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FAQ - Soft Commodity Trade Terms  (Term or Acronym Description)

AMEX The third-largest stock exchange by trading volume in the United States. The AMEX is located in New York City and handles about 10% of all securities traded in the U.S. The AMEX has merged with the Nasdaq.

ASWP Any Safe World Port - used to identify the destination port on offers of products or commodities available for sale. If a product is quoted CIF ASWP, it indicates that the offered price, term and conditions will be maintained for any safe port around the globe.

BG Bank Guarantee - A guarantee from a lending institution ensuring that the liabilities of a debtor (the Client) will be met. In other words, if the debtor fails to settle a debt, the bank will cover it. A bank guarantee enables the customer (the client) to acquire goods, buy equipment, or draw down loans, and thereby expand business activity.

BCL Bank Comfort Letter is a letter issued by the Buyer’s Bank, on their letterhead, attesting the Buyer’s financial capability (availability of funds) for the consummation of the proposed business transaction. Also known as Confirmation of Funds Certificate.

CAD Cash Against Documents – Payment for goods in which a commission house, a bank, or other intermediary transfers title documents to the Buyer upon payment in cash

CIA Cash In Advance – Payment for goods in which the price is paid in full before shipment is made. This method of payment is normally used for small transactions, or when the goods are to be manufactured.

CIF Cost, Insurance, and Freight - A trade term requiring the seller to arrange for the carriage of goods by sea to a port of destination, and provide the buyer with the documents necessary to obtain the goods from the carrier. It does not include any other costs such as import fees, customs fees, etc.

Commodities Exchange An entity, usually an incorporated non-profit association that determines and enforces rules and procedures for the trading of commodities and related investments, such as commodity futures. Commodities exchange also refers to the physical center where trading takes place.

Commodity Futures Contract An agreement to buy or sell a set amount of a commodity at a predetermined price and date. Buyers use these to avoid the risks associated with the price fluctuations of the product or raw material, while sellers try to lock in a price for their products. Like in all financial markets, others use such contracts to gamble on price movements.

CWO Cash With Order – Payment for goods in which the Buyer pays when placing an order, and in which the transaction is binding on both parties.

DC Draft of Contract

E4E It indicates the finishing of lumber products. All 4 Edges eased, meaning the lumber has been sanded in the edges to make the edges smooth (not sharp)

FCO Full Corporate Offer – a document issued by the Seller of a commodity or product attesting its characteristics, specifications, quantity available, price terms and conditions required for successful negotiation, bearing full corporate responsibility.

FFDLC Fully Funded Documentary Letter of Credit

FOB Free on Board - A trade term requiring the seller to deliver goods on board a vessel designated by the buyer. The seller fulfills its obligations to deliver when the goods have passed over the ship's rail. When used in trade terms, the word "free" means the seller has an obligation to deliver goods to a named place for transfer to a carrier.

ICPO Irrevocable Corporate Purchase Order – A purchase order completed by a buyer on corporate letterhead indicating type and quantity of products being ordered from a supplier, according to the terms of the agreement.

ICPO with Banking Coordinates An Irrevocable Corporate Purchase Order containing the buyer’s bank account information, authorizing the seller to run a soft probe at his bank for confirming the availability of funds for the consummation of the business transaction.

ICUMSA International Commission for Uniform Methods of Sugar Analysis - is a world-wide body which brings together the activities of the National Committees for Sugar Analysis in more than thirty member countries. Work is carried out under various Subjects each headed by a Referee.

ILOC Irrevocable Letter of Credit - A letter of credit that cannot be canceled. This guarantees that a Buyer's payment to a Seller will be received on time and for the correct amount.

ISP International Standby Practices

LC or LOC Letter of Credit - A letter from the Buyer’s bank guaranteeing that a payment to a seller will be received on time, and for the correct amount. The bank will be required to cover the full or remaining amount of the purchase, in the event that the buyer is unable to make payment on the purchase, Letters of credit are often used in international transactions to ensure that payment will be received. Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped.

LOI A Letter Of Intent, issued by the buyer on corporate letter head indicating his willingness and ability to undergo the business transaction with the seller. A letter of intent is not a contract and cannot be enforced (it is not legally binding), it is just a document stating serious intent to carry out certain business activities.

MFPA Master Fee Protection Agreement – The Agreement signed between the Seller and the Intermediaries or Brokers in a transaction. It defines the terms or rules for paying the agreed commission to the parties involved in a specific transaction. Normally, this agreement is lodged at the Seller’s Bank along with the contract and other documents related to the transaction. As a funds transfer occurs in favor of the Seller, the agreed commission is also credited to the beneficiaries listed in the MFPA.

MOQ Minimum Order Quantity – The minimum quantity to be ordered, as indicated by the Seller. For example, a 20’ container load, 1,000 metric tonnes, etc.

NYSE New York Stock Exchange - A corporation, operated by a board of directors, responsible for listing securities, setting policies and supervising the stock exchange and its member activities. The NYSE also oversees the transfer of members' seats on the Exchange, judging whether a potential applicant is qualified to be a specialist.

PB Performance Bond - A bond issued by an insurance company to guarantee satisfactory completion of a project by the seller. A bond issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract. In the case of commodity trading, it is required of the seller to guarantee the buyer that the contract will be performed according to the terms agreed upon.

POF Proof of Funds – Is a process by which the availability of funds required to consummate a given transaction is perpetrated. It can be presented as a letter issued by the Buyer’s Bank officials, in the Bank’s letterhead, normally designated as Bank Comfort Letter (BCL), or as a SWIFT transaction or sting the availability of funds in the Buyer’s account, necessary to complete the business transaction. Refer to BLC.

SBLC Stand-By Letter of Credit - A SBLC can be used to secure a variety of transactions where a third party guarantee of payment may replace a cash or bond deposit. When a company applies for a Standby Letter of Credit, it allows the corporation to pledge securities in its eligible account as collateral, replacing the traditional cash or bond deposit. SBLCs are issued on a Bank-to-Bank Basis only. Standby Letters of Credit are subject to collateral maintenance requirements and, once drawn, are demand loans. If a draw is made under a Letter of Credit, the bank can demand repayment at any time without notice. If the required collateral value is not maintained, the bank can require the client to post additional collateral, repay part or all of any amount outstanding under the Letter of Credit and/or sell the companies securities. Failure to promptly meet a request for additional collateral or repayment or other circumstances (e.g., a rapidly declining market) could cause the bank to liquidate some or all of the collateral supporting the Letters of Credit.

Sight LOC A Letter Of Credit that is payable at sight (against presentation of required documents).

Soft Commodities A commodity such as coffee, cocoa, sugar and fruit. This term generally refers to commodities that are grown, rather than mined.

SWIFT Society for Worldwide Interbank Financial Telecommunication - supplies secure messaging services and interface software to wholesale financial entities.

 
 
 
 
 
 
 
 
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