Abbrevations Banking

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Banking Abbreviations and Terms

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Bank “A financial institution that accepts deposits and channels the money into lending activities.” “An organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn onthem, and pays interest on them; discounts notes, makes loans, and invests in securities; collects

checks, drafts, and notes; certifies depositor’s checks; and issues drafts and cashier’s checks.” “A business establishment in which money is kept for saving or commercial purposes or is invested,

supplied for loans, or exchanged.”

Banking Terms

Banking Terms Banking Definitions

AAA

AAA is a term or a grade that is used to rate a particular bond. It is the highest rated bond that gives maximum returns at the time of maturity. Usually thegrade AAA is given to the best debt obligation or a security, by a credit rating

agency.

ABA Transit Number

The ABA transit number is assigned by the American Bankers Association. It is a numeric coding that indicates and facilitates the amount of check payments, balances and dues that are to be cleared among different banks at the clearing house.

ABO

ABO is an abbreviation for the term ‘Accumulated Benefit Obligation’. It isbasically the measure of the liability of the pension plan of an organizationand is calculated when the pension plan is to be terminated.

Absorption

Absorption is a term related to real estate, banking and finance fields. The

word ‘absorption’ means the process of renting a real estate property that isnewly built or is recently renovated.

Absorption TimeThe term ‘absorption time’ is used to define the time period that is required tocomplete the process of absorption.

Abstract of titleThe ‘abstract of title’ is a written report that defines records and identifies thehistory and ownerships of a particular asset, usually a real estate.

Acceleration

Acceleration is the process, where the lender demands a full and finalpayment of the debt or loan, before the allotted time period for repayment. Aclause in the document of the debt usually empowers the lender to acceleratethe time period.

Acceleration Clause

A clause in the debt document that empowers the lender to accelerate thepayment, (i.e. or that is) the lender can demand the full amount of loan beforethe date of maturity.

Accelerated

Depreciation

A method of depreciation of fixed assets, where the early deductions aregreater in monetary terms and later ones are smaller.

Acceptance

Acceptance which is also known as the banker’s acceptance is a signedinstrument of acknowledgment that indicates the approval and acceptance of all terms and conditions of any agreement on behalf of the banker. It is a verywide term that is used in context with financial agreements and contracts.

Accepting House An accepting house is a banking or finance organization that specializes in the

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service of acceptance and guarantee of bills of exchange. This organizationspecializes in two prominent functions that are facilitating the different negotiable instruments and merchant banking.

Accepting Party

The party (either an individual or a group of individuals or organizations) that

accept the terms and conditions of a proposed agreement or contract put forth by another party.

Account

An account is a record of all financial transactions that are related to an asset,individual, transaction or any organization. It is a major term in the field of accountancy and is conventionally denoted by the A/c. It can also be definedas a transaction between a buyer and a seller about payments and dues whichdevelop creditor-debtor relations.

Account Aggregation

An online facility that is made available by some banks or financialorganizations, in which all the transactions related to the bank account, credit facilities, debts and investments can be handled and operated with the help of

a single interface or account. Account aggregation is a form of Internet banking, provided for ease of transaction.

Account BalanceThe total amount of money in a particular bank account, along with the debit and credit amounts, the net amount is also termed as the account balance.

Account

Reconciliation

Account reconciliation is a process with the help of which the account balancecan be easily verified. Account reconciliation is usually done at the end of aweek, month, and financial year or at the end of any financial period. It isusually done with the help of receipts, ATM notes, bank statements etc.

Account Statement

A financial record that indicates the transaction and its effect on an account

(usually bank account), in terms of debit and credit. Sometimes, an account statement also carries some precise details, like the date of transaction, codeof transaction, mode of transaction, sales, purchases, etc.

Account Value

An account value is the total value of any account, applicable when a personhas many accounts and transactions in the same bank or financial institution.The account value is a total value that is expressed in monetary terms.

Acknowledge

Indicates the acceptance of a document, agreement, proposal or a negotiableinstrument by authenticating it with the help of a seal or a signature.Acknowledgment signifies that the terms and conditions of the contract havebeen accepted and the agreement authenticated.

Accessions

The new physical goods that are physically united to older goods, in themanner where identity, of both the goods remains the same, are known asaccessions. For example, a new upgrade or addition on an already existingpiece of machinery.

Accommodation

Maker

A person who signs the note of application and renders his credit historyduring the process of application of a loan is called accommodation maker.The accommodation maker usually receives no direct financial benefit fromthe loan. The term is also used in the concept of ‘accommodation bills’, whentwo or more people help each other by rendering liquidity of a negotiableinstrument.

Account Analysis The term ‘account analysis’ is used in basically two contexts. First, it is used to





define the study and conclusion of a single account. Second, it is also aprocedure, where the profitability of a single demand account or manydemand accounts is projected and analyzed.

Account Control

Agreement

An account control agreement is an agreement that perfects the interests of

the creditor in a securities account.

Account Debtor

An account debtor is a person or an organization that is in debt and is obligedto pay either on an account or chattel paper or contract right. Account debtorsare, sometimes, simply referred to as debtors.

Account

Reconciliation

Services

Account reconciliation services are basically services that specialize in thecompilation of reconciliation documents and statements. Reconciliationservices cater to the demands of individuals and huge organizations that havea large number of transactions taking place every day.

Accounts Payable

Accounts payable is a list of liabilities of an organization or an individual that are due but not paid to creditors. Account payable, many a times, also appearsas a current liability in the balance sheet. One must note that loans andliabilities to the bank which have not maturated are not a part of account payable.

Accretion

Accretion is a process, where increments and periodic increases are made inthe book value or the balance sheet value of an asset. In the field of bankingand finance, accretion is the process where the price of a bond that has beenbought at a discount is changed to the par value of the bond. It is also definedas a change in the price of a bond that has been bought at a discount to the parvalue of the bond.

Accretion Bond An accretion bond is basically a bond that has been purchased at a discount and whose book value is incremented to the par value or the face value.

Accreting Swap Accreting swap is a swap of interest which has an increasing notional amount.

Accrual Basis

Accrual is the process of accumulation of interest or money. Accrual basis,which is also known as accrual convention, is the method by which, investors,economists and businessmen count the number of days in a month or ayear(s). Of the most common examples of accrual basis is the 30/360convention, wherein the accrual basis is calculated by assuming that everymonth has 30 days. Accrual basis is often used as the common parameter forthe calculation of interests and returns.

Accrual Bond

An accrual bond is also known as range bond. An accrual bond is a bond that has a tendency to pay the investors, an above the market rate. Sometimes, anaccrual rate is also defined as a security that does not have a period payment for the rate of interest. The interest is accrued and then added later on at thetime of maturity.

Accrual Convention

It is the method of calculating the time period on a specific investment by theinvestors. Accrual convention is many a time calculated with the help of different interest calculation mechanisms. Accrual convention is also knownas accrual basis.

Accrued Interest Accrued Interest is the interest, accumulated on an investment but is not yet paid. Often, accrued interest is also termed as interest receivable. Some





banking books prefer to call it as the interest that is earned, but not yet paid.

Accumulated

Depreciation

Accumulated depreciation is the total all the periodic reductions from thebook value of fixed assets. It is also termed as an allowance for depreciation.

Accumulator

Accumulator is also known as capital appreciation bond. The accumulator is a

type of security that is related to capital and is issued on face value, but theinterest is not paid to the investor on the basis of the time period. Instead, thetotal amount of accrued interest is paid along with the face value upon thematurity of the security.

ACH

ACH is the abbreviation of the banking term automated clearing house. Theautomated clearing house operates on a national level and helps banks andfinancial institutions in the clearance of balances and negotiable instrumentsthat are used at a personalized as well as a mercantile mode of transactions.

Active Tranche

Active tranche basically stands for REMIC or Real Estate Mortgage Investment Conduit. The REMIC tranche is basically a bond that is backed up by a largeset of mortgages. The principal and interest that are paid by the borrowers,are transferred to the people who hold tranche (tranche refers to a portion ormoney) in REMIC.

Actual Delay Days

Actual delay days are also simply known as ‘delay days’. The actual delay daysare the actual days of the lag times. The lag time is the time period that startsafter the expiry of the last date of repayment.

Adjustable Rate

Mortgage (ARM)

Adjustable rate mortgage or ARM is basically a type of loan, where the rate of interest is calculated on the basis of the previously selected index rate. Due tothis, the rate of interest that is charged differs periodically, usually in every

month. Hence, the rate of interest and the total interest remain variablethroughout the term/time period

Adjusted Trading

Adjusted trading is a mercantile understanding between an investor and thebroker or dealer. In this understanding, the investor overpays the broker) fora recently purchased security. As a return favor, the broker overpays theinvestor for the security or the investment that he wants to get rid of.

Administered Rates

Administered rates are the rates of interest which can be changedcontractually by lender. In some cases, these rates can also be changed by thedepositor and also the payee. The laws and provisions that monitor theconcept of administered rates differ in each jurisdiction.

Administrative Float

Administrative float is the frame of elapsed time that is required in order tocomplete the paper work, in order to administratively sort the checks, or forthat matter, any type of currency and negotiable instruments in the bank itself or in the clearing house.

Administrative

Review

An administrative review is usually used in context to the appraisal of thebook value of a real estate and basically, deals in the underwriting issues. Theadministrative review is usually written from the point of view of loanunderwriting during an estate appraisal.

American

Depository Receipt (ADR)

American depository receipts, also known as ADRs, are depository receipts

which are equal to a specific number of shares of a corporate stock that hasbeen issued in a foreign country. American depository receipts are traded





only the United States of America.

American Institute

of Certified Public

Accountants(AICPA)

The American Institute of Certified Public Accountants (AICPA) is a nationalaccountant’s institute of the United States of America, which represents thecertified public accountants, who conduct accounting operations in the

spheres of business and industry, public practice, government, education andeven NGO’s.

Amortization of

Loans

One should not confuse between ‘amortization’ as an accounting concept andamortization of loans. Amortization of loans is nothing but the process of liquidation of loans or securities with the help of periodic reductions. Theprincipal amount of the loan is amortized periodically by the method of payments in installments. The techniques that are used for the amortizationof a loan differ from case to case.

Amortization Period

Amortization period is the time period that is considered from the inceptionof the credit, investment or negotiable instrument and ends upon the

maturity or expiry of the instrument. The amortization period is basicallyconsidered in order to calculate the rate of interest, time line of installmentsand also the appropriate amount of all the installments. The term‘amortization period’ is also used in the field of accountancy; however, in adifferent context.

Amortizing SwapAmortizing swap is a swap in the rate of interest that has a declining notionalprincipal.

Alternative

Minimum Tax

Alternative minimum tax, also known as the AMT, is a type of tax that is leviedby the United States government and is a type of Federal income tax. Thealternative minimum tax (AMT) is basically levied on the individuals and

organizations that misuse and take advantage of tax benefit schemes that arein monetary terms exorbitant, if rationally compared to their annual incomes.

Analytical Solution

Analytical solutions, also known as closed form solutions, are simplemathematical techniques and models, used to calculate projections andinterest rates by the lending, banking and finance organizations. Some of theanalytical solutions are so simple and effective that the calculations can alsobe conducted orally, without writing it down on a paper or using a calculator.

Analytical VAR

An analytical VAR is also known as the correlation VAR. An analytical VAR isbasically the measurement of a financial instrument, portfolio of the financial

instruments or an entity’s exposure to t he reductions in its value resultingfrom changes in the prevailing interest rates.

Annual Percentage

Rate (APR)

The annual percentage rate is calculated by dividing the total financing costsassociated with a loan divided by the principal amount of the loan.

Annual Percentage

Yield (APY)

The annual percentage yield or APY is basically a very accurate and calculatedmeasure of yield that is paid on a standard bank deposit account.

Annuities

Annuities are contracts that guarantee income or return, in exchange of ahuge sum of money that is deposited, either at the same time or is paid withthe help of periodic payments. Some of the common types of annuities includethe deferred, fixed, immediate or variable variants.

Anticipated Income The anticipated income doctrine of liquidity is basically an explanation of





Doctrine of Liquidity bank liquidity development in which the net cash flow of the borrowers isconsidered as the source of loan repayment instead of usual subsequent newborrowings.

Appraisal

An appraisal is basically a statement, document or an estimated rise or drastic

climb in the price of a particular real estate. The term ‘appraisal’ is also usedin connection to raising the book value of a real estate.

Appraisal SurplusAn appraisal surplus is the difference between the historical cost and theappraised cost of the real estate.

Arbitrage

Arbitrage is the simultaneous purchase and sale of two identical commoditiesor instruments. This simultaneous sale and purchase is done in order to takeadvantage of the price variations in two different markets. For example,purchase of gold in one nation and the simultaneous sale in another nation,(international markets) to achieve profit.

Arbitrage FreeArbitrage free is a type of financial model that generates market structuresthat exclude scenarios generated by the arbitrage transactions and dealings.

ArbitrageurAn arbitrageur is an independent and individual broker who deals inarbitrage.

Article of Agreement

Article of agreement is a contractual provision, with the help of which a buyerpurchases real estate from the seller over a period of time, and pays theconsideration in installments. This type of agreement or contract is alsoknown as a land contract.

As-extracted

Collateral

As extracted collateral are extracted or non-extracted minerals created by adebtor having an interest in minerals, and are subject to security interest,

either before or after extraction. In short, mined or non-mined minerals canalso be used as collaterals.

Ascending Rate

Bond

Security with which has a coupon rate that increases in previously definedincrements at scheduled intervals, is termed as an ascending rate bond.

Asset Backed

Security (ABS)

A security that is backed with the help of some kind of valuable assets isknown as an asset backed security. Sometimes, ABS is also referred to as themonthly rate of repayment of a secured loan.

Asset Sensitive

Asset sensitive is a sort of a position, wherein an increase in the rate of interest will help the investor and the decline in the rate will not be helpful at

all.

Asset and Liability

Management

Asset and liability management is the coordinated management of all thefinancial risks inherent in the business conducted by financial institutions. Inreal practice, asset and liability management aims at minimization of loss andmaximization of profit.

Assets Reprised

Before Liabilities

‘Assets reprised before liabilities’ is a term that is used to define a gapbetween the reprising of the assets and liabilities in a given period of time.

AssigneeAssignee is an individual or an organization or party to whom an assignment is made and commitment taken.

Assignment In the field of banking and finance, an assignment is the transfer of anycontractual agreement between two or more parties. The party that assigns





the contract is the assignor and the party who receives the assignment is theassignee.

Assumable

Assumable is a very different type of mortgage loan application, where thenew buyers of a real estate that has already been pledged as collateral,

assumes the liability of a loan and also the ownership of the real estate.

Assumed name

An assumed name is a name which is assumed by an individual, organizationor corporation in order to conduct business. It must be noted that theassumed name is always different from the original name of the corporation.

Asymmetric

Behavior

Asymmetric behavior is the unbalanced behavior displayed by the financialinstruments. It is said to be observed when the rates and value of instrumentschange in different proportions, in comparison to the market rates.

Attorney’s

Certificate of Title

The attorney’s certificate of title is also known as the title option. Thiscertificate is basically prepared by the attorney, in order to state theownership and the lien priority of an asset, particularly a real estate.

Attrition AnalysisAttrition analysis is basically carried out for the purpose of reformation of theassets and liabilities in a balance sheet.

Audited Statements

Audited statements are supposed to be the most reliable statements. Theaudited statements are basically financial statements whose reliability andsecond effect (according to the double entry system) have been verified, crosschecked and confirmed. The word ‘audited’ (audit), signifies the process of verification.

Authenticated

Security Agreement

The agreement of security between debtor and banker is known as theauthenticated security agreement and is accepted by the borrower The

acceptance process is done, online and then the agreement is down loadedand printed.

Authority

In the terms of banking, an authority is basically a governmental department or agency that is empowered by the judicial system of a nation toauthenticate, legalize, conduct and monitor the functions that are related tobanking, finance, economics and transactions.

Automated Clearing

House(ACH)

An automatic clearing house is nationwide electronic clearing houses that monitors and administers the process of check and fund clearance betweenbanks. The ACH is an electronic system and thus minimizes the human work in the process of clearance. It distributes credit and debit balancesautomatically.

Automated Teller

Machines

Automated teller machines are basically used to conduct transactions with thebank, electronically. The automated teller machine is an excellent example of integration of computers and electronics into the field of banking.

Automatic Stay

The automatic stay is an injunction that automatically becomes effective, afterany person or organization files for bankruptcy. The automatic stay basicallyprecludes the creditors from taking the debtor or the property of the debtor.


Balance The balance is the actual amount of money that is left in the account.Sometimes, the term balance also refers to amount of the debt that is owed.





Balance Transfer

A balance transfer is the repayment of a credit debt with the help of anothersource of credit. In some cases, balance transfer also refers to transfer of funds from one account to another.

Balance Transfer Fee

The balance transfer fee is charged by the bank for the transfer of balancesfrom one source of credit to another. It also refers to the transfer of fees from

one bank account to another.

Bank A bank is an establishment that helps individuals and organizations, in theissuing, lending, borrowing and safeguarding functions of money.

Bank Account

A bank account is an account held by a person with a bank, with the help owhich the account holder can deposit, safeguard his money, earn interest andalso make check payments.

Bank Debt

A bank debt is basically any debt that is owed to a bank, by any kind of consumer, organization or corporation. The debt may be anything from abank loan to a credit card debt or an overdraft that has been used.

Bankruptcy

A bankruptcy refers to economic insolvency, wherein the person’s assets are

liquidated, to pay off all liabilities with the help of a bankruptcy trustee or acourt of law.

Billing CycleA billing cycle is a time period that covers the credit statement that usuallylasts for 25 days.

Bankruptcy Trustee

A bankruptcy trustee is an individual or a corporation or any organizationthat is appointed, in case of bankruptcy, in order to represent the interests othe bankruptcy estate and the insolvent debtor according to Chapter 7,Chapter 11 and Chapter 13.

Bankruptcy Advice

Bankruptcy advice is given by a bankruptcy lawyer or a bankruptcycounseling service, so that a person can overcome financial and economic

difficulties after bankruptcy.

Billing Statement

A billing statement is a summary of all transactions, payments, purchases,finance charges and fees, that take place through a credit account during abilling cycle.

Bond

A bond is a certificate that represents an interest bearing debt, where theissuer is required to pay a sum of money periodically till the maturity, andthen receive back the accumulated amount.

BorrowerA borrower is the party that uses any kind of credit facility and thus, becomesobliged to repay the principal amount and interest on the borrowed amount.

Bridge Financing

Also know as gap financing, bridge financing is a loan where the time and cash

flow between a short term loan and a long term loan is filled up. Bridgefinancing begins at the end of the time period of the first loan and ends withthe start of the time period of the second loan, thereby bridging the gapbetween two loans. It is also known as gap financing.

Bridge Loan

The bridge loan also known as a swing loan is basically a real estate loan or ahome loan, where the current residence/real estate is pledged by theborrower as collateral in order to purchase a new residence.

Bounced Check

A bounced check is nothing but an ordinary bank check that any bank canrefuse to encash or pay because of the fact that there are no sufficient financesin the bank account of the originator or drawer of the check.






CapA cap is a limit that regulates the increase or decrease in the rate of interest and installments of an adjustable rate mortgage.

CapitalThe term ‘capital’ means the total net worth of any business establishment,organization or corporation or the total amount invested for financial returns.

Capital Improvement Capital improvement is the addition in the property of an organization that adds to its additional value.

Cardholder

Agreement

The cardholder’s agreement is a written statement that depicts a ll the termsand conditions of a credit card agreement. The cardholders’ agreement constitutes many elements, such as rate of service charges, billing disputeremedies and communications with the credit card companies or serviceproviders.

CashBills and coins, checks and other negotiable instruments, which are acceptableat banks and are considered to be liquid assets, are collectively known as cash.

Cash Advance Fee

Cash advance fee is basically charged when a person uses a credit card to

obtain cash. In most cases, it is charged as a percentage to the cash advance.

Cash Flow

The cash flow is often defined as the liquid balance of cash as well as the bank balance that is available with an organization or a corporation. In some cases,the cash flow is also defined as the net amount of cash that is generated by thenet income that has been generated by an organization or corporation in aparticular time period.

Cashier’s Check The cashier’s check is drawn by a bank on its own name to may paymentsother organizations, banks, corporations or even individuals.

Cash ReserveThe cash reserve is the total amount of cash that is present in the bank account and can also be withdrawn immediately.

Certificate of Deposit The certificate of deposit is a certificate of savings deposit that promises thedepositor the sum back along with appropriate interest.

Check A check is a negotiable instrument that instructs the bank to pay a particularamount of money from the writer’s bank, to the receiver of the check.

Clearing

Clearing of a check is basically a function that is executed at the clearinghouse, when all amount of the check is subtracted from the payer’s account

and then added to the payee’s account.

Clearing House

The clearing house is a place where the representatives of the different banksmeet for confirming and clearing all the checks and balances with each other.The clearing house, in most countries across the world, is managed by the

central bank.Central Bank A central bank is the governing authority of all the other banks in a country.

Closing

Closing of an account is the final stage of any transaction where both theparties receive almost equal consideration from each other. The term ‘closing’

from ledger books where the two accounts are ‘closed down’ i.e. both debit and credit sides become equal.

Co-borrower

The co-borrower is a person who signs a promissory note as a guarantee that the loan would be repaid. Thus the co-borrower plays the role of a guarantorand is equally responsible for the loan.

Consumer Credit

Consumer credit is the credit and loan facility that is provided to the consumer

for the purchase of goods, services and real estate property. Most consumercredit is unsecured with the help of a collateral





Compound Interest

Compound interest is the interest that is ‘compounded’ on a sum of moneythat is deposited for a long time. The compound interest, unlike simpleinterest, is calculated by taking into consideration, the principal amount andthe accumulated interest.

Credit Card Debt

Consolidation Loan

Credit card debt consolidation loan is availed from a bank in order to pay off

all credit card debts.

Credit CounselingCredit counseling is a consultancy session where the credit counselor suggestsdebt relief solutions and debt management solutions to the clients.


Debit

Debit is a banking term that indicates the amount of money that is owed by aborrower. It also indicates the amount that is payable, or the amount that hasbeen deducted from an account. The origin of the term is from the concept of debit side of a ledger account.

Debt

A debt is any amount that is owed by an individual, organization or

corporation to a bank.

Debit Card

A debit card is an instrument that was developed with digital cash technology,and is used when a consumer makes that payment first to the credit cardcompany and then swipes the card. The debit card operates in the exact opposite manner of the credit card.

Deed

A deed is a very important document that indicates the ownership of an asset,especially a real estate. The deed is also used to convey the property from theseller to the buyer.

Default A default is a scenario where the debtors of a bank are unable to repay thedebt or the loan.

Demand Deposit A demand deposit is an account that is used as a checking account.

Deposit Slip

A deposit slip is a bill of itemized nature and depicts the amount of papermoney, coins and the check numbers that are being deposited into a bank account.

Depositor The person who deposits money into a bank account is called a depositor.

DepreciationThe degradation in the book and monetary value of a fixed asset as a result of wear and tear in the course of time.

Debentures

Debentures are long term corporate bonds that are unsecured in nature. It must be noted that debenture holders are not protected by any collateral andtend to be treated like ordinary creditors

Discount

In the terms of banking, in the term ‘discount’ is used when any negotiableinstrument is converted into cash. For example, a person can exchange abearer check for cash with the amount being little less than the face value of the check. This method is used by merchants who are in a dire need for liquidfinances. Tins definition is written from the banking point of view but has avariable meanings.

DividendA dividend is a part of the profit that is earned by a corporation or joint stock companies, and is distributed amongst the shareholders.

Debt Management

Debt management is a process of managing debts and repaying creditors. Debt management is a very broad concept covering almost anything related to

debts and their repayment.Debt Consolidation A debt consolidation loan is a type of loan, where the bank or the lending





Loan institution provides the borrower with a loan that helps the borrower to payoff all his previous debts.

Debt Settlement

Debt settlement is a procedure wherein a person in debt negotiates the pricewith the lender of a loan, in order to reduce the installments and the rate of repayment, and ensure a fast and guaranteed repayment.

Debt Repayment

Debt repayment is the total process repayment of a debt along with theinterest. Sometimes, the consolidation that is provided is also included in debt repayment.

Debt Recovery

Debt recovery is the process that is initiated by the banks and lendinginstitutions, by various procedures like debt settlement or selling of collaterals.


E-Cash

Also known as electronic cash and digital cash, e-cash is a technology wherethe banking organizations resort to the use of electronics, computers and

other networks to execute transactions and transfer funds.

Early Withdrawal

Penalty

An early withdrawal penalty is basically a penalty that is levied by a bank because of an early withdrawal of a fixed investment by any investor. Therecan be several types of early withdrawal penalties, like forfeiting the promisedinterest.

Earning Assets

Earning assets generate returns, either in the form of returns or in the form ointerest or cash. One must note that in the case of earning assets, the ownerdoes not have to take any daily efforts to achieve returns.

Encryption

Encryption is a process that is used to ensure the privacy and security of aperson’s confidential financial information. The actual process involves

scrambling of the data of the person, in such a manner, so that only the personhimself can see the data.

ExchangeAn exchange is a trade of property, assets, goods or services for considerationof any kind.

Electronic FilingElectronic filing is the method of filing of tax returns and tax forms on theInternet.

Earnest Money

Deposit

An earnest money deposit is made by the buyer to the potential seller of a realestate, in the initial stages of negotiation of purchase.

Equity

Equity is the remainder balance between market value of a given property andthe outstanding real estate debt that is to yet be paid. The equity is a risk that

is basically borne by the lender.

Expiration DateThis term indicates the invalidity of a financial document or instrument, aftera specified period of time.

Education Loan

An education loan, also known as student’s loan, is specifically meant to

provide for the borrower’s expenditure towards education. In the majority of countries, educational loans tend to have a low rate of interest. The period of repayment also starts after the completion period of the loan.

Exchange RateAn exchange rate is a basically a rate, with the help of which one country’scurrency can be exchanged with the currency of another country.

Endorsement

Endorsement is basically the handing over of rights of a financial/legal

document or a negotiable instrument to another person. The person whohands over his/her rights is known as the endorser, and the person to whom





the rights have been transferred is known as the endorsee.


Face Value Face value is the original value of any security or negotiable instrument.

Field AuditsField audits are basically the audits that are conducted by bank officials, on thesite itself, in order to assess the status and condition of the collateral. Many atimes, field audits are also conducted in order to assess the financial situationof debtors, especially corporations, who have availed huge loans.

Final Maturity

A final maturity is the date of maturity when a last, single loan matures from apool of loans. The final maturity indicates the total and final payment of thepool of mortgage loans.

Financial Instrument

A financial instrument is anything that ranges from cash, deed, negotiableinstrument, or for that matter any written and authenticated evidence, whichshows the existence of a transaction or agreement.

Financial

Intermediary

A financial intermediary is basically a party or person who acts as a link

between a provider who provides securities and the user, who purchases thesecurities. Share brokers, and almost all the banks, are the best examples ofinancial intermediaries.

Financial Statement A financial statement is a record of historical financial figures, reports and arecord of assets, liabilities, capital, income and expenditure.

Fixtures

The term ‘fixture’ is used in the context of a real estate property, when assetslike furniture are attached to the real estate and are also included in its book value. Banks, in many a cases, are known to include fixtures in the value, if thereal estate property has been pledged as a collateral.

Forbearance Agreement

A forbearance agreement is an authenticated agreement between a debtor and

a creditor, and is utilized by the creditor, when the debtor initiates a debt settlement or the loan is defaulted, or the former becomes bankrupt.

Foreclosure

A foreclosure is a standardized procedure where creditors like banks, areauthorized to obtain the title of the real estate property that has been pledgedas collateral.

Free Cash FlowA free cash flow is basically is a total of financially liquid assets that does not include capital expenditures and dividends.

Fixed Rate MortgageA fixed rate mortgage is a home loan, for which the interest rate remainsconstant and fixed throughout the lifetime of loan.

Foreign Currency

Surcharge

The foreign currency surcharge is levied by some banks and credit card

companies, when a credit card or an ATM is used in a foreign country.


Government Bonds

A government bond, which is also known as a government security, isbasically any security that is held with the government and has the highest possible rate of interest.

Gross Dividends

Gross dividends are basically the total amount of dividends that are earned byan individual, or corporation in a single accounting and tax year. It must benoted that capital gains are also included in gross dividends.

Gross Income Test A gross income test, is a kind of test, where one can prove to any government

authority that a person is one’s dependent. Grace Period A grace period is an interest-free period that is to be given by a creditor to a





debtor after the period of the loan gets over, before initiating the process of loss recovery. The grace period depends on the amount of the loan and alsothe credit score of the borrower.

Gross IncomeGross income is the total income of a person, organization or corporation inone financial year, before making any deductions.

Ground Rent Ground rent is the amount of rent that a leaseholder pays periodically to theowner for using a piece of land.

Grant A grant is any type of financial aid that is given by the government.

Guarantor

A guarantor is a creator of trust who takes the responsibility of the repayment of a loan, and is also, in some cases, liable and equally responsible for therepayment of the loan.


Household Income

Household income is the income of all the members of one household put together. One must note that the income earned through the family business,

is also counted in the household income.

Holding Period

The holding period is the time duration during which a capital asset is held/owned by an individual or corporation. The holding period is taken intoconsideration, while pledging the asset as collateral.

Home Equity Debt A home equity debt is a debt, where the borrower’s house is pledged ascollateral.

Hedge

Hedge is a strategy that is used to minimize the risk of a particular investment and maximize the returns of an investment. A ‘hedge’ strategy is, most of thetimes, implemented with the help of a hedge fund. These terms has beenwritten from the banker’s point of view and may be interpreted differently in

the field of finance.


Installment Contract

An installment contract is a contract where the borrower, who is also thepurchaser, pays a series of installments that includes the interest of theprincipal amount.

Interest

Interest is a charge that is paid by any borrower or debtor for the use of money, which is calculated on the basis of the rate of interest, time period of the debt and the principal amount that was borrowed. Interest is, sometimes,also titled as the ‘cost of credit’.

Interest Accrual RateThe interest accrual rate is a percentage of interest that is calculated on thebasis of the rate of interest and is expressed in terms of annual percentagerate or APR.

Investment PropertyAn investment property is a real estate property that generates income for theowner, in terms of rent and lease.

Interest Rate

Interest rate is the percentage of principal amount that is paid as an interest for the use of money. Usually, the interest rate is decided by a country’scentral bank, on the basis of the economic conditions.

Internet Banking

Internet banking is a system wherein customers can conduct theirtransactions through the Internet. This kind of banking is also known as e-

banking or online banking.Installment Credit Installment credit is a debt or loan that is to be returned to the lender in a set





of periodic installments. Auto loans, home loans and other types of loans areincluded in installment credit.


Joint and Several

Liability

This is a legal term utilized to point that two or more entities are individuallyentirely responsible, instead of being collectively responsible.

Judgment Clause

This relates to a provision regarding bank notes of hand or guarantees, andincludes the authorization of the borrowers or sureties given to the bank, tocreate a judgment lien, at any time after the completion of the legalinstruments.

Judicial LienIt pertains to an interest in the holdings, which are gained from judicial orcourt orders.

Jump Z-Tranche

A Z-tranche is a real estate mortgage investment conduit (REMIC), which iscountenanced to obtain principal sums, before prior tranches are no longeractive.

Junior Debt The responsibilities of an issuing entity, for which quittance has contractuallybeen considered, as a priority of miscellaneous liabilities of the same debtor.

Junior Creditor A creditor who possesses junior debt.

Junk BondsThis is a recognized term for high-yield sureties with quality standings belowinvestment grade.


KappaThis is a Greek term utilized in the banking sector that relates to thesensitiveness of an option’s rate to alterations in the unpredictability cost.

Key Rate Duration

This pertains to a measure of duration, which computes efficient or empiricalduration by altering the market price for a particular maturity date on theyield curve, while keeping all other variables constant.

Knot PointsIt relates to the points that are on the yield curve for which there arediscernible rates for traded instruments.


Land Contract

Otherwise known as an article of agreement, a land contract denotes a form of contract, wherein the buyer makes periodic installment payments to theseller, in order to buy a real estate. But, the title to the property is not transferred to the buyer, until he makes the final payment.

Land Flip

A colloquial expression used to denote a real estate fraud, wherein the pricesof undeveloped property are artificially increased to high amounts, which areabove the fair market value. This is often accomplished by a group of colludingbuyers, who purchase and resell the same property, among its members,several times, each time increasing the price. When the price becomesunrealistically high, they sell the property or raise a loan for its development.

Lease

A contract, through which, the owner (lessor) of a certain property, allowsanother (lessee) to use the same for a specified period, in exchange for a valuecalled the rent.

Letter of Credit

A document issued by a bank (on behalf of the buyer or the importer), stating

its commitment to pay a third party (seller or the exporter), a specific amount,for the purchase of goods by its customer, who is the buyer. The seller has to





meet the conditions given in the document and submit the relevant documents, in order to receive the payment. Letters of credit are mainly usedin international trade transactions of huge amounts, wherein the customerand the supplier live in different countries.

Life Cap

The upper and lower limit for changes in the borrower’s interest rate over the

term of his/her loan.

Lifeline Account

A bank account meant for customers with low incomes. These accounts arecharacterized by little or no monthly fees and there is no strict rule regardingthe minimum balance.

Liquidated Damages

A clause, which is commonly found in contracts, wherein the parties agree topay a fixed amount, in case of any breach of the contractual provisions. Theparty, who violates the provisions, has to pay the amount to the aggrievedparty.

Lock-in Period

A guarantee given by the lender that there will be no change in the quotedmortgage rates for a specified period of time, which is called the lock-in

period.

Long Term Debt

An amount owed for a period exceeding one year, from the date of last balancesheet/accounting year. Otherwise known as funded debts, long term debtsrefers to those loans, which become due, after one year from the last balancesheet/accounting year. Such debts can be a bank loan, bonds, mortgage,debenture, or other obligations.

Loss Given Default

(LGD)

A term used to denote the actual loss incurred by a bank, in case of default bya debtor to pay off the loan. If there is any collateral pledged by the debtor, thevalue of such assets will be reduced from the loan amount.


Mortgage

A mortgage is a legal agreement between the lender and borrower where realestate property is used as collateral for the loan, in order to secure thepayment of the debt. According to the mortgage agreement, the lender of theloan is authorized to confiscate the property, the moment the borrower stopspaying the installments.

Maturity

The term maturity is used to indicate the end of investment period of any fixedinvestment or security. After maturity, the investor is repaid the investedamount along with the interest that has been accumulated. For example, onthe maturity of a one year fixed deposit, the invested sum along with theaccumulated interest, is transferred by the bank to the account of the investor.

Maturity Date Maturity date is the date on which the investment or security attains maturity.

Mortgage RefinanceA mortgage refinance involves the replacement of current debt with anotherdebt with more convenient terms and conditions.

Market Value

Market value is the value at which the demand of consumers and the supply of the manufacturers decide the price of a commodity or service. The market value is the equilibrium point on the supply and demand graph, where thedemand and supply curves meet. Thus, market value is decided on the basis of the number people who demand a commodity and the number of commoditiesthat the sellers are capable of selling.


No Cash Out A home loan, which is at a lower interest, an amount which does not go over





Refinance the closing costs and the outstanding principal of the original mortgage.

No Documentation

Loan

When the applicant furnishes minimum information, giving, only name,address, contact information for the employer and social security number, forthe application of the loan, it is called a no-documentation loan.

Non-RecurringClosing Costs

A lump sum fees paid at a real estate set up, which includes appraisal,origination, title insurance, credit report and points, is referred to as non-recurring closing costs.

National Bank A bank which is chartered by the federal government and is a member of theFederal Reserve System by default is called a national bank.

Net Operating LossA total loss that is calculated for a tax year and is attributed to business orcasualty losses.

Net Income The amount that is left after paying the taxes is called the net income.

Negative

Amortization

When the monthly payment is unable to cover the principal and the interest due, there is a slow increase in the mortgage debt. This situation is termed asnegative amortization.

Non-Liquid Asset A possession or asset which cannot be changed into cash very easily is callednon liquid asset.

Non-Recourse LoanA loan which is secured by collateral and for which the borrower is not personally liable, is called a non recourse loan.


Original Principal

Balance

The amount borrowed by any borrower is called the original principalbalance.

Owner FinancingWhen the seller loans the whole sum or a part of it to a buyer, it is calledowner financing.

Online Banking

The accessing of bank information, accounts and transactions with the help of a computer through the financial institution’s website on the Internet is calledonline banking. It is also called Internet banking or e-banking

Overdraft As the name suggests, it is a check or rather an amount of check, which isabove the balance available in the account of the payer.

Overdraft Protection

A service which permits a verification account to be connected to othersavings or line of credit for facilitation of protection against overdrafts iscalled overdraft protection.

Origination Fee

The charges a lender or creditor levies for processing a loan. It includes cost of loan document preparation, verification of the credit history of the borrower

and conducting an overall appraisal.

Ordinary DividendsDividends, which are a distribution of the profits of a company, are calledordinary dividends.

Ordinary Income Income, not qualifying as a capital gain, is called ordinary income.

Offline Debit CardThis refers to a card which is issued by a bank and has a VISA or MasterCardlogo on it. It can be issued, either instead of or along with a ATM card.

Open End Credit

Open end credit means a line of credit that can be used a number of times, upto a certain limit. Another name for this type of credit is charge account orrevolving credit.


Payee Payee is the person to whom the money is to be paid by the payer.





Payer Payer is the person who pays the money to the payee.

Penalty RateExtra payment made to workers for working more than normal working hoursis called as penalty rate.

Personal

Identification

Number (PIN)

Personal identification number or PIN is a secret code of numbers andalphabets given to customers to perform transactions through an automaticteller machine or an ATM.

Point of Sale (POS)Point of sale a terminal is where cash registers are replaced by computerizedsystems.

Posting DatePosting date is the date on which outdoor advertisements hit the markets.Usually these dates are in multiples of five.

Pre-QualificationA preliminary stage prior to bidding process, where the applicant is verified of whether he has the resources and the ability to do a given job.

Previous BalancePrevious balance is an outstanding amount which appears on the credit cardstatement on date when it is generated.

Principal

Principal is basic amount which is invested to yield returns over a certain

period of time at a given rate of interest.


Qualified OpinionAn auditor’s opinion mentioned in his report which holds some reservationsregarding the process of audit is called as a qualified opinion.

Quality Spread

The difference between the yields of Treasury securities and non-Treasurysecurities, as a result of different ratings or quality, is termed as qualityspread.

Quick RatioQuick ratio is also called as the acid-test ratio. It measures the company’s

liabilities and determines its position to pay off its obligations.


Range BondsBonds which cease the payments because the reference rate of the bondincreases or decreases, as compared to predetermined rate on a given index.

Rate A rate is a measure which forms the basis of any financial transaction.

Rate Covenant Rate covenant in a municipal bond determines the rates to be charged tobuyers.

RefinanceRefinance means clearing the current loan with the proceeds of a new one andusing the same property for collateral.

Revolving Line of

Credit

Revolving line of credit is a rule followed by the lender, which binds him toallow a certain credit to the borrower.

Rate Risk Rate risk is the rate of return determined to attract capital on a giveninvestment.

Rate Sensitive

Rate sensitive pertains to deposit account or security investment. If anychanges are made to the related interest rate that causes variations in itsdemand and supply.

Real Estate A piece of land developed or undeveloped which comes for a price.

Real Property Real property refers to anything that is built on land.

Record DateA date set by the issuer, on which an individual must own the shares, so as tobe eligible to receive the dividend.

ReconveyanceIn Banking Terms, reconveyance is transfer of property to its real owner, oncethe loan or the mortgage is paid off.





Redemption FeeA commission or fee paid, when an agent or an individual sells an investment,such as mutual funds or annuity.

Reference Asset An asset such as debt instrument which has a credit derivative is called as areference asset.

Reference Rate The basis of floating rate security is called as the reference rate.

RefundingThe act of paying back the amount or returning the funds is called asrefunding.

Reinvestment Risk

The risk that arises from the fact that dividends or any yields may not beeligible for investment to earn the rate of interest is called as the reinvestment risk.

Relative ValueThe liquidity, risk and return of one instrument in relation to another financialinstrument is the relative value.

RepossessionTaking back of property by a seller or a lender from the buyer or the borrowerdue to default of payment.

Repricing Repricing means a change in the rate of interest.

Reserve Account An account which is maintained by depositing undistributed parts of profit forfuture needs is called as a reserve account.

Reserve

Requirements

Cash money or liquidity that member banks need to hold with the FederalReserve System.

Residual ValueThe anticipated value that a company calculates, to sell its asset at the end of its full life.

Return on Capital A measure which determines how a company will optimize its funds.

Returns The yield on earning at the end of a given period at a given rate of interest.

Risk The probability of threat, danger, damage, liability or loss is called as risk.


Safekeeping

An arrangement for holding and protecting a customer’s assets, like valuables,documents, etc. Such arrangements are commonly provided by banks andsome financial institutions, usually for a fee. The customer is issued asafekeeping receipt, which indicates that the assets do not belong to the bank and they have to be returned to the customer, upon his request.

Same Day Funds

This banking term refers to the funds or money balances, which can betransferred or withdrawn on the same day of presenting and collection. Inshort, a transfer of money, which can be used by the recipient on the same dayof transfer and this provision is subject to the net settlement of accounts

between the bank, through which the money is sent and the receiving bank.This term is also used to refer to the transfer of federal funds from one bank toanother over Fed wire and the transfers through the Clearing House Interbank Payments System (CHIPS) in New York.

Sale Contract

A sale contract refers to a written agreement between the buyer and the sellerof an asset (usually real estate), with details regarding the terms andconditions of the sale.

Sale Leaseback

A sale of property, wherein the title is transferred to the buyer, on conditionthat the property will be leased to the seller on a long-term basis, after thesale.

Second Mortgage Otherwise known as ‘second trust’, a second mortgage is a mortgage which istaken out on property, which has been pledged as security to ensure payment





(collateral) of an original or first mortgage. A first mortgage has priority insettlement of claims, before all other subsequent mortgages. Unlike a first mortgage, a second mortgage has a shorter repayment term, with higherinterest rates.

Secured Loan

A loan which is backed by a pledging of real or personal property (collateral)

by the borrower to the lender. Unlike unsecured loans, which is backed by amere promise by the borrower that he will repay the loan, in case of a securedloan, the lender can initiate legal action against the borrower to reclaim andsell the collateral (pledged property).

SecurityProperty or assets, which are pledged to the lender by the borrower, as aguarantee to the repayment of a loan.

Seller BrokerA person who finds a buyer for the seller of a property and aids the latter innegotiation, in lieu of a commission.

Seller Carry back

A form of financing, wherein the seller of a property finances the buyer, whofinds it difficult to procure a loan or falls short of the amount needed to buy

the property. In short, it is a part of the purchase amount, which the selleroffers to finance. This term is also known as carry back loan or seller’s second.

Seller’s Market A market, which has more buyers, as compared to the number of sellers. Thiscondition leads to a rise in the prices, which is favorable for sellers.

Sort Code

A sort code is a specific number, which is assigned to a particular branch of abank for internal purposes. Each branch is assigned with a sort code, whichmakes it easier to designate that particular branch of bank, than writing downthe whole address.

Standard Payment

Calculation

A method used to calculate the monthly payment required to repay a loan,based on the loan balance, term of the loan and the current interest rate.

Starter Home A term used to denote a small house, which is inexpensive, and is often meant for first time home buyers.

Smart CardsUnlike debit and credit cards (with magnetic stripes), smart cards possess acomputer chip, which is used for data storage, processing and identification.

Syndicated Loan

A very large loan extended by a group of small banks to a single borrower,especially corporate borrowers. In most cases of syndicated loans, there willbe a lead bank, which provides a part of the loan and syndicates the balanceamount to other banks.


Takedown Period The time (period) when a borrower receives finances from a lender under aline of credit or loan commitment.

Takeout

Commitments

This term relates to a written promise by a loaner to make a long-termfinancial arrangement to substitute or replace a short-run loan.

Term Insurance

It is the insurance for a certain time period which provides for no defrayal tothe insured individual, excluding losses during the period, and that becomesnull upon its expiration.

Term NoteA legal notice offered by a particular organization to investors through adealer.

Term Structure of

Interest Rates

This phrase relates to the relationship between interest rates on bonds of

different due dates, generally described in the form of a chart, often known asa ‘yield curve’.





Time Deposit A kind of bank deposit which the investor is not able to withdraw, before atime fixed when making the deposit.

Time Draft This term relates to a draft that is collectible at a particular future date.

Time NoteA ‘time note’ is a financial instrument, like a ‘note of hand’, which stipulatesdates or a date of defrayal.

Time ValueThis is the sum of money that an option’s premium surpasses its intrinsicworth, and is also called as ‘time premium’.

Times Interest

Earned

It pertains to a measure of the financial trustworthiness of an organization,which is equal to Earning divided by interest.

Title InsuranceIt is the insurance for the purpose of protecting a loaner or owner against loss,if there is any kind of a property ownership conflict.

Title Insurance

Commitment

This term is concerned with the commitment which is brought out by a titleinsurance firm, and comprises the stipulations under which a title insurancepolicy will be made out.

Title Opinion

It pertains to a legal instrument confirming that a property title is clear and

can be offered for sale in the market.

Title Search

This refers to the procedure of analyzing all applicable records to affirm that the vendor is the legal possessor of the property and that there are no liens orother claims undercharged.

Total Return AnalysisThis term relates to the analysis of the real rate of return that is earned over acertain evaluation time period.

Total Return SwapIt is a kind of switch wherein an entity pays another entity according to thefixed rate in return for defrayals based on the return of a given asset.

Trade Credit It is the credit which a company gives to another organization for the purposeof buying products or services.

Total Risk-BasedCapital

The finances that are provided for startup companies and small businesseswith prodigious growth abilities.

Trade DateThe day on which the actual transaction takes place; one to five days beforethe settlement period, according to the kind of transaction.

Trade NameThe incorporated legal name under which an organization carries out all itsoperations, functions, and dealings.

Trade Letter of Credit

This refers to a legal document that a customer asks for from his bank for thepurpose of assuring that the defrayal for products would be transferred to thevendor.


Unadvised LineA line of credit which is sanctioned by the bank but not revealed to theborrower till the time of some particular occasion.

Uncertificated

This is a legal word that is utilized as an adjective to depict stocks, bonds,miscellaneous investments and deposit certificates, which are held inimmaterial form as electronic computer records.

UncoveredIt is the condition of an option bearer who doesn’t even possess an offsettingposition in the underlying instrument.

UnderwriterAny investment or commercial financial firm or a securities house that workswith an issuing entity for the purpose of selling a new issue.

Undivided Profits This is a banking work for retained earnings.Unexpected Loss or The element or part of risk or loss which surpasses the anticipated amount.





Unexpected Risk

Universal Life

Insurance

A type of life insurance which blends term insurance protection with a savingselement.

Unlimited GuarantyA guarantee understanding which doesn’t consist of any provisos limiting theamount of debt guaranteed.

Unqualified OpinionA word used to depict a suggestion letter concomitant with scrutinizedfinancial statements.

Upstream Guaranty

A word that is utilized to give a description of a guarantee of a loan to aborrowing entity, when the borrowing party is an owning company orshareholder of the surety.

Usury Laws

The state and federal jurisprudences setting up uttermost permissible rates of interest that can be charged on certain types of credit extensions to particularkinds of borrowers.


Value At Risk (VAR)The sum or portion of the value that is at stake of subject to loss from avariation in prevalent interest rates.

Value Based

Management (VBM)

It is a structured approach to evaluate the performance of the company’s unit managers or goods and services, in terms of the aggregate gains they render tostockholders.

Variable Life

Insurance

This type of insurance is very similar to whole life insurance, wherein the cashworth is invested in equity or debt sureties.

Variable Rate

MortgageThis is just another term used for Adjustable Rate Mortgage (ARM).

Variance

This is a stats-related word which measures the distribution of information,

like rates or costs around the mean.

Vector PathA series of the rate of paying finances in advance, in succession that is chosento contemplate an assumed rate of interest scenario.

Variance Swap

This relates to an OTC fiscal derivative which enables a person to speculate onor hedging jeopardizes connected with unpredictability of some underlyingproduct, such as an exchange rate, interest rate or stock index.

Vested Accumulated

Benefit Obligation

The part of the conglomerated benefit obligation under a specified benefit plan to which the workers possess a legal right, even if their employment isterminated before retirement.


WaiverIn Banking Terms, a waiver is relinquishing the rights. Sometimes alsoconsidered to be the exemption or settlement of a part of debt.

Warehouse Lines of

Credit

Warehouse line of credit is a facility provided to the borrower to get awarehouse mortgage portfolio for future security.

Warehouse Receipt A document or a statement which states the quantity and quality of the itemsat the warehouse for safekeeping.

Warranty Deed

A deed which states that the seller holds the clear title of the goods or realestate to be sold. This gives him or her right to sell the title to a prospectivebuyer.

When-Issued (WI)‘When issued’ or WI is a conditional transaction made due to its authorizedsecurity or debt obligation.





Whole Life Insurance

A whole life insurance is a contract between the insurer and the policy owner,which the insurer will pay the sum of money on the occurrence of the event mentioned in the policy to the insured. It’s a concept wherein the insurer

mitigates the loss caused to the insured on the basis of certain principles.

Wholesale Banking

Wholesale banking is a term used for banks which offer services to other

corporate entities, large institutions and other financial institutions.Wire Transfers Wire transfers are an Electronic medium used while transferring of funds.

With RecourseA term used to signify that a seller or a drawer will be liable in case of non-performance of asset or non-payment of an instrument.

Withdrawals Removing of funds from a bank account is called as making a withdrawal.

Without RecourseA term which signifies that the buyer is responsible for non-performance of anasset or non-payment of an instrument, instead of the seller.

Working CapitalIn Banking Terms, working capital is defined as the difference betweencurrent assets and current liabilities.

Wraparound

Mortgage

An arrangement, wherein existing mortgage is refinanced with more money,

with a rate of interest ranging between the old rates and current market rates.

WriterA writer is an entity or a financial institution which promises to sell a certainnumber of shares or stocks at a price before a certain date.


Yield CurveYield curve is a graph or a curve that shows the relationship between maturitydates and yield.

YieldThe returns earned on a stock or bonds, as per the effective rate of interest onthe effective date, are called as a yield in the Banking Terms.

Yield Curve Risk Yield curve risk is the huge risk involved in a fixed income instrument, due tomajor fluctuations in the market rates of interest.

Yield to Call (YTC)

The yield on a bond calculated on the supposition that the issuer will redeemthe amount at the first call as stated on the bond’s prospectus is called as yield

to call.

Yield-to-Maturity

(YTM)

The average annual yield that an investor receives because he holds it for lifeor till the maturity date is called as the yield to maturity.


Z scoreZ score is a measure, used in the banking field, to determine the differencebetween a single data point and a normal data point.

Zero Balance Account A bank account which does not require any minimum balance is termed as azero balance account.

Zero Cost Collar

A type of arrangement, wherein, the borrower buys a cap from the bank andsells the floor. In this arrangement, the cost of the cap is recovered by saleproceeds of the floor or vice versa.

Zero Coupon Yield

Curve

Zero coupon yield curve is also called as spot yield curve, and is used todetermine discount factors.

ZoningA government controlled area where only certain uses of the land arepermitted is called zoning.

Zoning Variance

An exception made in the zoning rule by the local government is zoningvariance.

Zero-Lot Line Structure of a housing area such that every house has a designated plot. They





may or may not have same walls.

Zero-Down-Payment

Mortgage

Zero-down-payment mortgage is a type of mortgage given to a buyer whodoes not make any down payments while borrowing. The mortgage buyerborrows the amount at the entire purchase price.

A quick look on basic Banking terms... 1. RBI – The Reserve Bank of India is the apex bank of the country, which was constituted under

the RBI Act, 1934 to regulate the other banks, issue of bank notes and maintenance of reserveswith a view to securing the monetary stability in India.

2. Demand Deposit – A Demand deposit is the one which can be withdrawn at any time, without any notice or penalty; e.g. money deposited in a checking account or savings account in a bank.

3. Time Deposit – Time deposit is a money deposit at a banking institution that cannot bewithdrawn for a certain "term" or period of time. When the term is over it can be withdrawn or

it can be held for another term.

4. Fixed Deposits – FDs are the deposits that are repayable on fixed maturity date along with theprincipal and agreed interest rate for the period. Banks pay higher interest rates on FDs thanthe savings bank account.

5. Recurring Deposits – These are also called cumulative deposits and in recurring deposit accounts, a certain amounts of savings are required to be compulsorily deposited at specificintervals for a specified period.

6.

Savings Account – Savings account is an account generally maintained by retail customers that deposit money (i.e. their savings) and can withdraw them whenever they need. Funds in theseaccounts are subjected to low rates of interest.

7. Current Accounts – These accounts are maintained by the corporate clients that may beoperated any number of times in a day. There is a maintenance charge for the current accountsfor which the holders enjoy facilities of easy handling, overdraft facility etc.

8. FCNR Accounts – Foreign Currency Non-Resident accounts are the ones that are maintainedby the NRIs in foreign currencies like USD, DM, and GBP etc. The account is a term deposit withinterest rates linked to the international rates of interest of the respective currencies.

9. NRE Accounts – Non-Resident External accounts are the ones in which NRIs remit money inany permitted foreign currency and the remittance is converted to Indian rupees for credit toNRE accounts. The accounts can be in the form of current, saving, FDs, recurring deposits. Theinterest rates and other terms of these accounts are as per the RBI directives.

10. Cheque Book - A small, bound booklet of cheques. A cheque is a piece of paper produced byyour bank with your account number, sort-code and cheque number printed on it. The account number distinguishes your account from other accounts; the sort-code is your bank's specialcode which distinguishes it from any other bank.

11. Cheque Clearing - This is the process of getting the money from the cheque-writer's account into the cheque receiver's account.





12. Clearing Bank - This is a bank that can clear funds between banks. For general purposes, thisis any institution which we know of as a bank or as a provider of banking services.

13. Bounced Cheque - when the bank has not enough funds in the relevant account or the account holder requests that the cheque is bounced (under exceptional circumstances) then the bank

will return the cheque to the account holder. The beneficiary of the cheque will have not beenpaid. This normally incurs a fee from the bank.

14. Credit Rating - This is the rating which an individual (or company) gets from the credit industry. This is obtained by the individual's credit history, the details of which are availablefrom specialist organizations like CRISIL in India.

15. Credit-Worthiness - This is the judgment of an organization which is assessing whether or not to take a particular individual on as a customer. An individual might be considered credit-worthy by one organization but not by another. Much depends on whether an organization isinvolved with high risk customers or not.

16. Interest - The amount paid or charged on money over time. If you borrow money interest willbe charged on the loan. If you invest money, interest will be paid (where appropriate to theinvestment).

17. Overdraft - This is when a person has a minus figure in their account. It can be authorized(agreed to in advance or retrospect) or unauthorized (where the bank has not agreed to theoverdraft either because the account holder represents too great a risk to lend to in this way orbecause the account holder has not asked for an overdraft facility).

18. Payee - The person who receives a payment. This often applies to cheques. If you receive acheque you are the payee and the person or company who wrote the cheque is the payer.

19. Payer - The person who makes a payment. This often applies to cheques. If you write a chequeyou are the payer and the recipient of the cheque is the payee.

20. Security for Loans - Where large loans are required the lending institution often needs to havea guarantee that the loan will be paid back. This takes the form of a large item of capital outlay(typically a house) which is owned or partly owned and the amount owned is at least equivalent to the loan required.

21. Internet Banking - Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by the bank.

22. Credit Card - A credit card is one of the systems of payments named after the small plasticcard issued to users of the system. It is a card entitling its holder to buy goods and servicesbased on the holder's promise to pay for these goods and services.

23. Debit Card – Debit card allows for direct withdrawal of funds from customers bank accounts.The spending limit is determined by the available balance in the account.

24. Loan - A loan is a type of debt. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal





amount of money to the lender at a later time. There are different kinds of loan such as thehouse loan, auto loan etc.

25. Bank Rate - This is the rate at which central bank (RBI) lends money to other banks orfinancial institutions. If the bank rate goes up, long-term interest rates also tend to move up,

and vice-versa.

26. CRR - CRR means Cash Reserve Ratio. Banks in India are required to hold a certain proportionof their deposits in the form of cash with Reserve Bank of India (RBI). This minimum ratio isstipulated by the RBI and is known as the CRR or Cash Reserve Ratio. Thus, when a bank’sdeposits increase by Rs100, and if the cash reserve ratio is 9%, the banks will have to holdadditional Rs 9 with RBI and Bank will be able to use only Rs 91 for investments and lending /credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks will beable to use for lending and investment. This power of RBI to reduce the lendable amount byincreasing the CRR makes it an instrument in the hands of a central bank through which it cancontrol the amount that banks lend. Thus, it is a tool used by RBI to control liquidity in thebanking system.

27. SLR - SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates theminimum percentage of deposits that the bank has to maintain in form of gold, cash or otherapproved securities. Thus, we can say that it is ratio of cash and some other approved toliabilities (deposits). It regulates the credit growth in India.

28. ATM - An automated teller machine (ATM) is a computerized telecommunications device that provides the clients with access to financial transactions in a public space without the need fora cashier, human clerk or bank teller. On most modern ATMs, the customer is identified by

inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip that contains a unique card number and some security information such as an expiration date orCVV. Authentication is provided by the customer entering a personal identification number(PIN)

A quick look on basic Finance Terms… 29. Compound interest – Compound Interest arises when interest is added to the principal, so

that from that moment on, the interest that has been added also it earns interest. This additionof interest to the principal is called compounding (i.e. the interest is compounded).

30. Time value of money – The time value of money is the value of money figuring in a givenamount of interest earned over a given amount of time. For example, 100 dollars of today'smoney invested for one year and earning 5 percent interest will be worth 105 dollars after oneyear. Therefore, 100 dollars paid now or 105 dollars paid exactly one year from now both havethe same value to the recipient who assumes 5 percent interest; using time value of money.

31. Present Value – The current worth of a future sum of money or stream of cash flows given aspecified rate of return is the present value of that sum.

32. Nominal interest rate – Nominal rate of interest refers to the rate of interest beforeadjustment for inflation (in contrast with the real interest rate); or, for interest rates "as

stated" without adjustment for the full effect of compounding.





33. Effective interest rate – Effective Annual interest rate, Annual Equivalent Rate (AER) orsimply effective rate is the interest rate on a loan or financial product restated from thenominal interest rate as an interest rate with annual compound interest payable in arrears.

34. Bond – A bond is a debt security, in which the authorized issuer owes the holders a debt and,

depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay theprincipal at a later date, termed maturity. A bond is a formal contract to repay borrowedmoney with interest at fixed intervals

35. Equity/ Stock – The stock or capital stock of a business entity represents the original capitalpaid or invested into the business by its founders.

36. Cost of Capital – The cost of capital is the cost of a company's funds (both debt and equity), or,from an investor's point of view "the expected return on a portfolio of all the company's existing

securities." It is used to evaluate new projects of a company as it is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a newproject has to meet.

37. CAGR – Compound Annual Growth Rate is a business and investing specific term for thesmoothed annualized gain of an investment over a given time period. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. CAGR is often usedto describe the growth over a period of time of some element of the business, for examplerevenue, units delivered, registered users, etc.

38. Leverage – Leverage (also known as gearing or levering) refers to the use of debt tosupplement investment. Companies usually leverage to increase returns to stock, as this

practice can maximize gains (and losses).

39. DCF – Discounted Cash Flow analysis is a method of valuing a project, company, or asset usingthe concepts of the time value of money. All future cash flows are estimated and discounted togive their present values (PVs).

40. NPV – The Net Present Value or net present worth of a time series of cash flows, both incomingand outgoing, is defined as the sum of the present values (PVs) of the individual cash flows. Incase when all future cash flows are incoming (such as coupons and principal of a bond) and theonly outflow of cash is the purchase price, the NPV is simply the NPV of future cash flowsminus the purchase price (which is its own PV).

41. NBFC – Non-Banking Financial Company is a company registered under the Companies Act,1956 of India and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or othersecurities of like marketable nature, insurance business.

42. Mutual Fund – A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-termmoney market instruments, and/or other securities. The mutual fund will have a fund managerthat trades the pooled money on a regular basis. The net proceeds or losses are then typically

distributed to the investors annually.





43. Insurance – Insurance is a form of risk management primarily used to hedge against the risk of a loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity toanother, in exchange for a premium, and can be thought of as a guaranteed and known smallloss to prevent a large, possibly devastating loss.

44. Pension fund – A pension fund is a pool of assets forming an independent legal entity that arebought with the contributions to a pension plan for the exclusive purpose of financing pensionplan benefits. Pension funds are important shareholders of listed and private companies

45. Dividends – Dividends are payments made by a corporation to its shareholder members. It isthe portion of corporate profits paid out to stockholders. When a corporation earns a profit orsurplus, that money can be put to two uses: it can either be re-invested in the business (calledretained earnings), or it can be paid to the shareholders as a dividend.

46. Exchange rate – The exchange rates (also known as the foreign-exchange rate, forex rate or FXrate) between two currencies specifies how much one currency is worth in terms of the other.It is the value of a foreign nation’s currency in terms of the home nation’s currency. For

example an exchange rate of 91 Japanese yen (JPY, ¥) to the United States dollar (USD, $)means that JPY 91 is worth the same as USD 1.

47. Derivatives – Derivatives is the collective name used for a broad class of financial instrumentsthat derive their value from other financial instruments (known as the underlying), events orconditions.

48. Futures – A futures contract is a standardized contract to buy or sell a specified commodity of standardized quality at a certain date in the future and at a market-determined price (the

futures price). The contracts are traded on a futures exchange. They are a type of derivativecontract.

49. Options – In finance, an option is a contract between a buyer and a seller that gives the buyerof the option the right, but not the obligation, to buy or to sell a specified asset (underlying) onor before the options expiration time, at an agreed price, the strike price.

50. SEBI – Securities Exchange Board of India is the regulator for the Securities Market in India. It was formed officially by the Government of India in 1988 with SEBI Act 1992 being passed bythe Indian Parliament.

51. CRISIL – Credit Rating and Information Services of India Ltd. is India's leading Ratings,Research, Risk and Policy Advisory Company. CRISIL’s majority shareholder is Standard &

Poor's, world's foremost provider of financial market intelligence. CRISIL offers domestic andinternational customers with independent information, opinions and solutions related to credit ratings and risk assessment; energy, infrastructure and corporate advisory; research on India'seconomy, industries and companies; global equity research; fund services; and risk management.

52. Capital Structure – Capital structure refers to the way a corporation finances its assetsthrough some combination of equity, debt, or hybrid securities. A firm's capital structure is

then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion inequity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed.





Banking Terms1. What is a Repo Rate?

Ans: Repo rate is the rate at which our banks borrow rupees from RBI. Whenever the bankshave any shortage of funds they can borrow it from RBI. A reduction in the repo rate will helpbanks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI

becomes more expensive.

2. What is Reverse Repo Rate?

Ans: This is exact opposite of Repo rate. Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. RBI uses this tool when it feels there is too muchmoney floating in the banking system. Banks are always happy to lend money to RBI since theirmoney is in safe hands with a good interest. An increase in Reverse repo rate can cause thebanks to transfer more funds to RBI due to these attractive interest rates.

3. What is CRR Rate?

Ans: Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down.RBI is using this method (increase of CRR rate), to drain out the excessive money from thebanks.

4. What is SLR Rate?

Ans: SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in theform of cash, or gold or govt. approved securities (Bonds) before providing credit to itscustomers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in orderto control the expansion of bank credit. SLR is determined as the percentage of total demandand percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to

pay to the customers on their anytime demand. SLR is used to control inflation and propelgrowth. Through SLR rate tuning the money supply in the system can be controlled efficiently.

5. What is Bank Rate?

Ans: Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financialintermediaries. Changes in the bank rate are often used by central banks to control the moneysupply.

6. What is Inflation?

Ans: Inflation is as an increase in the price of bunch of Goods and services that projects theIndian economy. An increase in inflation figures occurs when there is an increase in theaverage level of prices in Goods and services. Inflation happens when there are fewer Goodsand more buyers; this will result in increase in the price of Goods, since there is more demandand less supply of the goods.

7. What is Deflation?

Ans: Deflation is the continuous decrease in prices of goods and services. Deflation occurswhen the inflation rate becomes negative (below zero) and stays there for a longer period.

8. What is PLR?

Ans: The Prime Interest Rate is the interest rate charged by banks to their most creditworthycustomers (usually the most prominent and stable business customers). The rate is almost





always the same amongst major banks. Adjustments to the prime rate are made by banks at thesame time; although, the prime rate does not adjust on any regular basis. The Prime Rate isusually adjusted at the same time and in correlation to the adjustments of the Fed Funds Rate.The rates reported below are based upon the prime rates on the first day of each respectivemonth. Some banks use the name "Reference Rate" or "Base Lending Rate" to refer to their

Prime Lending Rate.

9. What is Deposit Rate?

Ans: Interest Rates paid by a depository institution on the cash on deposit.

10. What is FII?

Ans: FII (Foreign Institutional Investor) used to denote an investor, mostly in the form of aninstitution. An institution established outside India, which proposes to invest in Indian market,in other words buying Indian stocks. FII's generally buy in large volumes which has an impact on the stock markets. Institutional Investors includes pension funds, mutual funds, InsuranceCompanies, Banks, etc.

11. What is FDI?

Ans: FDI (Foreign Direct Investment) occurs with the purchase of the “physical assets or asignificant amount of ownership (stock) of a company in another country in order to gain ameasure of management control” (Or) A foreign company having a stake in a Indian Company.

12. What is IPO?

Ans: IPO is Initial Public Offering. This is the first offering of shares to the general public from acompany wishes to list on the stock exchanges.

13. What is Disinvestment?Ans: The Selling of the government stake in public sector undertakings.

14. What is Fiscal Deficit?

Ans: It is t he difference between the government’s total receipts (excluding borrowings) andtotal expenditure. Fiscal deficit in 2009-10 is proposed at 6.8% of GDP.

15. What is Revenue deficit?

Ans: It defines that, where the net amount received (by taxes & other forms) fails to meet thepredicted net amount to be received by the government. Revenue deficit in 2009-10 isproposed at 4.8% of GDP.

16. What is GDP? Ans: The Gross Domestic Product or GDP is a measure of all of the services and goods producedin a country over a specific period; classically a year. GDP during 2008-09 is 6.7%.

17. What is GNP?

Ans: Gross National Product is measured as GDP plus income of residents from investmentsmade abroad minus income earned by foreigners in domestic market.

18. What is National Income?

Ans: National Income is the money value of all goods and services produced in a country duringthe year.





19. What is Per Capita Income?

Ans: The national income of a country, or region, divided by its population. Per capita income isoften used to measure a country's standard of living Per capita income during 2008-09estimated by CSO: Rs.25, 494.

20. What is Vote on Account?Ans: A vote-on account is basically a statement, where the government presents an estimate of a sum required to meet the expenditure that it incurs during the first three to four months of an election financial year until a new government is in place, to keep the machinery running.

21. Difference between Vote on Account and Interim Budget?

Ans: Vote-on-account deals only with the expenditure side of the government's budget, aninterim Budget is a complete set of accounts, including both expenditure and receipts.

22. What is SDR?

Ans: The SDR (Special Drawing Rights) is an artificial currency created by the IMF in 1969.SDRs are allocated to member countries and can be fully converted into internationalcurrencies so they serve as a supplement to the official foreign reserves of member countries.Its value is based on a basket of key international currencies (U.S. dollar, euro, yen and poundsterling).

23. What is SEZ?

Ans: SEZ means Special Economic Zone is the one of the part of government’s policies in India.A special Economic zone is a geographical region that economic laws which are more liberalthan the usual economic laws in the country. The basic motto behind this is to increase foreigninvestment, development of infrastructure, job opportunities and increase the income level of

the people.

OTHER IMPORTANT TERMS1. What is corporate governance?

Ans: The way in which a company is governed and how it deals with the various interests of itscustomers, shareholders, employees and society at large. Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (orcompany) is directed, administered or controlled is defined as the general set of customs,regulations, habits, and laws that determine to what end a firm should be run.

2.

What are functions of RBI?Ans: The Reserve Bank of India is the central bank of India, was established on April 1, 1935 inaccordance with the provisions of the Reserve Bank of India Act, 1934. The Reserve Bank of India was set up on the recommendations of the Hilton Young Commission. The commissionsubmitted its report in the year 1926, though the bank was not set up for nine years to regulatethe issue of Bank Notes and keeping of reserves with a view to securing monetary stability inIndia and generally to operate the currency and credit system of the country to its advantage."Banker to the Government: performs merchant banking function for the central and the stategovernments; also acts as their banker’s Banker to banks: maintains banking accounts of allscheduled banks.

3. What is monetary policy?





Ans: A Monetary policy is the process by which the government, central bank, of a countrycontrols the supply of money, availability of money, and cost of money or rate of interest, inorder to attain a set of objectives oriented towards the growth and stability of the economy.

4. What is Fiscal Policy?

Ans: Fiscal policy is the use of government spending and revenue collection to influence theeconomy. These policies affect tax rates, interest rates and government spending, in an effort tocontrol the economy. Fiscal policy is an additional method to determine public revenue andpublic expenditure.

5. What is Core Banking Solutions?

Ans: Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simpletransactions from any of the member branch offices. It will cut down time, workingsimultaneously on different issues and increasing efficiency. The platform wherecommunication technology and information technology are merged to suit core needs of banking is known as Core Banking Solutions.

6. What are bank and its features and types?

Ans: A bank is financial organizations where people deposit their money to keep it safe. Banksplay an important role in the financial system and the economy. As a key component of thefinancial system, banks allocate funds from savers to borrowers in an efficient manner.Regional Rural Banks were established with an objective to ensure sufficient institutionalcredit for agriculture and other rural sectors. The RRBs mobilize financial resources fromrural/semi-urban areas and grant loans and advances mostly to small and marginal farmers,agricultural laborers and rural artisans.

The area of operation of RRBs is limited to the area as notified by GoI covering one ormore districts in the State.

Banking services for individual customers is known as retail banking. A bank that deals mostly in but international finance, long-term loans for companies

and underwriting. Merchant banks do not provide regular banking services to thegeneral public

Online banking (or Internet banking) allows customers to conduct financial transactionson a secure website operated by their retail or virtual bank.

Mobile Banking is a service that allows you to do banking transactions on your mobilephone without making a call, using the SMS facility. Is a term used for performingbalance checks, account transactions, payments etc. via a mobile device such as a mobilephone.

Traditional banking is the normal bank accounts we have. Like, put your money in thebank and they act as a security and you will get only the normal interests (decided byRBI in our case, FED bank in US).

Investment banking is entirely different. Here, people who are having so much money(money in excess which will yield only less interest if in Banks) will invest their moneyand get higher returns. For example, If I have more money instead of taking the pain of investing in share market, buying properties etc. I will give to investment banks andthey will do the money management and give me higher returns when compared totraditional banks.

7. What is E-Governance?





Ans: E-Governance is the public sector’s use of information and communication technologieswith the aim of improving information and service delivery, encouraging citizen participationin the decision-making process and making government more accountable, transparent andeffective.

8. What is Right to information Act?Ans: The Right to Information act is a law enacted by the Parliament of India giving citizens of India access to records of the Central Government and State governments. The Act applies to allStates and Union Territories of India, except the State of Jammu and Kashmir - which iscovered under a State-level law. This law was passed by Parliament on 15 June 2005 and camefully into force on 13 October 2005.

9. What is Credit Rating Agencies in India?

Ans: The credit rating agencies in India mainly include ICRA and CRISIL. ICRA was formerlyreferred to the Investment Information and Credit Rating Agency of India Limited. Their mainfunction is to grade the different sector and companies in terms of performance and offersolutions for up gradation. The credit rating agencies in India mainly include ICRA and CRISIL(Credit Rating Information Services of India Limited)

10. What is Cheque?

Ans: Cheque is a negotiable instrument instructing a Bank to pay a specific amount from aspecified account held in the maker/depositor's name with that Bank. A bill of exchange drawnon a specified banker and payable on demand.“Written order directing a bank to pay money”.

11. What is demand Draft?

Ans: A demand draft is an instrument used for effecting transfer of money. It is a Negotiable

Instrument. Cheque and Demand-Draft both are used for Transfer of money. You can 100%trust a DD. It is a banker's check. A check may be dishonored for lack of funds a DD cannot.Cheque is written by an individual and Demand draft is issued by a bank. People believe banksmore than individuals.

12. What is a NBFC?

Ans: Non-banking financial company (NBFC) is a company registered under the Companies Act,1956 and is engaged in the business of loans and advances; acquisition of shares/stock/bonds/debentures/securities issued by government, but does not include anyinstitution whose principal business is that of agriculture activity, industrial activity,sale/purchase/construction of immovable property. NBFCs are doing functions akin to that of banks; however there are a few differences:(i) A NBFC cannot accept demand deposits (demand deposits are funds deposited at a

depository institution that are payable on demand -- immediately or within a very short period like your current or savings accounts.)

(ii) It is not a part of the payment and settlement system and as such cannot issue chequesto its customers; and

(iii) Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks.

13. What is Difference between banking & Finance?

Ans: Finance is generally related to all types of financial, this could be accounting, insurancesand policies whereas banking is everything that happens in a bank only. The term Banking and





Finance are two very different terms but are often associated together. These two terms areoften used to denote services that a bank and other financial institutions provide to itscustomers.

14. What is NASSCOM?

Ans: The National Association of Software and Services Companies (NASSCOM), the Indianchamber of commerce is a consortium that serves as an interface to the Indian softwareindustry and Indian BPO industry. Maintaining close interaction with the Government of Indiain formulating National IT policies with specific focus on IT software and services maintaininga state of the art information database of IT software and services related activities for use of both the software developers as well as interested companies overseas.

15. What is ASSOCHAM?

Ans: The Associated Chambers of Commerce and Industry of India (ASSOCHAM), India'spremier apex chamber covers a membership of over 2 lakh companies and professionalsacross the country. It was established in 1920 by promoter chambers, representing all regionsof India. As an apex industry body, ASSOCHAM represents the interests of industry and trade,interfaces with Government on policy issues and interacts with counterpart internationalorganizations to promote bilateral economic issues.

16. What is NABARD?

Ans: NABARD was established by an act of Parliament on 12 July 1982 to implement theNational Bank for Agriculture and Rural Development Act 1981. It replaced the AgriculturalCredit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India,and Agricultural Refinance and Development Corporation (ARDC). It is one of the premiereagencies to provide credit in rural areas. NABARD is set up as an apex Development Bank with

a mandate for facilitating credit flow for promotion and development of agriculture, small-scaleindustries, cottage and village industries, handicrafts and other rural crafts.

17. What is SIDBI?

Ans: The Small Industries Development Bank of India is a state-run bank aimed to aid thegrowth and development of micro, small and medium scale industries in India. Set up in 1990through an act of parliament, it was incorporated initially as a wholly owned subsidiary of Industrial Development Bank of India.

18. What is SENSEX and NIFTY?

Ans: SENSEX is the short term for the words "Sensitive Index" and is associated with theBombay (Mumbai) Stock Exchange (BSE). The SENSEX was first formed on 1-1-1986 and usedthe market capitalization of the 30 most traded stocks of BSE. Whereas NSE has 50 most tradedstocks of NSE.SENSEX IS THE INDEX OF BSE. AND NIFTY IS THE INDEX OF NSE.BOTH WILLSHOW DAILY TRADING MARKS. SENSEX and Nifty both are an "index”. An index is basically anindicator it indicates whether most of the stocks have gone up or most of the stocks have gonedown.

19. What is SEBI?

Ans: SEBI is the regulator for the Securities Market in India. Originally set up by theGovernment of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being

passed by the Indian Parliament.





20. What are Mutual funds?

Ans: Mutual funds are investment companies that pool money from investors at large and offerto sell and buy back its shares on a continuous basis and use the capital thus raised to invest insecurities of different companies. The mutual fund will have a fund manager that trades thepooled money on a regular basis. The net proceeds or losses are then typically distributed to

the investors annually.

21. What is Asset Management Companies?

Ans: A company that invests its clients' pooled fund into securities that match its declaredfinancial objectives. Asset management companies provide investors with more diversificationand investing options than they would have by themselves. Mutual funds, hedge funds andpension plans are all run by asset management companies. These companies earn income bycharging service fees to their clients.

22. What are non-performing assets?

Ans: Non-performing assets, also called non-performing loans, are loans, made by a bank orfinance company, on which repayments or interest payments are not being made on time. Adebt obligation where the borrower has not paid any previously agreed upon interest andprincipal repayments to the designated lender for an extended period of time. Thenonperforming asset is therefore not yielding any income to the lender in the form of principaland interest payments.

23. What is Recession?

Ans: A true economic recession can only be confirmed if GDP (Gross Domestic Product) growthis negative for a period of two or more consecutive quarters.

24. What are foreign exchange reserves?Ans: Foreign exchange reserves (also called Forex reserves) in a strict sense are only theforeign currency deposits and bonds held by central banks and monetary authorities. However,the term in popular usage commonly includes foreign exchange and gold, SDRs and IMFreserve positions.

25. What is Open Market Operations (OMO)?

Ans: The buying and selling of government securities in the open market in order to expand orcontract the amount of money in the banking system by RBI. Open market operations are theprincipal tools of monetary policy.

26. What is Micro Credit?

Ans: It is a term used to extend small loans to very poor people for self-employment projectsthat generate income, allowing them to care for themselves and their families.

27. What is Liquidity Adjustment Facility (LAF)?

Ans: A tool used in monetary policy that allows banks to borrow money through repurchaseagreements. This arrangement allows banks to respond to liquidity pressures and is used bygovernments to assure basic stability in the financial markets.

28. What is RTGS System?

Ans: The acronym 'RTGS' stands for Real Time Gross Settlement. RTGS system is a fundstransfer mechanism where transfer of money takes place from one bank to another on a 'real





time' and on 'gross' basis. This is the fastest possible money transfer system through thebanking channel. Settlement in 'real time' means payment transaction is not subjected to anywaiting period. The transactions are settled as soon as they are processed. 'Gross settlement'means the transaction is settled on one to one basis without bunching with any othertransaction.

29. What is Bancassurance?

Ans:It is the term used to describe the partnership or relationship between a bank and aninsurance company whereby the insurance company uses the bank sales channel in order tosell insurance products.

30. What is Wholesale Price Index (WPI)?

Ans:The Wholesale Price Index (WPI) is the index used to measure the changes in the averageprice level of goods traded in wholesale market. A total of 435 commodity prices make up theindex. It is available on a weekly basis. It is generally taken as an indicator of the inflationrate in the Indian economy. The Indian Wholesale Price Index (WPI) was first published in1902, and was used by policy makers until it was replaced by the Producer Price Index (PPI) in1978.

31. What is Consumer price Index (CPI)?

Ans: It is a measure estimating the average price of consumer goods and services purchased byhouseholds.

32. What is Venture Capital?

Ans:Venture capital is money provided by an outside investor to finance a new, growing, ortroubled business. The venture capitalist provides the funding knowing that there’s a

significant risk associated with the company’s future profits and cash flow. Capital is investedin exchange for an equity stake in the business rather than given as a loan, and the investorhopes the investment will yield a better-than-average return.

33. What is a Treasury Bills?

Ans:Treasury Bills (T-Bills) are short term, Rupee denominated obligations issued by theReserve Bank of India (RBI) on behalf of the Government of India. They are thus useful inmanaging short-term liquidity. At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasurybills issued by State Governments.

34. What is Banking Ombudsmen Scheme?

Ans: The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks. TheBanking Ombudsman is a senior official appointed by the Reserve Bank of India to redresscustomer complaints against deficiency in certain banking services. The Banking OmbudsmanScheme was first introduced in India in 1995, and was revised in 2002. The current schemebecame operative from the 1 January 2006, and replaced and superseded the bankingOmbudsman Scheme 2002.

35. What is Subsidy?

Ans: A subsidy is a form of financial assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent




the decline of that industry or an increase in the prices of its products or to encourage it to hiremore labor.

36. What is a Debenture? How many types of debentures are there? What are they?

Ans: A debenture is basically an unsecured loan to a corporation. A type of debt instrument

that is not secured by physical asset. Debentures are backed only by thegeneral creditworthiness and reputation of the issuer. Convertible Debentures: Any type of debenture that can be converted into some other

security or it can be converted into stock.. Non-Convertibility Debentures (NCB): Non Convertible Debentures are those that

cannot be converted into equity shares of the issuing company, as opposed toConvertible debentures. Non-convertible debentures normally earn a higher interest rate than convertible debentures due.

37. What is a hedge fund?

Ans: ‘Hedge’ means to reduce financial risk. A hedge fund is an investment fund open to alimited range of investors and requires a very large initial minimum investment. It is important to note that hedging is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment.

38. What is FCCB?

Ans: A Foreign Currency Convertible Bond (FCCB) is a type of convertible bond issued in acurrency different than the issuer’s domestic currency. In other words, the money being raisedby the issuing company is in the form of a foreign currency. A company may issue an FCCB if it intends to make a large investment in a country using that foreign currency.

39. What is Capital Account Convertibility (CAC)?Ans: It is the freedom to convert local financial assets into foreign financial assets and viceversa at market determined rates of exchange. This means that capital account convertibilityallows anyone to freely move from local currency into foreign currency and back. The ReserveBank of India has appointed a committee to set out the framework for fuller Capital Account Convertibility. Capital account convertibility is considered to be one of the major features of adeveloped economy. It helps attract foreign investment. Capital account convertibility makes it easier for domestic companies to tap foreign markets.

40. What is Current Account Convertibility?

Ans: It defines at one can import and export goods or receive or make payments for servicesrendered. However, investments and borrowings are restricted.

41. What is Arbitrage?

Ans: The opportunity to buy an asset at a low price then immediately selling it on a different market for a higher price.

42. What is Capitalism?

Ans: Capitalism as an economy is based on a democratic political ideology and produces a freemarket economy, where businesses are privately owned and operated for profit; in capitalism,all of the capital investments and decisions about production, distribution, and the prices of

goods services and labor are determined in the free market and affected by the forces ofl d d d

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Abbrevations Banking