Glossary of Terms

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Acceptance Letter of Credit

A letter of credit that, in addition to other required documentation, requires presentation of a term draft drawn on the bank nominated as the accepting bank under the letter of credit.

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Accepted Draft

A bill of exchange accepted by the drawee (acceptor) by putting his signature (acceptance) on it's face. In doing so, he commits himself to pay the bill upon presentation at maturity.

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Accepting Bank

A bank that by signing a time draft accepts responsibility to pay when the draft becomes due. In this case the bank is the drawee (party asked to pay the draft) but only becomes the acceptor (party accepting the responsibility to pay) upon acceptance (signing the draft).

See: Accepted Draft

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The party that signs a draft or obligation, thereby agreeing to pay the stated sum at maturity.

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Account Party

The party that instructs the bank (issuing bank) to open a letter of credit. The account party is usually the buyer or importer.

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Advance Against Collection

A short term loan or credit extended to the seller (usually the exporter) by the seller's bank once a draft has been accepted by the buyer (generally the importer) of the seller's goods. Once the buyer pays the loan is paid off. If the buyer does not pay the draft, the seller must still make good on the loan.

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Advance payment

Trading method in which the buyer pays for the goods before they are dispatched. Used where the buyer is of unknown creditworthiness and is unable to obtain a letter of credit.
(Also used as a matter of convenience for small orders).

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The forwarding of a letter of credit, or an amendment to a letter of credit to the seller, or beneficiary of the credit, by the advising bank (typically the sellers bank).

The term "advice" connotes several types of forms used in the banking field. In general terms an advice is a form of letter that acknowledges a certain action or result in regards to a customer's relation to the bank. Examples include credit advice, debit advice, advice of payment, and advice of execution. In commercial transactions, information pertaining to a business activity such as the delivery of goods.

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Advice of fate

A bank's notification of the status of a collection that is still outstanding.

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Advised Credit

A letter of credit whose terms and conditions have been forwarded by a bank.

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Advising bank

Bank (also referred to as the seller's bank or exporter's bank), usually in the seller's country, whose primary function is to authenticate the letter of credit and advise it to the seller.

The Advising bank MAY also take on other roles in the transaction, e.g.:

* confirm the letter of credit (confirming bank)
* accept a term bill of exchange (accepting bank)
* pay the seller upon presentation of documents (paying or negotiating bank)

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After Date

A notation used on financial instruments (such as drafts or bills of exchange) to fix the maturity date as a fixed number of days past the drawing of the draft. For example, if a draft stipulates "90 days after date" it means that the draft is due (payable) 90 days after the date it is drawn. This has the effect of fixing the date of the maturity of the draft, independent of the date of acceptance of the draft.

See: Acceptance Letter of Credit

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After sight

A notation on a draft that indicates that payment is due a fixed number of days after the draft has been presented to the drawee. An example of which is "30 days after sight" which means that the drawee has thirty days from the presentation of the draft to make payment.

See: Acceptance Letter of Credit

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Agent bank

A bank acting for a foreign bank or a bank handling administration of a loanin a syndicated credit.

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Air waybill

Transport document used in air freight. Serves as a receipt for the goods and evidence of carriage contract.

An airway bill is used by many truckers as a through document for coordinated air/truck service.

Airway bills are not negotiable. The airline industry has adopted a standard formatted waybill that accommodates both domestic and international traffic. The standard document was designed to enhance the application of modern computerized systems to air freight processing for both the carrier and the shipper.

An air waybill is not a document of title and so is not needed by the consignee in order to claim the goods from the carrier.

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All risks insurance

Extensive insurance coverage of cargo including coverage due to external causes (risks set out in Institute of London Underwriters Cargo Clauses A.) such as fire, collision, pilferage, etc., but usually excluding such "special" risks such as those resulting form acts of war, labor strikes, perishing perishable goods, and from internal damage due to faulty packing, decay, or loss of market.

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An addition, deletion or change in a legal document.

A change in the terms and conditions of a letter of credit (e.g., extension of the letter of credit's validity period, shipping deadline, etc.), usually to meet the needs of the seller. The seller requests an amendment of the buyer who, if he agrees, instructs his bank (the advising bank) who then notifies the seller of the change. In the case of irrevocable letters of credit, amendments may only be made with the agreement of all the parties to the transaction.

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Buyer/importer in a letter of credit transaction, who applies to the Issuing Bank for a letter of credit in favor of the seller (beneficiary).

May also be referred to as the accountee or accreditor.

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Approval basis

If documents containing discrepancies are presented to the nominated bank under a letter of credit, the bank can forward the documents to the issuing bank for approval, with the beneficiary's agreement. Because of the risk of loss in transit and delay's resulting in interest loss, however, it is recommended that the beneficiary first try to correct the document; but, if that is not possible, the beneficiary asks the nominated bank to contact the issuing bank for authorization to accept the discrepancies.

Issuing banks charge a fee to accept discrepant documents if they will,

in fact, accept them.

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Arrival notice

A notice furnished to the consignee and shipping broker alerting them to the projected arrival of freight and it's availability for pickup.

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The transfer of rights, title, interest, and benefits of a contract or financial instrument to a third party.

The beneficiary of a letter of credit is entitled to assign his claims to any of the proceeds that he may be entitled to, or portions thereof, to a third party. Usually the beneficiary informs the issuing bank that his claims under the letter of credit were assigned and asks the bank to advise the assignee (third party) that it has acknowledged the assignment. The validity of the assignment is not dependant on bank approval. In contrast, the transfer requires the agreement of the nominated (beneficiary) bank. An assignment is possible regardless of whether the letter of credit is transferable.

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At sight

Terms of a financial instrument that is payable upon presentation or demand. A bill of exchange may be made payable, for example, at sight or after sight, which (respectively) means it is either payable upon presentation or demand or within a particular period after the demand is made.

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In letters of credit, refers to the availability of documents in exchange for payment of the amount stated in the letter of credit.

Availability options are as follow:

By sight payment: payment on receipt of the documents by the issuing bank or the bank nominated in the letter of credit.

By deferred payment: payment after a period specified in the letter of credit, and the payment thereof at maturity.

By acceptance: acceptance of a draft (to be presented together with other documents) by the issuing bank or by the bank nominated in the letter of credit, and the payment thereof at maturity.

By negotiation: the giving of value by the nominated bank to the beneficiary for the documents presented, subject to receipt of cover from the issuing bank.

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Payment undertaking given by a bank in respect of a bill of exchange drawn on a buyer. A way of giving security to the drawer of a term bill.

The bill is stamped with wording such as 'Pour aval' and signed by a representative of the bank.

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