Trade Finance Definitions

Export Credit Agencies (ECAs)

Are private or quasi-governmental institutions that act as intermediaries between national governments & exporters to issue export financing, in the form of credits (financial support) or credit insurance and guarantees (pure cover) or both, much like normal banking activities

letter of credit

* Document issued which usually provides an irrevocable payment undertaking; can be source of payment for a transaction (i.e. redeeming the letter of credit will pay an exporter)

* Parties involved:

+ beneficiary - who is to receive the money

+ issuing bank - of whom the applicant is a client

+ advising bank - of whom the beneficiary is a client

* bill of landing (BOL or B/L) - document issued by carrier to shipper acknowledging that specified goods have been received on board as cargo for conveyance toa named place for delivery to the consignee

factoring

* Financial transaction where by business sells its accounts receivables to a third party (called a factor) at a discount in exchange for immediate money w/which to finance continued business

* Firm based operation (i.e. firm sells all its receivables); vs. forfaiting, which is a transaction based operation

* Parties involved:

+ seller of receivables

+ debtor

+ factor

Bonds and Inflation

Inflation breakeven rate refers to the difference between the nominal yield on a conventional bond and the real yield on an inflation-indexed bond of the same maturity. It has been used extensively as a tool to obtain the expected inflation.

If the breakevens are rolling over... one possible explanation is that, while the real yield holds steady, yields on conventional bonds are falling (i.e. conventional bonds are being bid higher) (hence the difference between the two yields is also falling). Funds could be flowing into bonds because deflation is considered more of a threat than inflation.