Glossary of Terms

A - B - C - D - E - F - G - I - L - P - R - S - T - U - W

A

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Accounts Receivable Insurance (ARI)

Accounts Receivable Insurance (or ARI) protects the insured company against financial losses caused by damage to its accounts receivable records. ARI coverage is important because any loss of accounts receivable records may render a firm unable to collect money that is owed by its customers.

Advance Payment

Advance Payment is a type of payment made ahead of its usual schedule, for instance when paying for goods or services before they are received. Advance Payments can be required by sellers as protection against the risk of non-payment. It may also be required to cover the seller's out-of-pocket costs for supplying those goods or services.

Arbitrage

Arbitrage is the purchase and sale of an asset in order to profit from a difference in that asset's price between markets. Arbitrage endeavours to take advantage of differing prices of identical or similar financial instruments such as securities, currencies or commodities within different markets or in different forms.

B

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Beneficiary

A beneficiary is any person or organisation that gains an advantage and/or profits from something. In financial terms, a beneficiary typically refers to someone eligible to receive distributions from a will, trust or insurance policy. Beneficiaries can be named specifically or have met stipulations that make them eligible to benefit as specified.

Blocked Currency

A blocked currency, also known as non-convertible or inconvertible currency, cannot be freely converted to other currencies on the foreign exchange market as a result of exchange controls. Currencies are usually blocked as a result of government restrictions, foreign exchange regulations, physical barriers, political sanctions or high volatility.

C

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Collections

Collections are a financial product useful in Trade Finance. Where the security of a Letter of Credit is not required, documents can be collected on your behalf. Collection doesn’t carry the same level of guarantee as a Letter of Credit but it can be a simpler method where there is confidence in the buyer’s credit status.

Commodity Finance (CF)

Commodity Finance (CF) is the term used for funding the trade of commodities, basic physical assets used as raw materials in the production of goods or services. Commodity Finance is a type of Trade Finance often categorised into energy, soft commodities, and metals and mining. It is most commonly used by producers, traders and commodity lenders.

Commodity Trading

Commodity Trading is the day-to-day buying and selling of basic physical assets such as oil, gold, or agricultural products. Commodity Trading is often driven by expected economic trends or arbitrage opportunities within commodities markets and typically occurs in the industries focused on collecting natural resources for profit.

D

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Demurrage

Demurrage or ‘detention charge’ is the penalty for exceeding the allowed time (usually 72 hours) for taking delivery of a shipment from a shipping or transporting company's warehouse. It is assessed against the party responsible for delays in loading or unloading a shipping vessel or for undue detention of transportation equipment.

Derivatives

Derivatives are financial securities with a value that are reliant upon (or derived from) underlying assets in other words a ‘benchmark’. The Derivative is a contract between parties that derives its price from fluctuations in those assets. Common underlying assets are stocks, bonds, currencies, commodities, interest rates and market indices.

E

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Exchange Rate

An Exchange Rate is the value of a country's currency in relation to that of another country or economic zone. Most currency Exchange Rates are free-floating and will rise or fall based on supply and demand within the market. Some currencies have restrictions and as a result are not free-floating.

Expropriation

Expropriation is the act of a government claiming privately-owned property from its owners, usually without payment, for public use or benefit. Properties can be expropriated in order to build highways, railroads, airports and other infrastructure projects.

F

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Foreign Exchange (FX or Forex)

Foreign Exchange (forex or FX) is a global market for exchanging national currencies with one another. Foreign Exchange transactions take place on the Forex market, and its venues comprise the largest securities market in the world by nominal value, with trillions of dollars changing hands each day.

G

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Guarantees & Bonds

Guarantees & Bonds are a financial product used in Trade Finance. A Guaranteed Bond is a debt security that offers the seller additional guarantees that, should the buyer default due to insolvency or bankruptcy, any interest and principal payments will be made by the third party guarantor.

I

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Incoterms Rules

Incoterms or “international commercial terms” are a set of rules published by the International Chamber of Commerce (ICC) to help facilitate commerce around the World. Globally recognised, Incoterms help to prevent confusion in foreign trade contracts by clarifying the obligations of buyers and sellers throughout a trade.

International Chamber of Commerce (ICC)

The International Chamber of Commerce (ICC) is the largest business organisation in the world with hundreds of thousands of member companies from more than 100 countries. The ICC keeps its members fully informed of all issues that affect their industries, maintaining contact with the UN, the WTO and other intergovernmental agencies.

L

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Letters of Credit

Letters of Credit are a financial product used in Trade Finance. Letters of Credit are a legally binding and internationally recognised way to ensure a secure settlement, issued by a bank to another bank (especially across borders) to serve as a guarantee for payments to a specified person once they have fulfilled specific conditions.

P

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Pillar 3 Disclosure

Pillar 3 of the Basel Framework requires internationally active firms such as banks to make public disclosures with the aim of promoting market discipline. Pillar 3 Disclosure includes a sufficiently comprehensive set of information that enables participants to make assessments relating to their risks, capital adequacy, and policies.

R

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Risk Management

Risk Management is the process that helps to ensure that all credit, political and other risks faced by the Bank (or other principal) are correctly identified, measured, prioritised and managed to avoid or minimise their impact on the organisation.

S

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Securities

Securities are tradable financial instruments that hold a monetary value. They represent ownership in a publicly-traded corporation (stock), a creditor relationship with a corporation or government body (a bond) or rights to ownership (an option). They are categorised into equities and debts, although hybrid securities combine equities and debts.

Structured Finance

Structured Finance is the collective term for financial instruments available to companies with complex financing needs that cannot be ordinarily solved with conventional financing. Examples include Collateralised Debt Obligations (CDOs), Collateralised Bond Obligations (CBOs), synthetic financial instruments and syndicated loans.

Surety

A Surety is a person or party that assumes responsibility for the debt, default or other financial responsibilities of another party. Often used in contracts where one party (the principal)'s financial holdings or wellbeing may be in question and the other party (the obligee) wants a guarantor (the Surety).

T

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Trade Finance

Trade Finance makes it possible for importers and exporters to facilitate domestic and international trade and commerce. Letters of Credit, Guarantees & Bonds, and Collections are all examples of Trade Finance products that make trade transactions feasible by mitigating any payment, corporate or country-specific risks associated with that trade.

Treasury

Treasury is the act of processing, reconciling and settling treasury transactions (‘back office’ tasks) within the business. The Treasury’s priority is to ensure the business has the money it needs to manage its day-to-day business obligations, while also helping to develop its long term financial strategy and policies.

U

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Uniform Customs and Practice (UCP)

Uniform Customs and Practice (or UCP) are the International Chamber of Commerce rules (commonly referred to as UCP 500 or ICC 500), that are used for Letters of Credit. These letters then become legally binding when written into the text of the letter.

Uniform Rules for Collections (URC)

The Uniform Rules for Collections (URC) are a set of rules published by the International Chamber of Commerce (ICC) to aid banks, buyers, and sellers in the collections process of debt, owed money or assets. The Rules provide important protection as they outline the responsibilities of each party when it comes to the collection of goods or money.

W

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Warranty

A Warranty is a written guarantee that a manufacturer or other party makes regarding the condition of its product. It can also refer to terms and situations in which exchanges or repairs will be made in the event that the product does not function as described or intended. Warranties often include conditions limiting the terms of that warranty.