24 December 2012
Buyer's credit is the credit availed by an importer (buyer) from overseas lenders, i.e. banks and financial institutions for payment of his imports on due date. The overseas banks usually lend the importer (buyer) based on the letter of comfort (a bank guarantee) issued by the importers bank. Importer's bank or Buyers Credit Consultant or importer arranges buyer's credit from international branches of a domestic bank or international banks in foreign countries. For this service, importer's bank or buyer's credit consultant charges a fee called an arrangement fee.
Buyer's credit helps local importers gain access to cheaper foreign funds close to LIBOR rates as against local sources of funding which are costly compared to LIBOR rates.
The duration of buyer's credit may vary from country to country, as per the local regulations. For example in India, buyer's credit can be availed for one year in case the import is for trade-able goods and for three years if the import is for capital goods. Every six months, the interest on buyer's credit may get reset.
24 December 2012
Definition of 'Margin' 1. Borrowed money that is used to purchase securities. This practice is referred to as "buying on margin".
2. The amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.
3. In a general business context, the difference between a product's (or service's) selling price and the cost of production.
4. The portion of the interest rate on an adjustable-rate mortgage that is over and above the adjustment-index rate. This portion is retained as profit by the lender.
27 December 2012
Bank Guarantee is a non funded facility granted by a bank against the deposit of margins and collateral securities. It is granted in favour of a person who may invoke and cash the amount of guarantee undertaken in the event of non-performance. It is issued for a fixed term and commission is charged accordingly. The terms and conditions are reduced in writing and signed by bank and the person who has taken the guarantee. A chart of guarantees may be prepared and margins given for each guarantee in the form of FDR or otherwise may be noted thereagainst. The service charges/commission may also be noted. This will help in adjusting the expenses on mercantile basis and giving a note under the head of contingent liabilities.
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