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Glossary

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 LIBOR

The “London inter-bank offer rate” is the rate of interest at which banks borrow funds, in marketable size, from other banks in the London inter-bank market.  In other words, LIBOR is the international rate at which the world’s most preferred borrowers are able to borrow money.  Accordingly, LIBOR is also used as a benchmark rate upon which rates for less preferred borrowers are based.  For example, a large company with a very good credit rating may be able to borrow money for one year at LIBOR plus 5 basis points.

 Lease

An agreement in which the lessee gains a long term contract for the use of an asset, and the lessor is assured of regular payments for a specified number of years.  The NZECO can provide guarantees for financial lease transactions (but not for operational leases). 

 Letter of credit (LC)

A document issued by a bank guaranteeing payment, on behalf of a buyer of goods, when all the conditions stated in the letter have been met.  The importer’s bank is often named “the issuing bank” (or “the opening bank”), while the bank in the exporter’s country is named “ the advising bank” and the exporter is “the beneficiary”.  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 issuing bank also acts on behalf of the buyer by ensuring that the exporter will not be paid until the bank receives a confirmation that all the terms in the letter of credit have been fully met.  Therefore, it is important that exporters carefully read all the conditions and requirements, as these can sometimes be onerous.  Your bank’s Trade Finance Manager will be proficient in the nuances within letter of credit usage.

 Local costs

The expenditures incurred for goods or services (excluding any commission payable to the exporter’s agent) in the buyer’s country that are necessary either for the execution of the exporter’s contract or for completing a project of which the exporter’s contract forms a part.  The proportion of local costs that can be supported on credit terms in an export transaction must not exceed the amount of the advance deposit. 

 Long term credit

Credit that is granted for a period longer than five years.