Glossary on Trade Financing Terms - S
Sale and leaseback:
A transaction whereby a person or a company purchases an asset from its owner and then Leases it back to him. The lessee therefore receives the sale price and continues to enjoy the use of the asset against payment of the lease fee.
An Agent who distributes, represents, provides sale services or sells goods on behalf of a supplier from the same or another country.
The estimated selling price of an asset (such as plant or equipment) once its Book value
has been fully Depreciated.
A yen-denominated Lease subsidized by MITI to finance the purchase of equipment located outside Japan.
A bank whose main business is accepting interest-bearing Savings deposits
of varying amounts.
Accounts which pay interest, generally at below-market interest rates. They do not have a specific maturity and may usually be withdrawn upon demand.
(1) A written obligation by the bank, acting as paying agent for a security issue, to deliver the definitive certificates as soon as issued to the subscriber.
(2) A type of Waybill accompanying merchandise shipments.
Second of exchange:
The duplicate of a draft drawn in original and duplicate.
A market where securities are traded after having been issued and distributed on the Primary market. This is the market for "second-hand" trading of financial instruments. Most trading is done on the secondary markets. The New York Stock Exchange and other world stock exchanges, bond markets, etc. are all secondary markets.
A creditor who owns debt obligations backed by pledged assets.
Debt certificates (such as Notes
, loan stocks, Bonds or other debt instruments) which prove the ownership (or rights of ownership) of the same.
(1) The securing of a loan or another debt instrument by the pledge of assets.
(2) The phenomenon whereby corporate borrowers find it cheaper to raise money by issuing negotiable securities on the Capital market, rather than borrowing from the bank.
The lending of securities over a period of time.
A guarantee of payment required by export credit agencies before agreeing to extend cover in certain markets, depending on the legal and administrative system of the borrowing countries. Such a guarantee usually consists of an irrevocable Letter of credit, a confirmed irrevocable letter of credit or a guarantee issued by the local government or Central Bank.
A loan extended to finance the purchase of current assets. The sale of such assets provides the cash to repay the loan.
Seller (writer) of an option:
The seller of an option is committed to deliver/buy the underlying security if the buyer of the option exercises his right on a Call/Put option
at the strike price.
A provision in a contract which allows the seller to vary the quantities to be delivered by a certain percentage. The contract may also provide options on any other contractual clause, for example the delivery schedule.
This refers to the banks and other financial institutions brought together by a Syndicate manager to sell or market a new issue of securities to the public.
A currency which may be bought or sold only through the Central Bank and at specific fixed exchange rate.
Separate entity approach:
A tax system whereby each economic unit is taxed when it receives income, e.g. a firm will be taxed on its profits and the firm’s shareholders will also be taxed on the Dividends
paid to them from the firm's profits.
The specified days on which the Forward
and futures transactions previously concluded are paid, and delivery of the underlying assets is made (i.e. the Liquidation
Share capital (UK); Capital stock (US):
The amount of money subscribed by the shareholders, At par, to a company.
The persons or entities owning a share in a corporation. Compare with Bondholders.
The Book value of the company’s net assets (i.e. total assets less total liabilities).
An index showing the changes in the average prices of shares or a group of shares on the stock market.
A written instrument signed by the captain of a vessel, listing the individual shipments constituting the vessel's cargo.
Non-yen denominated bonds issued in Japan by non-residents. See also Foreign bonds.
The sale of a futures contract to hedge a market position, i.e. to eliminate or decrease the risk of a decline in the value of an asset (securities, commodities, foreign exchange etc.), or to anticipate a borrowing need. Opposite: Long hedge.
A cross border loan (characterized as a Lease) offered by Japanese leasing companies, which may be used as leverage debt in a Leverage lease or simply as a private placement.
The situation of an investor who has sold securities or commodities without actually owning them, on the expectation that the price of these securities or commodities will fall. A short position must eventually be covered by an offsetting purchase of the securities or commodities sold. Opposite: Long position.
Commitments which provide for settlement within a relatively short period of time, usually six months (though short-term may sometimes refer to commitments with repayment terms of up to two years). Short-term credit is usually related to the sale of consumer goods and raw materials.
Deposits which may be transferred or withdrawn on demand from a bank. They typically earn little or no interest. In most countries the main kind of sight deposit account is a cheque account. Compare with Saving deposits.
Sight draft; Sight bill:
A bill of Exchange which becomes due for payment as soon as it is presented to the party obligated to pay, and in general a draft payable upon presentation to the drawee. Compare with Date draft
, time draft.
The interest rate on a loan based only on the initial amount of the loan. Over time, the interest charges grow in a linear fashion. e.g. a $1000 loan earning simple interest of 10% per annum would accumulate to $1100 at the end of the first year, $1200 to the end of the second year, etc. Compare with Compound interest.
A sum of money usually set aside at regular intervals which will earn compound interest, ultimately sufficient to meet a known future capital commitment or loan repayment. Sinking funds may, for instance, be used to finance the replacement of Fixed assets at the end of their useful life or to redeem loans, stocks or other debentures upon maturity.
Sinking fund requirement:
A condition sometimes included in corporate bond contracts whereby the issuer is required to withdraw a specified portion of debt each year. Any principal due at maturity is called the balloon maturity.
Society of Worldwide Interbank Financial Telecommunication:
This refers to a weak currency which is a less desirable means of payment than other currencies. Countries with weak currencies are those which tend to have frequent currency devaluation, balance of payments difficulties or political instability. A soft currency is usually not fully convertible to all currencies but only perhaps to some other "weak" currencies. Contrast with Hard or strong currency.
A loan by a government or multilateral Development bank which carries no (or below market rate) interest, although there is usually a small annual service charge. It is typically extended to developing countries and has a long repayment period. See also Concessional funds.
The ability of a borrower to meet obligations as they become due. Opposite: Insolvency.
The ratio between a bank's capital and its assets. See also Capital ratio.
Special drawing right (SDR):
A unit of account issued and allocated by the IMF to its member states. It represents an international, non convertible paper money created by the IMF, which member countries may use in case of deficit in their balance of international payments to settle debts with another country, or with the IMF.
Special Marine Policy:
Special Purpose Corporation (SPC):
An independent corporation especially created, even if sometimes with a nominal capital, with the purpose of holding property titles, channelling funds for an export project or project financing.
A policy covering an individual export contract against failure to receive the sums due from the foreign buyer. An ECA may charge a higher premium for Specific Coverage than for Comprehensive Coverage because of the "selected risk" nature of the coverage.
A person who takes Positions on the market in an attempt to anticipate price changes, with the aim of earning a profit. A speculator does not use the market in connection with the production, processing, marketing or handling of a product. Compare with Trader.
The market for the purchase and sale of commodities, securities and other financial instruments for immediate delivery, as opposed to a Futures market which provides for delivery at some future point in time. By consensus, immediate delivery is understood as two business days.
The current market price of an actual physical commodity or a security. Also called cash price.
In foreign exchange dealings this is the rate quoted for immediate delivery of a foreign currency.
(1) The gap between the Bid
and ask prices of a security, commodity or foreign exchange.
(2) The difference between the spot
and forward rates (in foreign exchange trading), or price (for trade in commodities or securities).
A term indicating the combination of slow economic growth (stagnation) and price increases (inflation).
Standard and Poors:
Standard International Trade Classification (SITC):
An international trade classification system developed by the United Nations in 1950 and used solely by international organizations.
In a securities issue, this is an agreement by the underwriter to purchase any stock not taken up by public investors, in return for a standby fee.
An arrangement whereby members of the IMF have the right to borrow a certain percentage of the quota allocated to them by the Fund, for a given period of time. The stand-by arrangement specifies the amount the country may borrow, when, for how long and under what terms. The arrangements are extended for up to three years and are typically intended as bridging loans for countries with balance-of-payment difficulties.
These are arrangements to lend money in case of need, usually at market rates and sometimes with a commitment fee. Overdraft facilities are sometimes used as standbys by corporate borrowers.
Standby Letter of Credit:
A letter of credit which is usually issued as a guarantee against the non-fulfilment of a contract. Standby letters of credit do not constitute a means of payment but are a guarantee of indemnity in case of non-execution of the contract by the exporter. They are generally used to guarantee financial obligations or contractual performance obligations. Compare with Letter of credit.
State trading enterprises (STEs):
Government agencies especially established for the conduct of international trading activities, such as government-operated import/export monopolies and marketing boards with special or exclusive privileges to import and export. They are sometimes also engaged in the direct manufacturing of certain export products.
(1) Ownership of a corporation which is represented by its Shares.
(2) Shares traded on the stock exchange.
The ratio of Inventories to the company's total output.
A fixed interest rate bond (such as an Eurobond
) or loan without the option of Conversion
Straight letter of credit:
A letter of credit in which the opening bank simply promises to pay the beneficiary.
Straights (straight bonds; straight issues):
A bond or other security issued without any Conversion
clause, but which yields a fixed interest rate for the entire period up to maturity.
The price at which Put options
and Call options can be exercised (i.e. to sell for a put or to buy for a call). The options are 'in the money' or 'out the money' depending on whether the difference between the strike price and the spot price on the markets is positive or negative. The strike price is sometimes called the exercise price.
Subject to collection:
A clause whereby the bank has the right to reverse or cancel a credit entry if the counter value of the Promissory notes or other debt certificates (such as Bills of exchange
, Drafts and cheques) cannot be collected.
An unsecured bond which ranks after secured debt, Debenture
bonds and, in the case of Liquidation of the issuing company, often also after some general creditors.
In the event of bankruptcy of the borrower, senior debt takes priority over subordinated debt in terms of repayment of the relative debt claims.
(1) A clause sometimes inserted in the terms of a share issue whereby the rights of the shareholders rank after the rights of some, or all, unsecured creditors of the borrower in the event of his Liquidation. (2) A provision in a bond’s issue whereby, in the event of a new bond issue, the new lenders' claims are subordinated to the claims of the existing bondholders.
A policy defining the general conditions of the guarantee but leaving the exporter the choice whether to subscribe or not.
Costs which have already been incurred and cannot be reversed.
A financing arrangement under which an exporter extends credit to a foreign importer to finance his purchase. Usually the importer pays a portion of the contract value in cash and issues a Promissory note
or accepts a draft as evidence of his obligation to pay the balance over a period of time. The exporter thus accepts a deferred payment from the importer, and may be able to obtain cash payment by discounting or selling the draft or promissory notes created with his bank. Compare with Buyer’s credit.
Supplier Credit Financing:
A trade financing arrangement by which a bank or an ECA directly extends a loan to the exporter, often collateralized by the exporter’s pledge of his export receivables. The bank or ECA may also purchase or discount the exporter’s receivables with full, limited or no recourse
against the supplier.
A contract under which a supplier commits himself to supply a raw material, product or service for a certain price and at a stated period, or to pay for an alternative supply if he cannot provide it himself as agreed.
American bonds, guarantees and obligations such as performance sureties, completion bonds etc.
A credit guaranteed by a bond issue.
A Eurobond issued by a Japanese corporation.
In general, an arrangement whereby two parties lend to each other on different terms, e.g. in different currencies, and/or at different interest rates (fixed versus floating).
(1) In a foreign currency swap, two parties exchange on the Spot market (usually at the prevailing spot rate) sums of money expressed in different currencies and these sums are re-exchanged forward. Fixed interest rates are also calculated on the swapped principal amounts. Foreign currency swaps are often used by Central Banks to support the domestic currency, through the swap of the domestic currency for a loan from another Central Bank. (2) An interest rate swap is an exchange, between two parties, of the cash flows from fixed rate as against floating rate investments, where the cash flows are usually in the same currency and where there is no exchange of principal.
An acronym for The Society for Worldwide Interbank Financial Telecommunication. This is a closed network providing secure global communication between financial institutions in over 185 countries.
An association or group of individuals or companies which jointly carries out a financial or industrial project, such as the underwriting of a new bond issue.
Syndicated credit; Syndicated loan:
A credit or loan granted jointly by a group of banks, typically when the loan is too large to be provided by a single bank (such as eurocredits). Syndicated loans are managed by a lead bank which assesses the borrower's needs and tries to get other banks to participate in the loan. The syndicate leader receives a management fee.
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