Trade and Commodity Finance Fundamentals
Expert-defined terms from the Certificate in Trade and Commodity Finance course at London School of Planning and Management. Free to read, free to share, paired with a globally recognised certification pathway.
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.