1. Compare nominal interest rate with real interest rate.

The nominal interest rate (or money interest rate) is the percentage increase in money

you pay the lender for the use of the money you borrowed.

For instance, imagine that you borrowed $100 from your bank one year ago at 8%

interest on your loan. When you repay the loan, you must repay the $100 you borrowed

plus $8 in interest—a total of $108.

But the nominal interest rate doesn’t take inflation into account.

When the bank publishes the interest rate for the money market account, they use the

nominal rate.

However, the rate that is important is the real interest rate. The real interest rate is the rate

of interest after adjusting for inflation.

Nominal interest rate – Inflation = Real interest rate

When the loan is made, what the actual inflation rate will be is unknown, so the expected

rate of inflation over the loan's period is used in the formula.

2. Aval vs Endoresment

The payment of a bill of exchange may be guaranteed by an „aval” (a good)

which can be equal with the whole amount or just a part of it. The aval

is a guarantee granted by a third party called guarantor. This 3rd party,

the guarantor, agrees to cover the payment of the amount of the credit

title in the case of the debtor’s incapacity of fulfilling his obligation.

Endorsement refers to signing a bill of exchange on verso in

order to transfer the right of cashing it in to another party. The

endorser is the person who transfers the right and the endorsee is the

one reciving it . In a bill of exchange, there are 3 parties: the drawer,

the drawee and the beneficiary. Endorsing means that the beneficiarly

orders the drawee to pay the endorsee the mentioned sum.

Aval and endorsement are two opposite processes.

Avalization is the process of transferring the payment obligation to the

guarantor while endorsement is the process of transferring the cashing

in right to the endorsee. Both processes imply transfer, just that the

first one (avalization) is a transfer of obligations and the second

(endorsement) it the transfer of rights.

Avalization-avalizare

Aval – bunul girat

Guarantor-persoana care gireaza, girant

Guarantee- girat, cel care are datorie

Endorser - cel care te imputerniceste

Endorsee- noul beneficiar, adica imputernicitul

3. Advising Bank- Confirming Bank

The Advising bank (also known as a notifying bank), advises a beneficiary (exporter) that a letter of credit (L/C) opened by

an issuing bank for an applicant (importer) is available. The Advising

Bank's responsibility is to authenticate the letter of credit issued by the

issuer to avoid fraud. The advising bank is not necessarily responsible

for the payment of the credit which it advises (informes) the

beneficiary of.

The advising bank is usually located in the beneficiary's

country. It can be (1) a branch office of the issuing bank or

a correspondent bank, or (2) a bank appointed by the beneficiary.

Important point is the beneficiary has to be comfortable with the

advising bank.

The advising bank usually also takes on other roles in

the transaction, such as (1) confirming the letter of credit (playing

the role of the 'confirming bank'), (2) accepting a bill of

exchange by endorsing it (becoming the 'accepting bank') and/or,

(3) paying the exporter on presentation of documents (becoming the

'paying bank' or 'negotiating bank').

Advising bank = Banca notificatoare. Această bancă primişte detalii cu privire la

acreditiv(letter of credit) de la banca emitentă. Banca notificatoare va verifica acreditivul

pentru: a) autenticitate; b) fezabilitiate; c) reglementări de control valutar, înainte de a-l

transmite beneficiarului.

Letter of credit = a letter issued by a bank to another bank (typically in a different

country) to serve as a guarantee for payments made to a specified person under specified

conditions ; => acreditiv documentar = Un acreditiv documentar reprezintă

angajamentul ferm asumat de o bancă la ordinul clientului său către o altă bancă

solicitând băncii căreia îi este adresat să efectueze plata sau să accept sau să negocize o

cambie la sau la ordinul unei terţe persoane – beneficiarul – contra unor documente

solicitate în anumite termene şi condiţii.

Confirming bank = is a bank in

an exporter's country, which guarantees that the letter of credit established by

the importer (for the benefit of the exporter) will be honored once

the conditions therein are fully complied with. By agreeing to add the

confirmation, the Advising Bank will become the Confirming Bank and

undertakes to pay the beneficiary (seller) if all the terms and conditions of the

LC are complied with. Such undertaking from the Confirming Bank is

separate and in addition to the undertaking given by the Issuing Bank.

LC Confirmation is usually requested if the seller is not comfortable

with the creditworthiness of the Issuing Bank, and/or is concerned over the

buyer’s country risk. In return, the seller is required to pay an LC

confirmation fee to the Confirming Bank.

By adding confirmation, all subsequent negotiations should be

restricted to the Confirming bank. If the seller chooses to negotiate the

LC through another bank, he will lose the rights and benefits of

having a confirmed LC.

( din punct de vedere al confirmarii acreditivelor

irevocabile exista:

- acreditivele confirmate, care presupun ca la angajamentul ferm al

bancii emitente, se adauga un angajament independent si ferm de plata

al unei terte banci – banca confirmatoare. In caz de modificare a

acreditivului, banca confirmatoare poate sa accepte sau nu extinderea

confirmarii si asupra modificarii acreditivului.

Solicitarea confirmarii este de regula facuta de exportator si

foarte rar de banca avizatoare .

-acreditivele neconfirmate, care nu contin clauza de confirmare si

deci nu implica angajamentul bancii exportatorului ( avizatoare ) si

presupun ca banca emitenta sa fie singura angajata ferm la plata,

celelalte banci care intervin in relatia de acreditiv actionand ca

mandatar, in numele bancii emitente, fara sa-si asume vreun

angajament ferm de plata. )

Dif. => adv. bank depends on the confirmation of conf. bank(

regarding the verification and respecting clauses and payment)

=>Adv bank pays a fee to a conf bank.

4. International payments - Letter of credit, open account

Letter of credit ( L/C )

A letter of credit is a bank instrument that can be used to even the risk

between a buyer and a seller since a seller is guaranteed to receive payment if

when he/she has complied with the exact requirements of this buyer. A letter

of credit offers a seller numerous advantages but only if that seller complies

exactly with its terms and conditions of the transaction. In addition to

providing reduced risk for both a seller and a buyer, there are many variables

that can be used with a letter of credit to reduce the political and commercial

risks that may accompany the transaction as well as provide extended terms

to a buyer through the letter of credit instrument.

Risks to seller:

•Delays in availability of foreign exchange and transferring of funds

from buyer’s country if the L/C is not confirmed.

•Payment blocked due to political events in buyer’s country if the L/C

is not confirmed.

Risks to buyer:

•Seller creates documents to comply with L/C but does not ship actual

product.

•Seller does not ship.

•Buyer ties up commercial lines of credit to secure L/C.

Open account

Open account occurs when a seller ships the goods and all the

necessary shipping and commercial documents directly to a buyer who agrees

to pay a seller’s invoice at a future date. Open account is typically used

between established and trusted traders.

The payment period can vary as agreed between a buyer and seller(net

15, 30, 60 day terms, etc.) from date of invoice or bill of lading date.

Risks to seller:

•Buyer defaults on payment obligation.

•Delays in availability of foreign exchange and transferring of funds

from buyer’s country occur.

•Payment is blocked due to political events in buyer’s country.

Risks to buyer:

•Seller does not ship per the order (product, quantity, quality, and/or

shipping method).

•Seller does not ship when requested, either early or late.

5. 5C’s

1.Character

When lenders evaluate character, they look at stability — for example, how

long you’ve lived at your current address, how long you’ve been in your

current job, and whether you have a good record of paying your bills on time

and in full. If you want a loan for your business, the lender may consider your

experience and track record in your business and industry to evaluate how

trustworthy you are to repay.

2.Capacity

Capacity refers to considering your other debts and expenses when

determining your ability to repay the loan. Creditors evaluate your debt-to-

income ratio, that is, how much you owe compared to how much you earn.

3.Capital refers to your net worth — the value of your assets. In simple

terms, how much you own (for example, car, real estate, cash, and

investments) minus how much you owe.

4.Conditions

Lenders consider a number of outside circumstances that may affect the

borrower’s financial situation and ability to repay, for example what’s

happening in the local economy. If the borrower is a business, the lender may

evaluate the financial health of the borrower’s industry, their local market,

and competition.

5.Collateral

Collateral refers to any asset of a borrower (for example, a home) that a

lender has a right to take ownership of and use to pay the debt if the borrower

is unable to make the loan payments as agreed. Sa prezinte bilantul de ex.

6. de la prof Continuity: his age, does he have any successors?

6. Credit and Leasing

Leasing = DEFINITION OF 'LEASE '

A legal document outlining the terms under which one party

agrees to rent property from another party. A lease guarantees the

lessee (the renter) use of an asset and guarantees the lessor (the

property owner) regular payments from the lessee for a specified

number of months or years. Both the lessee and the lessor must uphold

the terms of the contract for the lease to remain valid.

Leases are the contracts that lay out the details of rental

agreements in the real estate market. For example, if you want to rent

an apartment, the lease will describe how much the monthly rent is,

when it is due, what will happen if you don't pay, how much of a

security deposit is required, the duration of the lease, whether you are

allowed to have pets, how many occupants may live in the unit and

any other essential information. The landlord will require you to sign

the lease before you can occupy the property as a tenant.

Credit = 1. A contractual agreement in which a borrower receives something of value now and

agrees to repay the lender at some date in the future, generally with interest. The term also refers

to the borrowing capacity of an individual or company.

2. An accounting entry that either decreases assets or increases

liabilities and equity on the company's balance sheet. On the

company's income statement, a debit will reduce net income, while a

credit will increase net income.

1. The amount of money available to be borrowed by an

individual or a company is referred to as credit because it must be paid

back to the lender at some point in the future. For example, when you

make a purchase at your local mall with your VISA card it is

considered a form of credit because you are buying goods with the

understanding that you'll need to pay for them later.

2. For example, on a company's balance sheet, a debit will

increase the inventory account (an asset) if the company buys

merchandise for resale on credit. On the other hand, a credit will

increase the company's accounts payable (a liability).

Comparing leasing and credit

Example : Leasing versus bank credit

comparison between the acquisition of a good through leasing and through bank credit

object: Dacia Logan Laureate

price: 6,785.73 Euro (without VAT)

institutions: BCR (Banca Comercială Română) and BCR Leasing

7. Factoring

Def:

1. A factoring operation consists in the transfer of commercial receivables of the

owner to a factor, which assumes the obligation to cash them in, even in the

case of temporary or permanent incapacity of the debtor. The factor can pay

in advance all, or only a part of the total amount of the transferred receivable

2. Factoring is a financial transaction and a type of debtor finance in which a

business sells its accounts receivable to a third party (called a factor) at

a discount. A business will sometimes factor its receivable assets to meet its

present and immediate cashneeds. Forfaiting is a factoring arrangement used

in international trade finance by exporters who wish to sell

their receivables to a forfaiter.

Recourse Factoring

In recourse factoring, the factor does not take on the risk of bad debts. Put another way, the

factor will be able to reclaim their money from you if the customer does not pay. The factoring

agreement will specify how many days after the due date for payment you must refund the

advance.

Whether you refund the advance or not, you will still have to pay the fee and interest (discount

charge).

Recourse factoring is cheaper than non-recourse factoring and may have fewer requirements

concerning your customers and your systems. This is because you are taking the bad debt risk.

For example:

The factoring agreement requires payment to be made within no more than three months. It also

states that 80 per cent of each invoice will be advanced.

On 30 April an invoice for £10,000 is issued and the factor advances £8,000.

On 31 July, if the customer has not paid, £8,000 must be repaid to the factor. There is no refund

of the factoring fees relating to the debt.

Non- Recourse Factoring

In non-recourse factoring, the factor takes on the bad debt risk. It accepts specified risks around

the debtor's failure to pay, but it does not insure against debts that are unpaid because of genuine

disputes. Because of this, non-recourse factoring will be more expensive than recourse factoring.

You never have to refund the advance to the factor, but you must pay the discount charge

(interest) to the factor for any advance against the invoice for the period prior to the bad debt

payment being made.

The factor takes over all rights to pursue the customer for payment. This includes the right to

take legal action.