Explainer: trade finance terms – The Banker

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Trade underpins the global economy, and covers the smallest enterprises in emerging economies to the largest multinationals. But within trade there are a myriad of terms which comprise the lexicon for operating across borders. Below, we explain some of the more common terms used in trade finance. 

A type of cover provided by a financial institution to cover the obligations of one side of a financial transaction should they be unable to deliver on their contract terms to a third party. Through a guarantee, banks will provide the cover should the party fail to pay off their debt or deliver the purchased articles in accordance with the contract. 

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