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# 1. Compare nominal interest rate with real interest rate.

The nominal interest rate (or money interest rate) is the percentage increase in money
you pay the lender for the use of the money you borrowed.
For instance, imagine that you borrowed \$100 from your bank one year ago at 8%
interest on your loan. When you repay the loan, you must repay the \$100 you borrowed
plus \$8 in interesta total of \$108.
But the nominal interest rate doesnt take inflation into account.
When the bank publishes the interest rate for the money market account, they use the
nominal rate.
However, the rate that is important is the real interest rate. The real interest rate is the rate
of interest after adjusting for inflation.
Nominal interest rate Inflation = Real interest rate

When the loan is made, what the actual inflation rate will be is unknown, so the expected
rate of inflation over the loan's period is used in the formula.

2. Aval vs Endoresment
The payment of a bill of exchange may be guaranteed by an aval (a good)
which can be equal with the whole amount or just a part of it. The aval
is a guarantee granted by a third party called guarantor. This 3rd party,
the guarantor, agrees to cover the payment of the amount of the credit
title in the case of the debtors incapacity of fulfilling his obligation.
Endorsement refers to signing a bill of exchange on verso in
order to transfer the right of cashing it in to another party. The
endorser is the person who transfers the right and the endorsee is the
one reciving it . In a bill of exchange, there are 3 parties: the drawer,
the drawee and the beneficiary. Endorsing means that the beneficiarly
orders the drawee to pay the endorsee the mentioned sum.
Aval and endorsement are two opposite processes.
Avalization is the process of transferring the payment obligation to the
guarantor while endorsement is the process of transferring the cashing
in right to the endorsee. Both processes imply transfer, just that the
first one (avalization) is a transfer of obligations and the second
(endorsement) it the transfer of rights.
Avalization-avalizare
Aval bunul girat
Guarantor-persoana care gireaza, girant

## Guarantee- girat, cel care are datorie

Endorser - cel care te imputerniceste

## The Advising bank (also known as a notifying bank),

advises a beneficiary (exporter) that a letter of credit (L/C) opened by
an issuing bank for an applicant (importer) is available. The Advising
Bank's responsibility is to authenticate the letter of credit issued by the
issuer to avoid fraud. The advising bank is not necessarily responsible
for the payment of the credit which it advises (informes) the
beneficiary of.
The advising bank is usually located in the beneficiary's
country. It can be (1) a branch office of the issuing bank or
a correspondent bank, or (2) a bank appointed by the beneficiary.
Important point is the beneficiary has to be comfortable with the
The advising bank usually also takes on other roles in
the transaction, such as (1) confirming the letter of credit (playing
the role of the 'confirming bank'), (2) accepting a bill of
exchange by endorsing it (becoming the 'accepting bank') and/or,
(3) paying the exporter on presentation of documents (becoming the
'paying bank' or 'negotiating bank').
Advising bank = Banca notificatoare. Aceast banc primite detalii cu privire la
acreditiv(letter of credit) de la banca emitent. Banca notificatoare va verifica acreditivul
pentru: a) autenticitate; b) fezabilitiate; c) reglementri de control valutar, nainte de a-l
transmite beneficiarului.
Letter of credit = a letter issued by a bank to another bank (typically in a different
country) to serve as a guarantee for payments made to a specified person under specified
conditions ; => acreditiv documentar = Un acreditiv documentar reprezint
angajamentul ferm asumat de o banc la ordinul clientului su ctre o alt banc
solicitnd bncii creia i este adresat s efectueze plata sau s accept sau s negocize o
cambie la sau la ordinul unei tere persoane beneficiarul contra unor documente
solicitate n anumite termene i condiii.
Confirming bank = is a bank in
an exporter's country, which guarantees that the letter of credit established by
the importer (for the benefit of the exporter) will be honored once
the conditions therein are fully complied with. By agreeing to add the
confirmation, the Advising Bank will become the Confirming Bank and
undertakes to pay the beneficiary (seller) if all the terms and conditions of the
LC are complied with. Such undertaking from the Confirming Bank is
separate and in addition to the undertaking given by the Issuing Bank.
LC Confirmation is usually requested if the seller is not comfortable
with the creditworthiness of the Issuing Bank, and/or is concerned over the
buyers country risk. In return, the seller is required to pay an LC
confirmation fee to the Confirming Bank.

## By adding confirmation, all subsequent negotiations should be

restricted to the Confirming bank. If the seller chooses to negotiate the
LC through another bank, he will lose the rights and benefits of
having a confirmed LC.
( din punct de vedere al confirmarii acreditivelor
irevocabile exista:
- acreditivele confirmate, care presupun ca la angajamentul ferm al
bancii emitente, se adauga un angajament independent si ferm de plata
al unei terte banci banca confirmatoare. In caz de modificare a
acreditivului, banca confirmatoare poate sa accepte sau nu extinderea
confirmarii si asupra modificarii acreditivului.
Solicitarea confirmarii este de regula facuta de exportator si
foarte rar de banca avizatoare .
-acreditivele neconfirmate, care nu contin clauza de confirmare si
deci nu implica angajamentul bancii exportatorului ( avizatoare ) si
presupun ca banca emitenta sa fie singura angajata ferm la plata,
celelalte banci care intervin in relatia de acreditiv actionand ca
mandatar, in numele bancii emitente, fara sa-si asume vreun
angajament ferm de plata. )
Dif. => adv. bank depends on the confirmation of conf. bank(
regarding the verification and respecting clauses and payment)
=>Adv bank pays a fee to a conf bank.
4. International payments - Letter of credit, open account

## Letter of credit ( L/C )

A letter of credit is a bank instrument that can be used to even the risk
between a buyer and a seller since a seller is guaranteed to receive payment if
when he/she has complied with the exact requirements of this buyer. A letter
of credit offers a seller numerous advantages but only if that seller complies
exactly with its terms and conditions of the transaction. In addition to
providing reduced risk for both a seller and a buyer, there are many variables
that can be used with a letter of credit to reduce the political and commercial
risks that may accompany the transaction as well as provide extended terms
to a buyer through the letter of credit instrument.

Risks to seller:
Delays in availability of foreign exchange and transferring of funds
from buyers country if the L/C is not confirmed.
Payment blocked due to political events in buyers country if the L/C
is not confirmed.

Seller creates documents to comply with L/C but does not ship actual
product.
Seller does not ship.
Buyer ties up commercial lines of credit to secure L/C.

Open account
Open account occurs when a seller ships the goods and all the
necessary shipping and commercial documents directly to a buyer who agrees
to pay a sellers invoice at a future date. Open account is typically used
The payment period can vary as agreed between a buyer and seller(net
15, 30, 60 day terms, etc.) from date of invoice or bill of lading date.

Risks to seller:
Delays in availability of foreign exchange and transferring of funds
Payment is blocked due to political events in buyers country.

Seller does not ship per the order (product, quantity, quality, and/or
shipping method).
Seller does not ship when requested, either early or late.

5. 5Cs
1.Character
When lenders evaluate character, they look at stability for example, how
long youve lived at your current address, how long youve been in your
current job, and whether you have a good record of paying your bills on time
and in full. If you want a loan for your business, the lender may consider your
experience and track record in your business and industry to evaluate how
trustworthy you are to repay.

2.Capacity
Capacity refers to considering your other debts and expenses when
determining your ability to repay the loan. Creditors evaluate your debt-toincome ratio, that is, how much you owe compared to how much you earn.
3.Capital refers to your net worth the value of your assets. In simple
terms, how much you own (for example, car, real estate, cash, and
investments) minus how much you owe.
4.Conditions
Lenders consider a number of outside circumstances that may affect the
borrowers financial situation and ability to repay, for example whats
happening in the local economy. If the borrower is a business, the lender may
evaluate the financial health of the borrowers industry, their local market,
and competition.
5.Collateral
Collateral refers to any asset of a borrower (for example, a home) that a
lender has a right to take ownership of and use to pay the debt if the borrower
is unable to make the loan payments as agreed. Sa prezinte bilantul de ex.
6. de la prof Continuity: his age, does he have any successors?

## 6. Credit and Leasing

Leasing = DEFINITION OF 'LEASE '
A legal document outlining the terms under which one party
agrees to rent property from another party. A lease guarantees the
lessee (the renter) use of an asset and guarantees the lessor (the
property owner) regular payments from the lessee for a specified
number of months or years. Both the lessee and the lessor must uphold
the terms of the contract for the lease to remain valid.
Leases are the contracts that lay out the details of rental
agreements in the real estate market. For example, if you want to rent
an apartment, the lease will describe how much the monthly rent is,
when it is due, what will happen if you don't pay, how much of a
security deposit is required, the duration of the lease, whether you are
allowed to have pets, how many occupants may live in the unit and
any other essential information. The landlord will require you to sign
the lease before you can occupy the property as a tenant.

Credit = 1. A contractual agreement in which a borrower receives something of value now and
agrees to repay the lender at some date in the future, generally with interest. The term also refers
to the borrowing capacity of an individual or company.
2. An accounting entry that either decreases assets or increases
liabilities and equity on the company's balance sheet. On the
company's income statement, a debit will reduce net income, while a
credit will increase net income.
1. The amount of money available to be borrowed by an
individual or a company is referred to as credit because it must be paid
back to the lender at some point in the future. For example, when you
make a purchase at your local mall with your VISA card it is
considered a form of credit because you are buying goods with the
understanding that you'll need to pay for them later.
2. For example, on a company's balance sheet, a debit will
increase the inventory account (an asset) if the company buys
merchandise for resale on credit. On the other hand, a credit will
increase the company's accounts payable (a liability).

## Example : Leasing versus bank credit

comparison between the acquisition of a good through leasing and through bank credit
object: Dacia Logan Laureate
price: 6,785.73 Euro (without VAT)
institutions: BCR (Banca Comercial Romn) and BCR Leasing

7. Factoring
Def:
1. A factoring operation consists in the transfer of commercial receivables of the
owner to a factor, which assumes the obligation to cash them in, even in the
case of temporary or permanent incapacity of the debtor. The factor can pay
in advance all, or only a part of the total amount of the transferred receivable

## 2. Factoring is a financial transaction and a type of debtor finance in which a

business sells its accounts receivable to a third party (called a factor) at
a discount. A business will sometimes factor its receivable assets to meet its
present and immediate cashneeds. Forfaiting is a factoring arrangement used
in international trade finance by exporters who wish to sell
their receivables to a forfaiter.

Recourse Factoring
In recourse factoring, the factor does not take on the risk of bad debts. Put another way, the
factor will be able to reclaim their money from you if the customer does not pay. The factoring
agreement will specify how many days after the due date for payment you must refund the
Whether you refund the advance or not, you will still have to pay the fee and interest (discount
charge).
Recourse factoring is cheaper than non-recourse factoring and may have fewer requirements
For example:

The factoring agreement requires payment to be made within no more than three months. It also
states that 80 per cent of each invoice will be advanced.
On 30 April an invoice for 10,000 is issued and the factor advances 8,000.
On 31 July, if the customer has not paid, 8,000 must be repaid to the factor. There is no refund
of the factoring fees relating to the debt.
Non- Recourse Factoring
In non-recourse factoring, the factor takes on the bad debt risk. It accepts specified risks around
the debtor's failure to pay, but it does not insure against debts that are unpaid because of genuine
disputes. Because of this, non-recourse factoring will be more expensive than recourse factoring.
You never have to refund the advance to the factor, but you must pay the discount charge
(interest) to the factor for any advance against the invoice for the period prior to the bad debt