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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Trade Finance Jargon Buster

Trade Finance Jargon Buster

Aidan Applegarth

30 years: Commodity & trade finance

With global trade worth an estimated $18 trillion, there is no question as to why financiers are attracted to this sector. To fully enjoy the benefits of trade finance, it is important to understand the basic principles that underpin it. Aidan discusses the basics of trade finance by expanding on key principles such as export finance, commodity finance and structured & commodity trade.

With global trade worth an estimated $18 trillion, there is no question as to why financiers are attracted to this sector. To fully enjoy the benefits of trade finance, it is important to understand the basic principles that underpin it. Aidan discusses the basics of trade finance by expanding on key principles such as export finance, commodity finance and structured & commodity trade.

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Trade Finance Jargon Buster

8 mins 29 secs

Overview

This video showcases the importance of global trade finance and explores a few definitions that are central to understanding and exploring the topic further.

Key learning objectives:

  • Understand the basics of trade finance

  • Define key terms related to trade finance

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Summary

Why is global trade relevant?

Trade is taking centre stage in world affairs, and with good reason because the trading of goods and services, particularly across global borders, is what fuels economies to survive, enabling commodity-led markets to export raw materials to manufacturing-led markets which then sell on their finished products to consumers around the world, such that people in the West can enjoy goods produced in the East and people in the North can enjoy foods harvested in the South. Trade is truly global, worth an estimated $18 trillion.

Define key terms related to trade finance

  1. Trade Finance
    • The provision of risk management and/or working capital to importers and exporters to facilitate the physical movement of goods and services along a commercial supply chain.
  2. Vanilla or Traditional Trade Finance
    • The provision of import Letters of Credit, bid and performance bonds and payment guarantees/Standby Letters of Credit or the advising/confirmation/discount of export Letters of Credit in support of day to day trade for the financier’s customers.
  3. Commodity Finance
    • The provision of specialist support to the trading of basic raw materials in which the lender would often be looking to self-liquidating transactions rather than to a customer’s balance sheet. The rationale of Commodity Finance is to support the flow of essential raw materials to the industry, and lenders will focus on the movement of strategic goods. Commodity Finance is recognised by the regulators as Specialised Lending.
  4. Structured Trade & Commodity Finance
    • Refers to the provision of support for medium-term deals (1 - 3 years) where typically a borrower’s weak balance sheet is mitigated by his strong performance capability with repayment coming from an acceptable third party off-taker. This type of deal is prevalent in the emerging markets where payment typically comes from an OECD buyer.
  5. Export Finance
    • Taken to refer to the provision of funding for medium to long-term projects (3 –-7 years) involving the export of capital goods supported by a national Export Credit Agency (ECA) or a Multi Lateral Agency (MLA). The financier would normally arrange or participate in a syndicated financing for the project and would benefit from the cover provided by the ECA or MLA (which is typically around 80% to 90% subject to the project and sponsors).

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Aidan Applegarth

Aidan Applegarth

Aidan spent some 30 years building up Trade and Commodity Finance (TCF) businesses for banks in the UK, Europe and Asia. He is now a consultant providing training and practical guidance to banks and other lenders wishing to develop a TCF proposition and also advises a number of Trade Finance funds on Credit and Operational Risk.

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