GLOSSARY OF TRADE TERMS


IMPORTANT TERMS USED IN INTERNATIONAL TRADE AND FOREIGN EXCHANGE:

Acceptance:

An acceptance of bill of exchange occurs when the drawee commits himself to pay by signing on the bill of exchange. The drawee’s signature alone is a valid acceptance.

Accommodation Bill:

A bill of exchange, to which a person (accommodation party) puts his name, to oblige another person (acceptor). He does not expect to be called upon to pay the bill when it is due, but is liable to the holder for the value of the bill in case the acceptor fails to pay at maturity.

Act of God:

An act of nature beyond human control. Such as lightening, flood, earthquake or hurricane etc. Many shipping and other performance contract include a force majeure clause that excuses a party which breaches the contract due to Acts of God.

Advising Bank:

A bank, usually in the seller’s country, which authenticates the letter of credit and advises it to the seller. An advising Bank may, but not always, confirm the credit.

After Date:

Words written on a bill of exchange show that payment will be made after a particular period of time from the date on the bill.

Agio:

The percentage charged on the exchange of one currency, or one form of money, into another that is more valuable. Also referred to as Premium.

Aliquot:

A sample taken from an imported gold bar for the purpose of assay, to determine the purity of gold.

Allonge:

An attachment to a bill of exchange to provide space for further endorsements when the back of the bill is completely covered.

Arbitrage:

The simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.

At Sight:

A phrase indicating that payment on a draft or other negotiable instrument is due upon presentation or on demand.

Authorised dealer (AD) :

A financial institution or bank authorised to deal in foreign exchange.

Aval:

A payment guarantee, for a bill of exchange, given by third party (often Bank) for all or part payment of the nominal value of the bill.

Bank Rate:

The rate at which a central bank lends money to the domestic banking system.

Banker’s Lien:

It is regarded as an implied pledge, conferring power of sale of any asset to the bank.

Basis Point:

1/100th of 1%. A term used in the statement of changes in interest rates e.g. a change from 5.665 to 5.71% is a change of five basis points.

Bill of Exchange:

A written, unconditional order by one party (the drawer) to another (the drawee) to pay a certain sum, either immediately (a sight bill) or on a fixed date (a term bill), for payment of goods and/or services received. The drawee accepts the bill by signing it, thus converting it into a post-dated check and a binding contract.

A bill of exchange is also called a draft.

Bill of Lading:

A document signed by a carrier (a transporter of goods) or the carrier’s representative and issued to a consignor (the shipper of goods) that evidences the receipt of goods for shipment to a specified destination and person.

Buyer’s Credit:

Buyer’s credit is short term credit availed by an importer from overseas lenders such as banks and other financial institution for goods they are importing. The overseas banks usually lend the importer based on the letter of comfort issued by the importer’s bank.

Cash on delivery (COD):

A method of purchase where payment is to be made when the goods are delivered.

Charter Party:

A contract according to which the owner of the vessel leases it to a merchant (the charterer) for a certain period or a certain voyage.

Combined Transport Document (CTD):

A transport document covering two or more modes of transport by which goods may be moved.

Demurrage:

It refers to a penalty for exceeding free time allowed for loading or unloading at a pier or freight terminal. Also, a charge for undue detention of transportation equipment or carriers in a port while loading or unloading.

Devaluation:

The official reduction of the value of a currency in terms of one or more foreign currencies, a standard (generally gold) or special drawing rights (SDR).

Documentary Bill:

A bill of exchange to which are attached such documents as bill of lading, invoice, insurance policy, dock warrant etc.

Documents against Acceptance (D/A):

It refers to a procedure of collecting payments for an export shipment. Instructions are given that the documents necessary for the buyer to obtain the merchandise from customs and the carrier are to be released to buyer only against the buyer’s acceptance of a time draft drawn upon him.

Documents against Payment (D/P):

It refers to a procedure of collecting payments for an export shipment. Instructions are given that the documents necessary for the buyer to obtain the shipment from customs and the carrier are to be released to buyer only upon payment of the draft.

Electronic Data Interchange (EDI):

Refers to the method of moving data electronically between two computer systems, usually in different locations-different companies.

Endorsement:

The signature on the back of a negotiable instrument made primarily for the purpose of transferring the rights of the holder to some other person.

Escrow Account:

An escrow account is a special bank account. It is an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of contractually agreed conditions by the transacting parties. It may be an account established by a broker, under the provisions of license law, for the purpose of holding funds on behalf of the broker’s principal or some other person until the consummation or termination of a transaction or It may be a trust account held in the borrower’s name to pay obligations such as property taxes and insurance premiums, into which earnings from sales (e.g. convertible currency proceeds from exports) are accumulated.

Factoring:

A method of financing trade whereby the factor purchases the seller’s accounts receivables with or without recourse. The seller transfers title to his accounts receivable to the factor for cash at a discount from the face value.

Factoring involves the sale of any portion of a firm’s receivables. Here, a financial institution which is usually a bank buys the accounts receivable of a company usually a client and then pays up to 80% of the amount immediately on agreement. The remaining amount is paid to the client when the customer pays the debt.

Forfaiting:

It is a form of export finance in which an exporter surrenders possession of export receivables, which are usually guaranteed by a bank in the importer’s country, by selling them at a discount to a forfaiter in exchange for cash.

The forfaiting is a transaction involving the sale of one of the firm’s transactions. By buying these receivables, the forfaiter frees the exporter from credit and the risk of not receiving the payment from the importer.

Freight Forwarder:

An independent business that dispatches shipments for exporters for a fee. The firm may ship by land, air, or sea or it may specialise any one mode.

Hard Currency:

A currency which is freely convertible and generally acceptable throughout the world and which is unlikely to depreciate in value in the foreseeable future.

House Airway Bill:

A bill issued by a freight forwarder for consolidated air freight shipments.

INCOTERMS:

The set of international standards defined by the ICC for uniform interpretation of common contract clauses in international trade. Latest revision is INCOTERMS 2010.

International Chamber of Commerce (ICC):

ICC is a non-governmental Organisation serving as a policy advocate on world business. It aims to facilitate world trade, investment and an international free market economy through consultation with other inter-Governmental organisations.

Jettison:

The act of throwing cargo overboard to lighten a ship in order to save the ship and its contents.

Kite flying:

It refers to the raising of money through accommodation bills.

Limitation Period:

A maximum period set by statute within which a legal action can be taken or a right enforced.

Malafide:

Stands for “In bad faith”. e.g. A seller’s representation that goods are usable for a particular purpose when in fact the seller knows that the goods are not.

Mercahnting:

A process whereby an operator in country A buys goods in country B and ships the goods directly from country B to country C without bringing them to country A.

Multimodal Transport:

Shipping which includes at least two modes of transport, such as shipping by rail and sea.

Nostro Account:

A banking term commonly referred to as “Due from account” meaning “our account with you”, which denotes an account maintained by a bank with foreign correspondent bank.

Notify Party:

It refers to the name and address of a party (usually the buyer or his agent) in the transport document, to be notified by the carrier on arrival of the goods.

Pilferage:

It is a term used in marine insurance policies. The term denotes petty thefts, in other words, stealing of small parts of a shipment as opposed to the theft of the whole shipment. Generally, marine insurance policies do not cover against pilferage, and when this coverage is desired it must be added to the policy.

Prima Facie:

It is a Latin word meaning “on first appearance”. For example, when a shipping company issues a clean bill of lading, it acknowledges that the goods were received “ in apparent good order and condition” and this is said by the courts to constitute prima facie evidence of the condition of the goods.

Quid Pro Quo:

It is a Latin word meaning “something for something”. It refers to something given in return for something received.

Retiring a bill:

A bill of exchange is said to be retired when it is withdrawn from circulation by being paid by the acceptor on the due date or earlier.

SWIFT (Society for worldwide Interbank Financial Telecommunication):

An international community of financial institutions based in Brussels, especially dedicated to handle international inter-bank payments and message traffic.

Swap Transaction:

It is a financial transaction involving simultaneous exchange of assets (the swap) of comparable value by the counterparties. The assets may be commodities or financial instruments involving interest rates, cash flows, foreign exchange, debts or securities.

Trust Receipt:

A document signed by a buyer on the strength of which a bank releases merchandise to him for the purpose of manufacturing or sale, but retains title to the goods. The buyer obligates himself to maintain the identity of the goods or the proceeds thereof distinct from the rest of his assets and to hold them subject to repossession by the bank.

Ultra Vires:

It is a Latin word meaning “beyond the power”. It denotes the act that assumes an authority beyond conferred by law.

Usance:

It refers to the time allowed for payment of an obligation. The term signifies the time, excluding days of grace, which by usage or customs is allowed in certain countries for the payment of a bill of exchange.

Vostro Account:

A banking term commonly referred to as “Due to Account” meaning “your account with us”, which denotes an account maintained with a bank by foreign correspondent bank.

Without Prejudice:

It refers to any statement that cannot be construed as implying liability or legal responsibility and cannot be used as evidence.

Without Recourse:

It is usually used in connection with drafts. When drafts are negotiated without recourse, the beneficiary is relieved of responsibility to the holder of the draft to the extent that is permissible under the contract involved and law governing the transaction.