A-B
Acceptance
Word "accepted" written over the name of the drawee. The acceptance renders the B/E an unconditional and irrevocable obligation of the drawee to pay the sum designated on the bill on the maturity date of the B/E.
Advance against documents
A loan secured by some sort of documents entitling to title.
Advise
Banking term for different notifications.
Advised documentary credit
DC with a verification of its authenticity by a Bank. The advising bank does not assume responsibility for the payment.
Advising bank
Bank that verify that a DC has been opened and is authentic, but does not assume responsibility for payment of the DC.
All-in rate
Interest rate on a loan including all costs, whether flat or not.
Amortisation
The payment of debt in staged payments, instalments.
Arrangement fee
Fee charged to cover the overhead expenses of the financier.
Assignee
The acquirer of title or interest. See assignor.
Assignor
The one who transfers title or interest. See assignee.
At sight
A phrase indicating that a financing instrument is payable on demand and when presented.
Aval
A form guarantee of a negotiable instrument, usual in B/E arrangements. Aval gives rise to an unconditional liability for the payment of the B/E, which is independent of the possible defences that the others in the chain might have had. Refer to Geneva Convention on B/Es. Aval is unknown in most countries with Anglo-Saxon legal traditions.
Average life
Total amount of balance of loan outstanding in the end of each year divided by the total principal amount of the loan. Indicates the effective risk period for the principal amount.
B/E
Bill of Exchange.
B/L
Bill of Lading.
Back-to-back documentary credit
A term used to denote a letter of credit issued for the account of a merchant already holding another letter of credit in his favour. Used to cover the same shipment as the first letter of credit and thus to enable merchandise to be forwarded.
Bank bill
A draft or a B/E, the acceptor of which is a trust company or a bank.
Bank draft
An international transfer of funds using an instrument much like a cheque.
Bank guarantee
An undertaking by a Bank to pay the beneficiary of the guarantee if the original Obligor is in default.
Bank note
Promissory notes issued by the central bank and payable on demand.
Basis point
One hundredth of one percentage point.
Bearer
Person carrying a security of some sort.
Bearer bond
A security the ownership of which belongs to whoever has physical possession of the security.
Beneficiary
The person in favour of whom a B/E or DC or a draft is drawn.
Bill for collection
B/E sent to a bank for collection. In respect of Bills for collection the bank won't discount the bill but acts as collection agent only
Bill of exchange
An instrument of payment in international trade. An unconditional written order to pay a certain sum signed and issued by the drawee to the acceptor who after having accepted the B/E becomes obligated to pay the sum to the drawer on the defined date. Bs/E are freely negotiable instruments and can be assigned to third parties. Governed in most jurisdictions by national rules based on the Geneva Convention on bills of exchange.
Bill of lading
A negotiable marine transport document representing title to goods under the B/L.
Bill renewal
Prolonging the validity of a Bill of Exchange by postponing the expiry date.
Bridge financing
Interim financing in an export or project finance operation. Bridge financing facility is to be replaced by the final export or project financing facility later
Built-operate-transfer (BOT)
A modus operandi in projects. The host government typically grants a license to provide a certain service or enters into a purchase of service agreement for a certain time period with a project company, which then builds the necessary utilities, operates them and at the end of concession period hands the utilities over to the host government.
Bullet
A loan or placing which is paid back entirely on its maturity.
Buyer credit
An export financing arrangement in which a bank or an ECA lends money directly to a foreign buyer of exported goods enabling the buyer to make payment due to the exporter. Medium to long-term financing.
C-D
Cash against documents (CAD)
Method of payment in which a third party intermediary transfers title documents to the buyer upon payment in cash
Cash in advance
A method of payment in which the buyer pays for the goods before receipt of goods or title documents.
Cash with order
Method of payment in which the buyer pays when ordering the goods or service.
CIRR
Commercial interest reference rate.
Clean draft
A draft with no documents attached.
Cofinancing
Joint financing of large projects in developing countries with loans or grants by more than on lender or development agency. Could include participation from commercial banks, World Bank, development organizations and ECAs.
Collateral
Assets pledged as security for a credit, the pledged assets usually being something readily convertible into cash, i.e. securities.
Collection
The presentation for payment of any obligation, B/E or other financial instrument.
Collection papers
Documents submitted to a buyer for the purpose of receiving payment for shipment.
Commercial invoice
Accounting document by which the seller claims payment from the buyer for the value of goods or services provided.
Commercial register
Register of companies containing their official names, information on signatories, addresses and so forth.
Commercial risk
The risk of non-payment by a non-sovereign or private sector borrower arising from default, insolvency, and/or failure to take up goods that have been shipped according to the supply contract.
Commercial risk coverage
Coverage provided by an ECA, Credit Insurance Institution or insurance companies for the commercial risks.
Commitment
A firm obligation by a bank to provide funds on a future date; the aggregate credit liability, which the bank has assumed in respect of an individual customer.
Commitment fee
A fee charged for the firm obligation to provide funds on future date.
Committed loan facility
A term used to denote that a bank has in a legally binding way committed to the Loan facility to be provided to a customer.
Completion guarantee
Guarantee provided by contractor through a performance bond or another security arrangement guaranteeing that the project or facility will be completed and operational on the stipulated date.
Completion risk
Risk that a project is not completed and constructed on time or delivered with technical deficiencies.
Concessional loan
Finance provided below market rates, usually backed by the public sector.
Confirmed documentary credit
A documentary credit arrangement in which a bank in the exporter's country adds its confirmation to DC i.e. its guarantee of payment. The position of the exporter is thus covered also in respect of default of the foreign bank.
Consensus
Refers usually to the OECD Consensus on Officially Supported Export Credits
Cost of funds
A term used to denote the lending party's funding costs. Usually referring to the best rate on which the bank can get money from the market.
Country risk
General level of political and economic uncertainty arising from social, economic and legal factors in a particular country, i.e. the risk of lending or under a guarantee from the government
Covenant
A contractual agreement by a borrower to perform certain action, usually to disclose information or to take care that certain financial ratios are sustained at the level specified. The breach of covenant constitutes usually an event of default.
Cover
Provision of export credit guarantee or insurance against commercial and/or political risk.
Credit risk insurance
Insurance designed to cover default by the Obligor
DC
See Documentary Credit
Default
The failure to repay a loan on schedule or to make timely payment of interest, or other incidence determined to be an event of default in the loan agreement. Once the borrower is in default the bank will usually initiate action to recover its money.
Deferred payment documentary credit
Type of documentary credit providing some time for the repayment after the presentation of documents.
Demand draft
Draft payable on demand.
Demand line of credit
A bank credit line that enables the customer to borrow on an on demand basis.
Disbursement
Drawing on a loan, paying out cash.
Discount
Deduction from a value of a commercial paper in consideration of receipt by the seller of the paper of cash before the maturity of the paper.
Discount rate
The interest at which bills are discounted. The price of the advance payment.
Dishonour
Refusal on the part of the drawee to accept a draft or pay it when due.
Documentary collection
A method of payment in which the bank acts only as a collection agent. The documents entitling to goods are released against cash payment or acceptance.
Documentary credit
A financial document issued by a bank at the request and responsibility of the applicant (buyer of merchandise) to a beneficiary (seller), authorizing him to draw drafts to a stipulated amount under specified terms and undertaking by the bank to conditionally or unconditionally to provide payments for drafts. The DC guarantees payment to the seller if and when certain conditions are fulfilled. Also known as Letter of Credit.
Documents against acceptance
A method of payment in which the documents entitling to title are released against acceptance of draft
Documents against payment
Method of payment in which the documents entitling to goods are released upon payment.
Down payment
Payment due from the buyer to supplier in cash before entry into a contract or performance under a contract. In most cases a down payment of 15 per cent of the contract value is a prerequisite for ECA coverage down payment also being ineligible for coverage.
Draft
Another word for B/E.
Drawee
The person to whom a B/E is addressed or who is expected to accept it and pay on maturity
Drawer
The person who issues a B/E and stands to receive payment under it.
Drawing
Used to denotate a disbursement from the Borrower's point of view.
E-F
EBRD
European Bank for Reconstruction and Development. One of the institutions that provide financial aid to countries in transition in form of loans to individual or corporate borrowers. Participates in projects.
ECA
Export credit agency. A generic name for all government institutions that provide financial support to exports in form of subsidized loans or guarantees.
EIB
European Investment Bank
Endorsement
Method of transferring the title to a negotiable instrument. Done by writing one's name on the back of the instrument.
Escrow account
Accounts hold usually in offshore banks for the benefit of the debtor outside the debtor country through which a portion of the export proceeds of the debtor is channelled. Positive balances are usually kept to cover future debt service payments.
Euribor
European Interbank Offered Rate, published daily by the International Banker's association or the Federation Cambiste International at or about 11 a.m. Brussels time.
Export credit agency
See ECA.
Export credit guarantee
ECA granted guarantee covering credit risks connected with exports.
Export credit insurance
An insurance policy providing cover for export related credit risks. Usually provided by government-backed organizations, although commercially operating insurance providers exist.
Face value
The nominal value of a bill.
Factoring
A method used by businesses to obtain cash for receivables with due dates in the future. Factoring house purchases the receivables at discounts them and paying the business a certain percentage of the receivable's face value. The factoring house then collects the receivables. Most common with domestic receivables.
Financed portion
A term denoting the portion of the export contract's value that is financed. Usually 85 % as the ECAs usually require a down payment of 15 %.
Financial engineering
A process involving the creation and combination of a variety of financial instruments in order achieve a defined financial objective within certain cost, tax and legal constraints
Fixed-date bill
Bill of exchange that becomes due and payable at a stipulated date after the issue date. Also known as after-sight bill
Fixed-rate loan
A loan with a permanent non-variable interest rate fixed for the entire life of the loan.
Flat
A once-for all percentage on the principal on a certain date as opposed to per annum rates
Floating rate
An interest rate consisting of a variable market rate plus a margin
Force majeure
The title of standard clauses in contracts limiting the parties' liability for non-fulfilment of their obligations as a result of conditions beyond their control.
Foreign content
Goods and services originating from another country than the one of which ECA is providing cover for the particular export transaction.
Forfaiting
A non-recourse export financing approach. The financier purchases bank avalized notes and carries all risks with no recourse to the exporter.
Front end costs
Commission fees and other charges taken at the outset of the loan.
G-M
Grace days
Terms used in connection with drafts to denote the days for which interest is paid in addition to maturity thus providing time for the funds to be transferred.
Grace period
The period during which no repayments of principal are due from borrowers to lenders.
Indication of interest
A legally non-binding document sent to indicate the terms of possible financing.
Instalment
The regular periodic payment that a borrower agrees to make to the lender.
Interbank rate
Cost for the use of capital by prime banks expressed as a percentage of the sum of money borrowed.
Interest rate
The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal; the rate is dependent upon the time value of money, the credit risk of the borrower, and the inflation rate.
L/C
Letter of credit. See also Documentary Credit.
Letter of credit
See Documentary Credit.
LIBOR
London Interbank Offered Rate, the London Interbank base-borrowing rate, the interest rate applied in large Interbank transactions. Represents the best current market rate for the currency in question.
Limited recourse financing
Financing with limited recourse to the project company or the exporter. i.e. the financier takes risks traditionally born by some other parties to bear.
Liquidated damages
Damages determined in contract that the party in breach of contract is liable to pay if a prescribed incidence occurs. Usually a percentage of the contract value.
Margin
Premium covering the credit risk of the Borrower. The total interest rate is the aggregate of the Lenders cost of funds and his margin for the risk taken.
Matching
Term used to denote the process in which the ECA matches its guarantee or insurance conditions with those of an ECA. Due to EU rules, in deals where two or more ECAs would be eligible, the conditions and terms have to be matching.
Maturity
The date on which an obligation becomes due and payable.
Maximum coverage
The highest percentage of the loan principal that can be guaranteed or insured.
Mean delivery
The date by which 50 % of the value of the goods to be delivered or the services to be render have been delivered or rendered. Significant in ECA covered transactions as the beginning of credit period and repayment is often determined in relation to the mean delivery.
Mixed credit
Credit with government support or subsidy in form of interest support or grants. To be eligible for a mixed loan facility the project must commercially unfeasible. Also known as soft loan
Multi sourcing
A term used to denote the provision of goods from a number of different countries.
N-P
Negotiable instrument
Financial instrument that can be transferred with a legally binding effect towards third parties without notification to the issuer.
Negotiating bank
In a letter of credit operation the bank that accepts the documents for the purpose of examining and crediting the documentary credit amount from the exporter's beneficiary.
Net present value
Estimate of all inward and outward cash flows of a project or of a transaction discounted to the present date.
Nominal value
Face value.
Non-recourse financing
Financing in which the financier takes the risk and has no recourse to the project company or the exporter.
Note
Short term for financial instruments consisting of unconditional and irrevocable written promise to pay a sum of money to someone on a certain date.
OECD
Organization for Economic Co-operation and Development.
Off-cover
Term used by ECAs to denote that coverage is not provided for the particular geographical area or risk type.
Off-shore
Term used to denote a geographical area, usually on exotic location, where government control and regulations concerning financial markets are laxed.
Officially supported export credit
Export credit with ECA or governmental credit insurance cover
On demand
At sight, payable when due and presented.
On sight
On demand, payable when due and presented.
Open account
Means of payment by which the seller extends credit directly to the buyer. The goods are shipped and delivered before payment or acceptance of any negotiable instrument by the buyer. The seller is thus taking the direct risk of the buyer's insolvency or unwillingness to pay. In international commerce usual only when a long-standing relationship between the buyer and seller exists.
Payable in arrears
Expression used in connection with interest payments denoting that interest is payable at the end of the interest period as opposed to payable in advance
Payee
The person or company to whom the a draft or bill is payable
Performance bond
A bond provided by a bank or insurance company to assure the buyer that the supplier or contractor will perform according to the contract. The bond will compensate the buyer should the supplier fail. Typically 10 per cent of the contract price.
Pledge
Transfer of an asset to secure payment of obligation without transfer of title or ownership. In event of default the borrower can acquire the pledged assets as repayment.
Political risk
Risk of loss due to default on payments of exports arising from political causes: currency inconvertibility, expropriation of the Obligor, other government interference, war or revolution
Political risk coverage
Coverage provided for the ECAs for political risk. Typically extends to 95 - 100 per cent of the loan amount.
Post-shipment financing
Financing for the period following shipment. Required to ensure sufficient liquidity on part of the seller until the finished products have reached the purchaser and payments become due and received.
Post-shipment risk
Event causing loss after shipment of goods.
Pre-shipment financing
Financing for the period prior to the shipment of goods to support exporters pre-export activities and provide additional working capital.
Premium
The amount paid in advance to the provider of coverage against loss.
Pro forma invoice
The first draft of an exporter's bill to an importer. An invoice providing information on the basic details of the goods to be delivered, their quality, quantity and price. Based on the pro forma invoice the purchaser decides whether to confirm his order or not.
Project finance
A way of financing big capital projects. The financing depends on the expected future project cash flows as the security for the financing primarily without direct recourse to equity investors. Project companies are usually low-equity high gearing SPV:s with little or no assets in the beginning of project.
Promissory note
An unconditional promise in writing issued and signed by the debtor to pay on demand or on a fixed date a stated amount of money to the order of a specified person or the bearer. Transferred by endorsement. Rules governing P/N are often based on the Geneva Convention on Bs/E.
R-Z
Receivable
In general that which is due or to be due and collectable i.e. total amounts due for goods sold or services rendered.
Recourse
The right to demand payment from someone who has undertaken to pay if someone else in the chain of payees fails to pay.
Refinance
Paying of existing debts with new ones.
Regress
Recourse taken by the holders of bills or drafts to previous holders.
Relending
Funding provided by an ECA to a commercial bank in support for the credits extended by the bank. Usual in Sweden.
Renewal
The process in which an old debt is cancelled by the establishment of a new one, thus renewing or extending the credit.
Rescheduling
The process in which debt repayment is rescheduled usually due to debtor incapability to pay according to original plans.
Residual risk
Risk that cannot be allocated but has to be bore by the financier.
Retention of title
A means of securing payment. Ownership and title are not transferred until the contract prize is paid in its entirety.
Revocable documentary credit
A documentary credit that can be revoked by the issuing bank without the beneficiary's consent.
Secondary market
The market in which an investor purchases a security from another investor rather than the issuer, subsequent to the original issuance in the primary market, also called aftermarket. Exists in respect of P/N and B/Es. Trade Asset Distribution used to describe the operations of a forfaiting house to dilute their risk position.
Sight bill
A bill payable on demand.
Soft loan
A loan with generous repayment terms often due to government subsidies.
Special purpose corporation (SPC)
Corporate entity created and established for a pecial purpose, i.e. project company, also known as special purpose vehicles (SPVs)
Spot rate
The interest rate for funding fixed immediately. Spot funds are at the disposal of the lender in two days time.
Standby credit
Arrangement to lend money in case of need, usually at market rates and sometimes with a commitment fee.
Standby letter of credit
An undertaking issued by a bank at the request of an obligor to a beneficiary that the bank will make payment if the obligor does not fulfil certain defined obligations in accordance with the contract with the beneficiary. Mainly used in the U.S. where bank guarantees are not allowed
Supplier credit
A financing arrangement under which a bank or ECA makes a loan available to the supplier. The loan is then collateralised by the export receivables held by the supplier.
Supply-or-pay contract
A contract under which a supplier agrees to supply raw materials, products or services at a certain price for a stated period, and in the event of non-performance agrees to pay for the alternative supply.
SWIFT
Society for Worldwide Interbank Financial Telecommunication. A Belgian non-profit corporation that provides a telecommunication system used by the banks for exchanging financial messages and transferring funds. Messages are authenticated and thus reliable.
Syndicate
Group of banks that each provide certain funds for financing of a sizable transaction.
Syndicated credit
Club deal. Credits too big for one bank to handle alone. A credit granted jointly by two or more banks.
Take-and-pay contract
A contract that requires the purchaser to take and pay for goods or services only if delivered.
Take-or-pay contract
A contract that requires the purchaser to pay for goods whether delivered or not.
Tenor
The term fixed for payment of a credit.
Term loan
A business loan with a final maturity of more than one year and that is payable according to a specified schedule.
Tied aid credit
Refers to the practice of providing a grant or concession, either alone or combined with an export credit, linked to procurement from the donor country.
Tied loan
A loan made by a government agency that requires a foreign borrower to spend the proceeds in the lender's country.
Time draft
A draft calling for payment on a later date after delivery of goods.
Title
Ownership, document-verifying ownership.
Tranche
In export credits, a portion of the whole financing, to which particular terms and conditions are applied.
Trustee
An individual or organization, which holds or manages and invests assets for the benefit of another.
Use-or-pay contract
See take-or-pay.
Value date
In international (and as well domestic) fund transfers, the date on which the funds are at the disposal of the transferee.
Without recourse
Without right to revert to someone else for the payment of an obligation. In project finance means that the lender has no recourse to the project sponsors.
Yield
The annual rate of return on an investment, expressed as a percentage.