Rochester Bank

Trade Finance

Foreign Exchange (forex or FX) is the trading of one currency for another. For example, one can swap the U.S. dollar for the euro. Foreign exchange transactions can take place on the foreign exchange market, also known as the Forex Market.

A bank guarantee or BG is a pledge by a bank to make good on someone’s debt in the event that he or she cannot pay it. Bank guarantees are similar to the bank standing as a cosigner on a transaction; in the event that the original party cannot follow through, the bank can be called upon to provide the payment to complete the transaction. Many banks provide bank guarantees as a service to their clients for the purpose of facilitating large business transactions and deals. The transmission method of the Bank Guarantee is Bank-to-Bank.

A bank draft is a payment on behalf of a payer that is guaranteed by the issuing bank. Typically, banks will review the bank draft requester’s account to see if sufficient funds are available for the check to clear. Once it has been confirmed that sufficient funds are available, the bank effectively sets aside the funds from the person’s account to be given out when the bank draft is used. A draft ensures the payee a secure form of payment. And the payer’s bank account balance will be decreased by the money withdrawn from the account. The draft is confirmed Bank-to-Bank.

A letter of credit, or “credit letter” is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. It may be offered as a facility.
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 transmission method of the Letter of Credit is Bank-to-Bank.

A Standby Letter of Credit is very similar to a Bank Guarantee and are employed in similar situations. A Bank Guarantee or Banker’s Guarantee (BG) is a banking arrangement where a bank agrees to substitute its own credit in place of its client. Different from a traditional Line of Credit (which is intended to be paid) a Bank Guarantee is a contingent obligation. We say contingent meaning that it is dependent on the happening of an event, which may or may not actually ever occur. More often than not a BG is not paid because the event, project or deal does not happen, i.e. the deal never goes through or the project never gets off the ground. The transmission method of the SBLC is Bank-to-Bank.

A Non-Recourse Debt or Non-Recourse Loan is secured by a pledge of collateral, typically Bank Guarantee or Standby Letter of Credit, but for which the borrower is not personally liable. If the borrower defaults, the lender can liquidate or sell the collateral (Bank Guarantee or Standby Letter of Credit) but if the collateral sells for less than the debt, the lender cannot seek that deficiency balance from the borrower—its recovery is limited only to the value of the collateral.

A performance bond, also known as a contract bond, is a surety bond issued by a financial service company or a bank to guarantee satisfactory completion of a project by a contractor. The term is also used to denote a collateral deposit of good faith money, intended to secure a futures contract, commonly known as margin. A job requiring a payment and performance bond will usually require a bid bond, to bid the job. When the job is awarded to the winning bid, a payment and performance bond will then be required as a security to the job completion.

A Proof of Funds is a financial document and cash asset that proves a party has the capability and funds to complete their side of a transaction. This financial document is most often provided in the form of a bank, security, or custody document for a specific transaction. The Proof of Funds letter assists the selling or lending party with confidence there are cash funds available, that they are obtainable and legitimate.

A Ready Willing and Able Letter (RWA Letter) is a bank instrument that verifies a bank or financial institution is Ready Willing and Able (RWA) to proceed on behalf of a client in any number of various financial transactions. An RWA Letter is usually sent from a buyer’s bank to the seller’s bank and is confirmed Bank-to-Bank.

Bank Instrument monetization is the process of liquidating bank instruments and converting them into legal tender. Harvest Finance can monetize most owned bank instruments to be used for a number of reasons ranging from project finance, private placement, or import/export among others. On average this can be accomplished in 10 days or less.