Trade and Commodity Finance Fundamentals — Glossary · Certificate in Trade and Commodity Finance

Certificate in Trade and Commodity Finance Fundamentals Glossary #

Certificate in Trade and Commodity Finance Fundamentals Glossary

A #

A

Advance payment #

An upfront payment made by a buyer to a seller before goods are delivered. It is a common method of payment in international trade and can help the seller cover production costs.

Arbitrage #

The simultaneous purchase and sale of an asset in different markets to profit from price discrepancies.

Asset #

based lending: A form of financing that is secured by a company's assets, such as inventory or accounts receivable.

B #

B

Back #

to-back letter of credit: A financial instrument in which a seller receives a letter of credit from the buyer's bank, which is then used as collateral to issue a second letter of credit to a supplier.

Balance of trade #

The difference between a country's exports and imports over a specific period.

Bill of lading #

A legal document issued by a carrier to a shipper that details the type, quantity, and destination of goods being transported.

C #

C

Commodity #

A raw material or primary agricultural product that can be bought and sold, such as oil, gold, or wheat.

Confirmation #

A guarantee from a bank that a letter of credit will be honored.

Counterparty #

The other party in a financial transaction.

D #

D

Default #

The failure to meet financial obligations or conditions of a contract.

Derivative #

A financial contract whose value is derived from an underlying asset, index, or rate.

E #

E

Export credit agency #

A government agency that provides financial assistance to exporters, such as insurance or loans.

Exposure #

The amount of risk a company faces due to changes in exchange rates, interest rates, or commodity prices.

F #

F

Factoring #

A financial transaction in which a company sells its accounts receivable to a third party at a discount.

Forfaiting #

A form of trade finance in which a forfaiter purchases a seller's receivables at a discount.

G #

G

Guarantee #

A promise by one party to assume responsibility for the debt or obligation of another party if that party fails to meet its obligations.

H #

H

Hedging #

A strategy used to reduce or eliminate the risk of adverse price movements in financial markets.

I #

I

Incoterms #

International commercial terms that define the responsibilities of buyers and sellers in international trade transactions.

Invoice financing #

A form of short-term borrowing in which a company uses its accounts receivable as collateral for a loan.

J #

J

Joint venture #

A business arrangement in which two or more parties agree to combine their resources to achieve a specific goal.

K #

K

Know your customer (KYC) #

The process of verifying the identity of clients to prevent money laundering and fraud.

L #

L

Letter of credit #

A financial instrument issued by a bank that guarantees payment to a seller if certain conditions are met.

Lien #

A legal right or interest that a lender has in a borrower's property until a debt is repaid.

M #

M

Margin call #

A demand by a broker for an investor to deposit more money or securities into a margin account to cover potential losses.

N #

N

Netting #

The process of offsetting the value of multiple positions or payments due to be exchanged between two parties.

O #

O

Off #

balance sheet financing: A form of financing in which a company does not show a liability on its balance sheet.

P #

P

Performance bond #

A guarantee by a third party that a contract will be fulfilled according to its terms.

Prepayment risk #

The risk that a borrower will repay a loan early, depriving the lender of future interest payments.

Q #

Q

Quality control #

The process of ensuring that products or services meet specified quality standards.

R #

R

Receivables financing #

A form of financing in which a company uses its accounts receivable as collateral for a loan.

Refinancing #

The process of replacing an existing debt obligation with a new one.

S #

S

Standby letter of credit #

A financial instrument that guarantees payment to a beneficiary if the applicant fails to fulfill its obligations.

Supply chain finance #

A form of financing that helps companies optimize their working capital by extending payment terms to suppliers.

T #

T

Trade finance #

The financing of international trade transactions, including lending, issuing letters of credit, and providing insurance.

U #

U

Underwriting #

The process of evaluating and assuming risk for a fee, such as issuing insurance or securities.

V #

V

Valuation #

The process of determining the value of an asset or company.

W #

W

Working capital #

The funds a company uses to finance its day-to-day operations, such as inventory and accounts receivable.