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method of export trade financing, especially when dealing in capital goods (whic
h have long payment periods) or with high risk countries. In forfeiting, a bank
advances cash to an exporter against invoices or promissory notes guaranteed by
the importer's bank. The amount advanced is always 'without recourse' to the exp
orter, and is less than the invoice or note amount as it is discounted by the ba
nk. The discount rates depends on the terms of the invoice/note and the level of
the associated risk.
investment management
The process of managing money, including investments, budgeting, banking, and ta
xes. also called money management.
letter of credit
L/C. A binding document that a buyer can request from his bank in order to guara
ntee that the payment for goods will be tranferred to the seller. Basically, a l
etter of credit gives the seller reassurance that he will receive the payment fo
r the goods. In order for the payment to occur, the seller has to present the ba
nk with the necessary shipping documents confirming the shipment of goods within
a given time frame. It is often used in international trade to eliminate risks
such as unfamiliarity with the foreign country, customs, or political instabilit
balance of payments
An accounting record of all transactions made by a country over a certain time p
eriod, comparing the amount of foreign currency taken in to the amount of domest
ic currency paid out.
book building
The process of determining the price at which an Initial Public Offering will be
offered. The book is filled with the prices that investors indicate they are wi
lling to pay per share, and when the book is closed, the issue price is determin
ed by an underwriter by analyzing these values.
bought deal
An offering in which the underwriter (or syndicate) buys all the shares and rese
lls them. When the underwriter's) are willing to take this risk it is a sign tha
t they have a high degree of confidence in the issue's success.
green shoe
A provision in an underwriting agreement which allows members of the underwritin
g syndicate to purchase additional shares at the original. This is a useful prov
ision for underwriters in the event of exceptional public demand. The name comes
from the fact that Green Shoe Company was the first to grant such an option to
underwriters. also called overallotment provision.
corporate finance
The division of a company that is concerned with the financial operation of the
company. In most businesses, corporate finance focuses on raising money for vari
ous projects or ventures. For investment banks and similar corporations, corpora
te finance focuses on the analysis of corporate acquisitions and other decisions