Leveraged lease:

A Lease arrangement whereby the lessor borrows a large proportion of the funds needed to purchase an asset and then grants the lender a Lien on such asset, together with pledging the

lease payments to secure the borrowing.

Français: Bail à effet de levier
Español: Arrendamiento apalancado

Liabilities:

A company’s obligations towards its creditors, suppliers, customers etc., as distinguished from those to its owners, partners or shareholders. Liabilities consist of borrowed funds and must be paid in the short-, medium- or long-term. Short-term debts, bank loans and overdrafts are often known as current liabilities. With reference to banks, their liabilities are made up of deposits, bonds and bills. Opposite: Assets.

Français: Dettes
Español: Pasivos, obligaciones

Liability on bills of exchange:

A liability created by the signature on the bill of Exchange .

Français: Dette sur lettre de change
Español: Obligaciones basadas en la letra de cambio

LIBID:

An abbreviation for London Interbank Bid Rate (interbank rate), i.e. the rate paid by a first-rate bank on time deposits from other first-rate banks.

Français: LIBID
Español: LIBID

LIBOR:

See London Inter Bank Offer Rate.

Français: LIBOR
Español: LIBOR

Licensing agreement:

A business agreement whereby one firm gives another the right to use assets such as trademarks, patents, copyrights or other know-how, against the payment of a fee.

Français: Contrat de licence
Español: Acuerdo sobre concesión de licencia

Licensing arrangement (in trade):

A procedure requiring potential importers or exporters to secure permission from government authorities in order to be able to conduct trade transactions.

Français: Disposition relative à la licence (dans le commerce)
Español: Acuerdo de licencia

Lien:

A legal term indicating the right or claim of a creditor against the property of a debtor in connection with secured debt financing. The creditor is entitled to hold such property until the debt is paid or some other obligation is fulfilled.

Français: Privilège, Droit de rétention, Nantissement
Español: Gravamen, prenda, privilegio

Lien in rem, right of lien:

A restricted right to hold and retain a property until the creditor’s claim is satisfied. If the claim is not met, the creditor is entitled to realize the property securing the lien and satisfy his claim out of the resulting proceeds.

Français: Droit de rétention
Español: Derecho prendario, derecho de retención

LIFFE (London International Financial Futures Exchange):

An exchange market dealing in futures contracts (on currencies, commodities, stocks, bonds, treasury bills, etc.). Standardized financial futures have been traded on this exchange since 1982.

Français: LIFFE (London International Financial Futures Exchange)
Español: LIFFE (London International Financial Futures Exchange)

LIFO:

See Last in, first out.

Français: LIFO
Español: LIFO

Lighter:

A vessel transferring cargo between ship and shore, used mainly in harbours and inland waterways.

Français: Allège, Péniche
Español: Barcaza, gabarra

Lighterage:

The cost of loading or unloading a vessel by barges.

Français: Déchargement par allèges
Español: Gabarraje

Limit:

(1) The highest/lowest acceptable price for the purchase/sale of securities, where the transaction may be conducted either directly or through a broker. Price limits are set to avoid the danger of adverse or unexpected price changes.

(2) The upper limit for the utilization of a line of credit.

Français: Limite
Español: Límite

Limited recourse financing:

A financing technique for major capital projects where the lender's decision to extend funds is based mainly on the project's assets as collateral and the expected cash flows and earnings as a source of funds for repayment, rather than on the general creditworthiness of the borrower.

Français: Financement à recours limité
Español: Financiamiento con derecho de recurso limitado

Line of credit:

A credit arrangement whereby the bank puts at its client’s disposal a maximum loan balance and agrees to finance within this balance several contracts subsequently entered into by the client. Lines of credit may set up for miscellaneous capital goods purchases (usually known as general purpose lines of credit) or for contracts associated with one project (usually known as project lines of credit).

Français: Ligne de crédit
Español: Line of credit

Liquid assets:

Assets which can be readily and cheaply turned into cash, notably cash itself and short-term securities.

Français: Actifs liquides
Español: Activos líquidos, valores realizables a corto plazo, disponibilidades líquidas, haberes líquidos, fondos líquidos

Liquidation:

(1) The dissolution of an asset or of a company through its sale to settle outstanding debts.

(2) The settlement of forward or future transactions on the corresponding market.

Français: Liquidation
Español: Liquidación

Liquidity:

The speed with which a financial asset may be liquidated. Within a company, it refers to the availability of liquid funds, which may be used to honour its payment obligations on time or to finance new projects. In a broader sense, it refers to the width of a country’s financial markets: a market is said to be liquid when the level of trading activity is high, thus allowing buying and selling with minimum price disturbance.

Français: Liquidité
Español: Liquidez

Liquidity Adequacy:

This indicates whether the institution has met pre-set liquidity standards and ratios for that particular sector of activity. Liquid assets are graded according to their marketability and liquidity risk.

Français: Suffisance de liquidités
Español: Suficiencia de liquidez

Liquidity preference:

The inclination of individuals and corporations to keep their assets in varying degrees of liquidity. One argument is that greater liquidity allows better investment flexibility at times of market upheaval.

Français: Préférence pour les liquidités
Español: Preferencia por la liquidez

Liquidity ratios:

These are ratios which measure a firm's liquidity, i.e. its ability to meet its short-term financial obligations on time, such as the acid test or current ratio. In banking these refer to the ratios set by the Central Bank, requiring that commercial banks keep a certain share of their assets in liquid form (e.g. cash and short-term marketable instruments such as Treasury bills) in order to meet day-to-day demands for cash.

Français: Rapports, ratios de liquidités
Español: Coeficientes de liquidez

Liquidity risk:

The risk arising from the difficulty of liquidating (i.e. selling) an asset. It consists of the difference between the true value of the asset and the likely sale price, less commissions.

Français: Risque de liquidité
Español: Riesgo de liquidez, riesgo de tesorería

Listed stocks:

Stocks which are traded on an exchange.

Français: Actions cotées
Español: Acción registrada en bolsa, cotizada en la bolsa

Loan against pledge:

A loan secured by the pledging of collateral, such as securities, merchandise, etc.

Français: Prêt contre nantissement
Español: Préstamo contra prenda

Loan against pledged bill:

A loan secured by the pledging of a bill of Exchange , blank endorsed by the customer.

Français: Prêt contre nantissement d'effets
Español: Préstamo contra letras en prenda

Loan stock:

That part of a company's capital which is raised through interest-bearing long-term loans and the issue of bonds. See Debenture. Compare with Equity.

Français: Emprunt obligataire
Español: Obligación sin garantía

Local bill:

A bill of Exchange accepted by a bank for collection or discounting, which is payable where the accepting bank is located.

Français: Effet local
Español: Letra nacional

Local costs:

The costs incurred by the supplier in the buyer's country for locally sourced goods and services, necessary for the performance of the export sales contract. These costs are not usually covered by Export Credit Agencies' finance and guarantees.

Français: Coûts locaux
Español: Costo en moneda nacional

Lombard loan (UK); Collateral loan (USA):

A loan granted against the pledging of securities (broker's loan) or goods (advance against goods as security). It carries interest based on the Lombard rate.

Français: Prêt Lombard (GB), Prêt garanti (USA)
Español: Lombard préstamos

Lombard rate:

An interest rate used for private credit lines (Lombard loan). In some countries the rate is published.

Français: Taux Lombard
Español: Tasa Lombard; Tasa de préstamos con garantía prendaria

Lomé Convention:

An agreement concluded at Lomé, Togo in 1975, to which several additional agreements have subsequently been added. The Convention enables market access preferences, as well as a package of technical and financial assistance programmes, to be extended by the European Union to African, Caribbean and Pacific (ACP) countries (mostly former colonies of the EU members).

Français: Convention de Lomé
Español: Convenio de Lomé

London Club:

A creditor cartel of private commercial banks, set up in the early ‘80s to deal with debt rescheduling. The Paris Club, while also concerned with debt repayment from developing countries, is an association of official creditors.

Français: Club de Londres
Español: Club de Londres

London Interbank Offered Rate (LIBOR):

The London interbank base borrowing rate, i.e. the interest rate for large interbank transactions in the international banking market (e.g. Eurodollars and Eurocurrency markets). It is a floating rate, varying according to market conditions and depending upon the loan period as well as the currency of reference (usually specific periods of time, such as one, three or six months). See also Interbank Offered Rate.

Français: Taux interbancaire offert à Londres
Español: Tipo de interés interbancario en el mercado de capitales de Londres (LIBOR)

London International Financial Futures Exchange:

See LIFFE

Français: London International Financial Futures Exchange
Español: London International Financial Futures Exchange

Long hedge:

The purchase of a futures contract in anticipation of the actual purchase on the cash market. It is frequently practised by processors or exporters as a protection against an increase in the cash price. Opposite of Short hedge. See also Hedge.

Français: Acheter à terme
Español: Cobertura con posición larga

Long position:

In the securities or commodity trade, the position of owning or holding more of a given security or commodity than one has contracted to deliver in future (i.e. the number of contracts bought exceeds the number of contracts sold). One goes long in the expectation that prices will rise, so as to realize a profit from the sale of the underlying security or commodity. Opposite: short position.

Français: Position en titres ou en devises
Español: Posición larga

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