Vocab Chapter 7

In a letter of credit transaction, the bank that determines whether the issuing bank is a legitimate bank, and whether the terms of the letter of credit offered by the issuing bank on behalf of the importer are appropriate

Advising Bank

Which of these financial instruments are not normally perceived a form of payment in international trade?

All

A change to a letter of credit to which all parties have agreed, from the applicant to the beneficiary

Amendment

The firm asking the issuing bank for a letter of credit.

Applicant

A process by which parties to a contract choose to settle a dispute with the decision being binding on both parties.

Arbitration

In a documentary collection, the promise by the presenting bank that the importer will honor the draft and that, should the importer default, the bank will make the payment.

Aval

A letter of credit issued using another letter of credit as a payment guarantee.

Back-to-Back Letter of Credit

Which is an alternative to a stand-by letter of credit

Bank Guarantee

A contract from a bank whereby the bank guarantees that an exporter will perform as required by its contract with the importer.

Bank Guaruntee

Which is illegal in the US?

Bank Guaruntee

In a documentary collection transaction, the alternative whereby the presenting bank signs the draft on behalf of the importer.

Banker's Acceptance

The firm named in a letter of credit as the firm to which the bank is insuring payment if the importer does not pay.

Beneficiary

Which is another term for draft?

Bill of Exchange

Which is not a method of payment in international trade

Bill of Exchange

A promissory note in which the importer formally recognizes its debt to the exporter

Bill of Exchange/ Draft

A method of payment in which an importer has to pay the exporter before the exporter ships the goods

Cash In advance

Which is the most beneficial term of payment for the exporter

Cash in advance

The probability of not getting paid by a certain creditor, because this creditor does not have the funds to pay the debt or because the creditor refuses to pay the debt.

Commercial Risk

A payment alternative in which the exporter asks a bank to provide an additional level of payment security to a letter of credit

Confirmed Letter of Credit

The bank providing an additional level of payment security to the beneficiary of a letter of credit.

Confirming Bank

A foreign bank with which a domestic bank has a preferred business relationship.

Correspondent Bank

The probability of not being paid by a creditor, because the importer's country does not have the foreign currency or does not allow the creditor to pay (political embargo).

Country Risk

An insurance policy under which commercial risk of nonpayment by the importer is covered; occasionally covering political risks as well.

Credit Insurance

In a documentary collection transaction, a promissory note that the importer has to pay a number of days (30, 60, 90, or 180 days) after the exporter ships the goods

Date Draft

A difference between the documents required by the letter of credit and the documents provided or obtained by the exporter

Discrepancy

A method of payment in which an exporter enlists the help of a bank in the importer's country to collect payment from the importer.

Documentary Collection

The relative consequences of a particular risk for an exporter (e.g., given its size).

Exposure

A means of financing international receivable accounts, by which a firm asks a factoring company to advance funds on the receivable

Factoring

A means of financing an international sale in which an exporter collects a series of drafts from the importer, and then sells them

Forfaiting

The bank that provides a bank guarantee.

Guarantor

A document sent by an exporter to a presenting bank that spells out the exporter's instructions regarding how it expects the bank to handle the documents and how it expects the bank to handle an importer that does not accept the draft sent.

Instruction Letter

A type of a letter of credit that cannot be altered without the express consent of all parties involved (exporter, importer, issuing bank, and advising bank).

Irrevocable letter of credit

The bank providing the letter of credit to the importer

Issuing Bank

A method of payment in which a bank promises to pay the beneficiary (the exporter) on behalf of the applicant (the importer), as long as the exporter has provided the requested documents.

Letter of Credit

Which is the most cumbersome method of payment

Letter of Credit

Which requires a trade or banker's acceptance?

Letter of Credit

Which is the most common in Middle East

Letters of Credit

The final process by which parties to a contract have to settle a dispute, in a court of law

Litigation

A process by which parties to a contract choose to find a non-binding compromise in a dispute

Mediation

A method of payment in which the exporter sends an invoice to the importer along with the goods and expects the importer to pay within a reasonable amount of time

Open Account

In a documentary collection transaction, the bank that interacts with the importer on behalf of the exporter.

Presenting Bank

A credit card used by companies to make small purchases, and that can be used in international transactions.

Purchasing Card

Which is recommended for small transactions

Purchasing Card

Which is the most beneficial term of payment for the importer

Purchasing Card

A letter of credit that allows the beneficiary to obtain funds from the applicant before the goods are shipped.

Red Clause Letter of Credit

In a documentary collection transaction, the bank that interacts with the exporter and with the presenting bank in the importing country

Remitting Bank

In a documentary collection or a letter of credit transaction, a promise by the importer that it will pay immediately

Sight Draft

A type of letter of credit that covers more than one shipment and can be used to secure the performance of the seller

Stand-by letter of credit

In a documentary collection transaction, a promissory note that the importer has to pay a number of days (30, 60, 90, or 180 days) after it signs it.

Time draft

n a documentary collection transaction, the alternative whereby the exporter expects the importer to readily accept signing a draft after being notified by the presenting bank that the documents have arrived.

Trade Acceptance

Which is likely to become more popular in the future

Trade Card

. A proprietary process that combines payment and documents and facilitates international transactions.

TradeCard

Which is probably the least common method of payment in international trade

TradeCard

_ A letter of credit that the beneficiary can use as a means to assure its creditors that they will be paid

Transferable Letter of Credit