Trade Finance Vocab Flashcards
Acceptance
An agreement to purchase goods at a stated price and under stated terms
Advance against document
A loan secured by turning over shipment documents of title to the creditor; an alternative to acceptance financing
Advising Bank
A bank, operating in the exporter’s country, which handles letter of credit for a foreign bank by notifying the export firm that the credit has been opened in its favor. The advising bank fully informs the exporter of the conditions of the letter of credit without necessarily bearing the responsibility of payment
(A/D) After Date
A payment on a draft or other negotiable instrument due a specified number of days after the date the draft is presented to the payee
After Sight (A/S)
A phrase indicating that payment on a draft or another negotiable instrument due upon presentation or demand.
Back-to-back letter of credit
A new letter of credit opened in favor of another beneficiary on the basis of an already existing, nontransferable letter of credit.
Back guarantee
An assurance, obtained from a bank by a foreign purchaser, that the bank will pay an exporter up to a given amount for goods shipped if the foreign purchaser defaults.
Banker’s acceptance
Occurs when a draft is drawn on and accepted by the importer’s bank. Depending to the bank’s creditworthiness, the acceptance becomes a financial instrument which can be discounted.
Beneficiary
The person in whose favor a draft is drawn or a letter of credit is opened
Bill of exchange
Also a draft. A written unconditional order for a payment from a drawer to a drawee, directing the drawee to pay a specified amount of money in a given currency to the drawer or a named payee at a fixed or determinable future date.
Cash against documents
A payment method by which title to the goods is given to the buyer when the buyer pays cash to an intermediary acting for the seller, usually a commission house.
Cash in advance
A payment method for goods in which the buyer pays cash to the seller before shipment of the goods. Usually required by the seller when the goods are customized, such as specialized machinery.
Collection
An exporter draws a bill of exchange on a customer abroad the gives the bill to his/her bank to collect funds. The importer must be willing to pay. The bank charges a fee to collect payment, but is not liable should the importer refuse to release the funds.
Collection papers
All documents, including bills of lading, invoices, and other papers, submitted to a buyer to receive payments for a shipment.
Confirmed letter of credit
A letter of credit issued by a foreign bank with payment confirmed by a US bank. An exporter who requires a confirmed letter of credit from the buyer is assured payment from the US banks in case the foreign buyer/bank defaults.
Correspondent bank
A bank that, in its own country, handles the business of a foreign bank.
Credit risk insurance
Insurance which protects the seller against loss due default on the part of the buyer
Documentary collection
A method of effecting payments for goods whereby the seller/exporter ships goods to the buyer, but instructs his bank to collect a certain sum from the buyer/importer in exchange for the transfer of title, shipping and other documentation enabling the buyer/importer to take possession of the goods.
Documents against acceptance (D/A)
Instructions by a shippers a bank indicating that documents transferring title to the goods should be given to the buyer only after the buyer’s signing a time draft. Thus the exporter extends credit to the importer and agrees to accept payment at a named future date.
Documents against (D/P)
Payment for goods without a guaranteed form a payment in which the documents transferring title to the goods are not given to the buyer until he/she has signed a sight draft. Document of title evidence f entitlement or ownership, such as a carrier’s negotiable bill of lading, which allows a party to claim title to the goods in question.
EXIM Bank
A public corporation created by executive order of the president in 1934 and given a statutory basis in1945. The bank makes guarantees and insure loans to help finance US exports, particularly for equipment to be used in capital improvement projects. The bank also provides short-term insurance for both commercial and political risks, either directly or in cooperation with US commercial banks.
Factoring houses
Types of companies which purchase international accounts receivable at a discount price, usually about two or four percent less than than their face value. The fee charged to the exporter is offset by the immediate availability of payment, plus the reduction in risk for the exporter.
Floating currency
One whose value is terms of foreign currency is not kept stable )on basis of the par value or a fixed relationship to some other currency) but instead is allowed, without a multiplicity of exchange rates, to be determined (entirely or to some degree) by market forces.
Forfaiting
Forfaiting, similar to factoring, is an arrangement under which exporters actually forfeit their rights to future payment in return for immediate cash. The arrangement is commonly used for sales of capital equipment with terms of one to five years.
