Banking Awareness Study Material – Glossary
Banking Awareness Study MaterialComputer AwarenessMarketing Aptitude
(or banker’s acceptance) It is a signed instrument of acknowledgement that indicates the approval and acceptance of all terms and conditions of any agreement on behalf of the banker. It is used in context of financial agreements and contracts.
An organisation specialises in two prominent functions i.e. facilitating the different negotiable instruments and merchant banking.
The total amount of money in a particular bank account, alongwith the debit and credit amounts, the net amount, is also termed as the account balance.
It is a process with the help of which the account balance can be easily verified. Account reconciliation is usually done at the end of a week, month, financial year or at the end of any financial period. It is usually done with the help of receipts, ATM notes, bank statements records transactions, etc.
A financial record that indicates the transactions and its effect on an account (usually bank account), in terms of debits and credits.
It is the process where the price of a bond that has been bought at a discount is changed to the par value of the bond. It is also defined as a change in the price of a bond that has been bought at a discount to the par value of the bond.
This is the process of accumulation of interest or money. The accrual basis is calculated by assuming that every month has 30 days. Accrual basis is often used as the common parameter for the calculation of interests and returns.
This is a bond that has a tendency to pay the investors, an above the market rate. It is also known as range bond.
An interest accumulated on an investment, but is not yet paid. Some banking books prefer to call it as the interest that is earned, but not yet paid.
Automated Clearing House
It operates on a national level and helps banks and financial institutions in the clearance of balances and negotiable instruments that are used at a personalised as well as a mercantile mode of transactions.
Rates of interest which can be changed contractually by lender. In some cases, these rates can also be changed by the depositor and also the payee.
It is a letter addressed to a subscriber to an issue of shares informing him of the number of share that he has been allotted and where payment was not made with the application, the amount due.
American Depository Receipt
(ADR) ADRs are depository receipts which are equal to a specific number of shares of a corporate stock that has been issued in a foreign country. American depository receipts are traded only in the United States of America.
Amortisation of Loans
The process of liquidation of loans or securities with the help of periodic reductions. The principal amount of the loan is amortised periodically by the method of payments in installments.
The amortisation period is basically considered in order to calculate the rate of interest, timeline of installments and also the appropriate amount of all the installments. The term amortisation period is also used in the field of accountancy; however, in a different context.
It is a swap in the rate of interest that has a declining notional principal.
They are contracts that guarantee income or return, in exchange for a huge sum of money that is deposited, either at the same time or is paid with the help of periodic payments. Some of the common types of annuities include the deferred, fixed, immediate or variable variants.
It is the simultaneous purchase and sale of two identical commodities or instruments. This simultaneous sale and purchase is done in order to take advantage of the price variations in two different markets.
Any business resource, both tangible and intangible, acquired at monetary cost and which is expected to be of benefit to the business for a period of time, such as buildings, machinery etc. Intangibles include goodwill etc.
Asset Backed Security
(ABS) A security that is backed with the help of some kind of valuable assets, is known as an asset backed security. Sometimes, ABS is also referred to as the monthly rate of repayment of a secured loan.
Asset and Liability Management
This is the co-ordinated management of all the financial risks inherent in the business conducted by financial institutions. In real practice, asset and liability management aims at minimisation of loss and maximisation of profit.
It is the transfer of any contractual agreement between two or more parties. The party that assigns the contract is the assignor and the party who receives the assignment is the assignee.
It is basically carried out for the purpose of reformation of the assets and liabilities in a balance sheet.
This is an injunction that automatically becomes effective, after any person or organisation files for bankrupty. The automatic stay basically precludes the creditors from taking the debtor or the property of the debtor.
A situation when a country does not no foreign trade.
It is a strategy of gradually buying more and more securities in a declining market or selling in a rising market in order to level out/rationalise the purchase or sale price.
They are banks and financial institutions that collaborate with businesses to accept credit/debit card payments.
A bank account in which there are regular transactions. A bank account that is not dormant or inoperative or under an attachment order of the court or enforcement authorities.
Additional Card holder
Another member added to an existing card thus extending its usage is called an additional card holder. The responsibility to repay the monthly outstanding balance rests with the original (principal) card holder.
Credit cards linked to special organisations like sports clubs, exclusive clubs and charities. Affinity credit cards can also help raise funds, when a part of income from every transaction goes toward the benefit of relevant organisation.
Transfer An arrangement that moves funds from one account to another automatically on a pre-arranged schedule e.g. every per day or once a month.
An arrangement that authorises payments to be deducted automatically from a bank account (usually a savings/current account) to pay bills (such as insurance payments, rent, mortgage or loan payments). Payments are usually scheduled to be made on a certain day of the month.
It is your credit limit minus your current balance. It is the unused portion of your credit line.
A debt which is irrecoverable and is therefore written off as a loss in the accounts of a company/bank etc.
It is a method of carrying forward of transactions from one settlement period to another without effecting delivery.
It is the repayment of a debt with the help of another source of credit. In some cases, balance transfer also refers to transfer of funds from one account to another.
It is an establishment that helps individuals and organisations in the issuing, lending, borrowing and safeguarding functions of money.
A bank account is an account held by a person with a bank, with the help of which the account holder can deposit, safeguard his money, earn interest and also make cheque payments.
A bank debt is basically any debt that is owed to a bank, by any kind of consumer, organisation or corporation. The debt may be anything from a bank loan to a credit card debt or an overdraft that has been used.
It refers to economic insolvency, wherein the person’s assets are liquidated, to pay off all liabilities with the help of a bankrupty trustee or a^court of law.
Bid and Offer
Bid is a price of share on which a prospective buyer is prepared to pay for a particular scrip. Offer is the price at which a share is offered for sale.
It is a document which gives evidence of indebtedness of one party to another.
It is a summary of all transactions, payments, purchases, finance charges and fees that take place through a credit account during a billing cycle.
A market in which goods are sold at prices that violate some legally imposed pricing restrictions.
It is a first class equity share, the purchase of which (the hose is) entails little risk even in economic recessions (Depression).
It is a certificate that represents an interest bearing debt, where the issuer is required to pay a sum of money periodically till maturity and then receive back the accumulated amount.
This is the party that uses any kind of credit facility and thus, becomes obliged to repay the principal amount and interest on the borrowed amount.
It is nothing but an ordinary bank cheque that any bank can refuse to encash or pay because of the fact that there are no sufficient finances in the bank account of the originator or drawer of the cheque.
It denotes increasing activity in a market arising out of greater demand.
Also known 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.
This loan also known as a swing loan, is basically a real estate loan or a home loan, where the current residence/real estate is pledged by the borrower as a collateral in order to purchase a new residence.
It means gold silver or other precious metal in bulk, i.e. in the form of ingots or bars rather than in coin. A bullion market is a gold market.
A cheque issued by a branch of a bank against consideration received. Banker’s cheque are valid for a certain period as indicated on the face of the cheque, (also called Pay Order).
Business Credit Card
A reward credit card, that comes with special features and rewards for corporate users. Business credit card builds credit history for the associated business. They are a good way to separate business expenses from personal ones.
It is a limit that regulates the increase in the rate of interest and installments of an adjustable rate mortgage.
This means the total net worth of any business establishment, organisation or corporation or the total amount invested for financial returns.
It is increase in a country’s stock of real capital (i.e. net investment in fixed assets).
They are reductions in tax liability which are related to a firm’s capital expenditure. In most countries expenditure on new capital assets is encouraged by various kinds of allowances and annual depreciation is recognised as an expense of the business in calculating tax liability.
A sets (i.e. fixed plus current assets minus current liabilities), but more usually bank loan and overdrafts are included and other adjustments made for purposes of calculating the return on Net employed such as the exclusion of intangible assets and the revaluation of trade investments at market prices.
It is the purchase of fixed assets (e.g. plant and equipment), expenditure on trade investments or acquisitions of other businesses and expenditure on current assets (e.g. stocks). It differs from capital formation.
It is the net investment in fixed assets, i.e. additions to the stock of real capital.
It is a realised increase in the value of a capital asset. It arises when a share is sold for more than the price at which it was purchased. Strictly speaking, the term refers to capital appreciation outside the normal courses of business.
It is a reduction in the money value of an asset. It is the opposite of capital gain.
It refers to the total amount of physical capital in the economy or less commonly, in a firm or industry.
It comprises capital receipt and payments and also incorporates transactions in the public account. Capital Receipt These are loans raised by the government from the public, which are called market loans, borrowings by the government from the Reserve Bank of India and other parties.
Carry Forward Trading
It has evolved a response to local needs in India and it refers to the trading in which the settlement is postponed to the next account period on payment of contango charges (Vyaj badla) in which the buyer pays interest on borrowed funds or the backwardation charges (undha badla). In which the short seller pays a charge for borrowing securities.
Bills and coins, cheques and other negotiable instruments, that are acceptable at banks and are considered to be liquid assets are collectively known as cash.
Cash Advance Fee
This is basically charged when a person uses a credit card to obtain cash. In most cases, it is charged as a percentage of the cash advance.
This is the total amount of cash that is present in the bank account and can also be withdrawn immediately.
It is the ratio of a bank’s cash holdings to its total deposit liabilities. For an individual firm, it is the proportion of its current liabilities that are accounted for by cash in hand, including bank deposits and sometimes payments due from customers.
Arises when overseas residents buy assets he domestic economy or domestic residents sell foreign assets.
Arises when overseas residents sell assets in the domestic economy or domestic residents buy foreign assets.
Increasing the quantity of capital without changing the proportions in which the factors of production are used.
Certificate of Deposit
This is a certificate of savings deposit that promises the depositor the sum back along with appropriate interest.
This is the governing authority of all the other banks in a country.
Chain banks refer to separately incorporated banks brought under common control by a device by smaller banks of some of their cash reserves with bigger banking.
Money which is available at low rate of interest is known as cheap money.
A closed economy is one which does not have any external economic relationship.
Closing of an account is the final stage of any transaction where both the parties 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.
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 guaranter and is equally responsible for the loan.
It is the credit and loan facility that is provided to the consumer for the purchase of goods and services. It cannot be unsecured of there is collateral. Most consumer credit is unsecured with the help of a collateral.
An agreement among a group of countries to have free trade among themselves, a common set of barriers to trade with other countries and free movement of labour and capital among themselves.
Under the correspondent banking system, banks are linked together through deposits by smaller banks of some of their cash reserves with bigger banks.
A commodity bought by households for use of consumption.
This is the interest that is ‘compounded’ on a sum of money that is deposited for a long time. The compound interest, unlike simple interest, is calculated by taking into consideration, the principal amount and the accumulated interest.
It refers to sums standing to a particular account of exchequer (for which it is often used synonymously into which the proceeds of taxation are paid and from which government expenditure are made.
It is the ostentatious personal expenditure which satisfies no physical need but rather a psychological need for the esteem of other. Goods may be purchased not for their practical use as status symbols.
It is a special additional import duty imposed on a commodity to offset a reduction of its price as a result of an export subsidy in the country of origin.
These are tokens for payment of interest attached to bearer securities.
It is interest rate on a debt security, which the issuer promises to pay to holder periodical till maturity.
A currency is said to be convertible when it may be freely exchanged for another currency or gold.
He is the one to whom an amount of money is due. A firm’s creditors are other firms, individuals and perhaps the government to which it owes money in return for goods supplied, services rendered and taxes for which it is liable.
Power of commercial banks to expand deposits through expanding their loans and advances is known as credit creation.
Credit Transfer or Giro
In this system a bank or post office will transfer money from one account to another on receipt of written instructions.
The term is used for a country with a balance of payments surplus.
The amount which a credit agency states a borrower is capable of repaying. Credit rating can be done for stocks, bonds or nations themselves. Some global credit rating agencies are Standard and Poor’s (S & P), Moody’s etc. CRISIL is the Indian agency rating bonds etc.
Slow and persistent rise in general level of prices over a long period.
It refers to listing of instruments of a company on the stock exchange abroad.
It is a type of insurance against default provided by a credit guarantee association or other institution to a lending institution. Credit guarantees enable otherwise ‘sound’ borrowers who lack collateral security or are unable to obtain loans for other reasons, to obtain the credit they require through banks in the normal way.
The share is cum-rights when a potential purchaser is entitled to receive the current rights.
It is the annual interest on bond divided by the market price.
It refers to notes and coins that are the ‘current’ medium of exchange in a country.
It is the increase in the exchanged rate of one currency in terms of other currencies. The term is usually applied to a currency with a floating rate of exchange; upward changes in fixed rate of exchange are called revaluations.
It is the fall in the exchange rate , of one currency in terms of other currencies. The term is , usually applied to floating exchange rates. Downward changes in fixed rates of exchange are called devaluations.
Unemployment in industrial market economies resulting from down showing of economic activity on account of deficient demand (insufficient to ensure Keynesian full employment).
A cheque that has been not paid and cancelled by the drawer-accountholder.
Capital Adequacy Ratio
It is the capital to assets ratio which banks are required to maintain against risks. It is also known as Capital to Risk (Weighted) Assets Ratio (CRAR).
Certificate of Deposit
(CD) It is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note against fund deposited at a bankor other eligible financial institution for a specified time period.
Credit Card Debt
The total unpaid balances on all of your credit cards (not to be confused with the minimum amount you owed each month).
Factors used by lenders to rate the credit worthiness or ability to repay debt. They may include income, amount of personal debt carried, number of accounts from other credit sources and credit history. A lender is free to use any credit-related information in approving or denying a credit application.
An account used for commercial purpose. It attracts no rate of interest and is generally charged by the bank with maintenance charges. There is no limit to the number of transactions in this type of account.
An account created for the benefit of a minor with an adult as the custodian.
The money available at exceptionally high rate of interest is called Dear money. It is the opposite of cheap money. A dear Money Policy involves keeping interest rates upto restrict the money supply.
It is the share that cannot be bought or sold for some time period.
It refers to shares issued where ordinary shares have a fixed dividend and which entitle the holder to all profits after prior charges have been met.
It is an excess of liabilities over assets or of an expenditure flow over an incorrect flow.
It is a sustained reduction in the general level of prices. Deflation is often, though not inevitably, accompanied by declines in output and employment and is distinct from disinflation which means a reduction in the rate of inflation.
It is money placed in an account at a bank and constituting a claim on the bank. The term bank deposit includes deposits on all types of account, including current accounts.
It is a bank account in which deposits earn interest and withdrawals from which require notice.
It refers to a business cycle in which there is consistent decline of production, national income and employment level.
It is the reduction of the official rate at which one currency is exchanged for another.
A fall in aggregate demand that is associated with falling asset values, causing a negative wealth effect on consumption. It could also involve a decline in investment as investors wait for asset values to stop falling.
Any written documents that record the terms of a debt, often providing legal proof of the condition under which interest will be paid and the principal repaid.
The gap between less developed countries and developed countries.
This refers to savings and current account of the bank account that is used.
Demand Pull Inflation
A state of rising prices brought about by increase in aggregate demand in the face of short supply.
That proportion of the total population of a country falling in the ages of 0 to 15 and 64 +, which is considered economically unproductive and therefore not counted in the labour force.
Any amount that is owed by an individual, organisation or corporation to a bank.
It is a banking term that indicates the amount of money that is owed by a borrower. It also indicates the amount that is payable or the amount that has been deducted from an account. The origin of the term is from the concept of debit side of a ledger account.
It is a procedure wherein a person in debt negotiates the price with the lender of a loan, in order to reduce the instalments and the rate of repayment and ensure a fast and guaranteed repayment.
It is the total process repayment of a debt alongwith the interest. Sometimes, the consolidation that is provided is also included in debt repayment.
This is the process that is initiated by the banks and lending institutions, by various procedures like debt settlement or selling of collaterals.
It 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.
It is a bill of itemised nature and depicts the amount of paper money, coins and the cheques that are being deposited into a bank account.
The person who deposits money into a bank account is called a depositor.
A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.
The degradation in the book and monetary value of a fixed asset as a result of wear and tear in the course of time.
Debt Consolidation Loan
This is a type of loan, where the bank or the lending institution provides the borrower with a loan that helps the borrower to pay off all his previous debts.
Taxes levied on persons that can vary with the status of the taxpayer, e.g. income tax.
The difference between the current price of a bill and its maturity value expressed as an annualised interest rate.
It is a part of the profit that is earned by a corporation or joint stock companies and is distributed amongst the shareholders.
Income generated by the factors of production within the country from its own resources is called domestic income.
The economy of the underdeveloped countries is dualistic in nature, i.e. it falls into two conspicuously distinct, but sharply contrasted divisions. There is a modern sector, ipostly in the urban areas where the social and economic organisation is of the advanced nature and there is traditional sector comprising the backward indigenous speaking and production organisation.
When a company’s securities are listed on more than one exchange, then it is called dual listing.
Earnest Money Deposit
It is made by the buyer to the potential seller of a real estate, in the initial stages of negotiation of purchase.
Earnings such as salary or wages, income of working partners or proprietors and certain pensions and social security benefits are treated as earned income for tax purposes.
By economic costs we meant those payments which must be received by resource owners in order to ensure that they will continue to supply them in the process of production.
The difference between the revenues received from the sale of output and the full opportunity cost of the inputs used to make the output. The cost includes the opportunity cost of the owner’s capital. Also, called pure profits or simply profits.
(Electronic Commerce) The conducting of business transactions via remote electronic means.
Also known as Electronic-cash and digital cash, E-cash is a technology where the banking organisations resort to the use of electronics, computers and other networks to execute transactions and transfer funds.
Economic growth means a process of sustained increase in real national income of a country over a long period of time.
Effective Exchange Rate
An index number of the value of a nation’s currency relative to a weighted basket of other currencies. Whereas an exchange rate measures the rate of exchange of a currency for one other currency, changes in the effective exchange rate indicate movements in a single currency’s value against other currencies in general.
This is the method of filing of tax returns and tax forms on the internet.
It is a designated zone in a depressed generally inner-urban area, in which firms located in the zone are given favorable taxation concessions and freedom from a number of planning constraints.
It is a process that is used to ensure the privacy and security of a person’s confidential financial information. The actual process involves scrambling of the data of the person, in such a manner, so that only the person himself can see data.
It is basically the handing over of rights of a financial/legal document or a negotiable instrument to another person. The person who hands over his/her rights is known as the endorser and the person to whom the rights have been transferred, is known as the endorsee.
The price at which demand for a commodity and its supply are exactly equal is called the equilibrium price. At equilibrium price excess demand and excess supply are both equal to zero.
It is the residual value of a company’s assets after all outside liabilities (other than to shareholders) have been allowed for. The equity in a company under liquidation is the property of holder of ordinary shares, hence these shares are popularly called equities.
It is a tax payable on a person’s property at his death and before it passes into hands of others.
Euro Currency Market
Euro currency market, also known as Eurodollor market, is an international capital market which specialises in borrowing and lending of currencies outside the country issues.
It exchange is a trade of property, assets, goods or services for consideration of any kind.
This is basically a rate, with the help of which one country’s currency can be exchanged with the currency of another country.
This term indicates the invalidity of a financial document or instrument, after a specified period of time.
Extension Counters provide the prescribed limited services. Banks are permitted to open Extension counters within the premises of big offices/factories, hospitals, military units, educational institution, etc.
Early Repayment Charge
(Prepayment charge) Charge that banks and financial institutions levy on borrowers when they prepay the loan amount before the end of loan tenure. Early repayment charge is also called prepayment penalty.
Electronic Clearing Service
(ECS) Credit An inter bank arrangement where by a customer can give instructions to his bank where he holds a current or savings account to pay the monthly instalments of payments due on loans/credit cards held with another bank.
Electronic Funds Transfer
(EFT) Any transfer of funds initiated by electronic means such as an electronic terminal, telephone, computer, ATM or magnetic tape.
It is the original value of any security or negotiable instrument.
It is the term used in the national accounts to described the valuations of output at market prices less taxes on expenditure plus subsidies.
It is anything that ranges from cash, deed, negotiable instrument or for that matter any written and authenticated evidence, that shows the existence of a transaction or agreement.
It is basically a party or person who acts as a link between a provider who provides securities and the user who purchases the securities. Share broker and almost all the banks are the best examples of financial intermediaries.
This statement is a record of historical financial figures, reports and a record of assets, liabilities, capital, income and expenditure.
Fixed Income Investments
It refers to an investment that pays a fixed rate of return. This usually brings into question a fixed return from a fixed deposit or an investments in a debentures issued by a certain company or a bond issued by some government controlled institution.
Fixed Exchange Rate
An exchange rate that is held within a narrow band around some pre-announced par value by intervention of the country’s Central Bank in the foreign exchange market.
This term is used in the context of a real estate property, when assets like furniture are attached to the real estate and are also included in its book value. Banks, in many cases, are known to include fixtures in the value, if the real estate property has been pledged as a collateral.
Fixed Rate Mortgage
This is a home loan, for which the interest rate remains constant and fixed throughout the lifetime of loan.
It means raising new capital by public subscriptions. A private company issuing share to the public for the first time is said to be going public.
It refers to the capital which is not invested in fixed assets such as machinery, but in work in progress, wages paid, etc. It is synonymous with working capital.
It is an assignment of the total assets of a company or individual as collateral security for a debt, as opposed to particular assets, when such an assignment is called a fixed charge.
A mutual fund or other pooled investment that may change its investment strategy as it sees fit, as opposed to sticking to one particular investment vehicle, company size, or asset allocation. If a fund is flexible in its strategy, this will usually be stated in the prospectus and/or other marketing material.
These are bonds denominated in the currency of the foreign country where funds are sought to be raised. The issuer is borrower who desires to raise funds outside the domestic capital market.
Foreign Institutional Investor
An institution established or incorporated outside India which proposes to make investment in India in securities; provided that a domestic asset management company or domestic portfolio manager who manages funds raised or collected or brought from outside India for investment in India on behalf of a sub-account, shall be deemed to be a foreign institutional investor.
Foreign Investment It is the acquisition by government, institutions or individual in one country of assets another. Foreign investment is defines to cover both direct investment and portfolio investment and includes both public authorities and private firms and individuals.
It is a standardised procedure where creditors like banks, are authorised to obtain the title of the real estate property that has been pledged as a collateral.
Foreign Currency Surcharge
It is levied by some banks and credit card companies, when a credit card or an ATM is used in a foreign country.
It is the process of converting short term debt by the sale of long term securities and using the funds received to pay off short term debt. Funding may be carried out by a company because its capital structure is inappropriate, i.e. to take advantage of the fact that long term capital is normally cheaper and less likely to be withdrawn than short term capital.
Fringe benefits tax
The fringe benefits tax (FBT) was the tax applied to most, although not all, fringe benefits in India. A new tax was imposed on employers by India’s Finance Act 2005 from the financial year commencing April 1, 2$05.
An interface that links the internet shopper, the online merchant and banking systems in a secure environment. The gateway contains the bulk of the logic for handling processor business rules, processor time-outs and so on.
It is one where two or more separately incorporated banks are bought under the control of a holding company which may not be a banking company. The banks bought together may be unit banks or branch banks or both.
It is also known as a government security, is basically any security that is held with the government and has the highest possible rate of interest.
The total value of all investment goods produced in the economy during a stated period of time.
Gross Return on Capital
The market value of output minus all non-capital costs, the gross return is made up of depreciation, the pure return on capital, any risk premium and residual which is pure profit.
Gross Domestic Investment
(GDI) It consists of the outlays for additions to the fixed assets of both the private and public sectors plus the net value of inventory changes.
It is the total income of a person, organisation or corporation in one financial year, before making any deductions.
Use of monetary and fiscal policies to attempt to correct only large deviations from potential national income.
These are basically the total amount of dividends that are earned by an individual or corporation in a single accounting and tax year. It must be noted that capital gains are also included in gross dividends.
It 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 also the credit score of the borrower.
It is the amount of rent that a leaseholder pays periodically to the owner for using a piece of land.
It is any type of financial aid that is given by the government.
He is a creator of trust who takes the responsibility for the repayment of a loan.
It is the situation when a potential purchaser is entitled to receive the current bonus.
It refers to a currency traded in a foreign exchange market.
Hedge It is a strategy that is used to minimise the risk of a particular investment and maximise the returns of an investment. A ‘hedge’ strategy is most of the times, implemented with help of a hedge fund. This term has been written from banker’s point of view and may be interpreted differently in field of finance.
It is the term for the accumulation of (idle money) balances.
It refers to a company that controls one or more other companies, normally by holding a majority of the shares of these subsidiaries.
It refers to funds which flow into a country to take advantage of favourable rate of interest in that country. They improve the balance of payments and strengthen the exchange rate of the recipient country.
This is the time duration during which a capital asset is held/owned by an individual or corporation. The holding period is taken into consideration, while pledging the asset as a collateral.
Home Equity Debt
It is a debt, where the borrower’s house is pledged as a collateral.
It is a charge that is created on movable asset as security for a debt. However, the ownership as well as possession of the asset is retained with the borrower.
It is a temporary increase in Import tariffs designed to correct a short term balance of payments deficit and to stabilise the exchange rate.
Imputed Cost or Implicit Cost
It is the cost attributed to using an asset which is owned by the user. It is the opportunity cost of not putting an asset to its best alternative use.
Incremental Capital Output Ratio
(ICOR) The amount of capital needed to raise output by one unit.
It is a weighted average of a number of statistical observations of some economic attribute, as a percentage of a similar weighted average calculated for the attribute at an earlier or base, period.
Inter Bank Market
It is the money market in which banks borrow or lend among themselves for fixed periods either to accommodate short term liquidity problems or for lending on. The interest rate at which funds on loan are offered to first class banks is called the Inter Bank Offered Rate (IBOR) or in London, the London Inter Bank Offered Rate (LIBOR).
It is the money which is not in circulation, i.e. not on deposit or invested in other financial asset or being used for transaction. Inactive money is also referred to as idle money or idle balances.
It is a contract where the borrower, who is also the purchaser, pays a series of instalments that includes the interest of the principal amount.
It 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’.
It 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’s Central Bank, on the basis of the economic conditions.
The fee that your bank pays the consumer’s bank for each credit card transaction that is settled.
Joint and Several Liability
This is a legal term utilised to point that two or more entities are individually and collectively responsible.
Joint Stock Company
It is that form of business organisation in which the capital of the company is jointly held by a large number of people, who have purchased its shares. The joint stock companies are also known as corporated organisations or corporations.
Laissez Faire Policy
It is the policy of noninterference by the state in the working of economy. It may also be termed as least intervention policy.
A contract, through which the owner (lessor) of a certain property, allows another (lessee) to use the same for a specified period, in exchange for a value called 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 (seller or the exporter) a specific amount for the purchase of goods by its customer, who is the buyer. Letters of credit are mainly used in international trade transactions of huge amounts, wherein the customer and the supplier live in different countries.
The upper and lower limit for changes in the borrower’s interest rate over the term of his/her loan.
It is a company whose shares are listed on the main market of the stock exchange.
It is security listed and tradable on the stock exchange. Companies wishing to have their equity shares listed must comply with a number of requirements concerned with the disclosure of information. Besides, they must be registered.
Long Term Debt
An amount owed for a period exceeding 1 year, from the date of last balance sheet/accounting yr. Otherwise known as funded debts, long term debts refers to those loans, which become due after lyr from the last balance sheet/accounting year. Such debts can be a bank loan, bonds, mortgage, debenture or other obligations.
A set of 40 consecutive transactions in an account.
(Scrutiny of Title Deeds) Before disbursal of a home loan or loan against any property, usually the bank conducts a legal check on the property being offered as collateral. It involves screening all the documents etc, related to the property. This is done to ensure that the property in question has a clear title.
It is the responsibility for a loan or credit account. The liabilities are resources (sources of funds), which the business mobilises to acquire assets for running income.
The term maturity is used to indicate the end of investment period of any fixed investment or security. After maturity, investor is repaid the invested amount alongwith interest that has been accumulated.
It is the date on which the investment or security attains maturity.
An association of banks that governs the issuing and acquiring of Master Card, Credit Card Transactions and Maestro Debit Transactions.
A currency is said to be managed if the exchange rate is not fixed by free market forces, i.e. if the government influences the rate by buying and selling its own money or by other means.
Masala bonds are bonds issued outside India but denominated in Indian Rupees, rather than the local currency. The term was used by IFC to evoke the culture and cuisine of India.Unlike dollar bonds where the borrower takes the currency risk, masala bond investors will bear the risk.
They are institutions that carry out a variety of financial services, including tire acceptance of bills of exchange, the issue and placing of land and securities, portfolio and unit trust management and some banking services.
It is a form of economic organisation, in which elements of capitalist economy and those of socialist economy are found mixed together.
The banking system, combines commercial banking with investment banking is known as mixed banking. It is now referred to as universal banking.
It is a legal agreement between the lender and borrower where real estate property is used as a collateral for the loan, in order to secure the payment of the debt. According to the Mortgage Agreement, the lender of the loan is authorised to confiscate the property, the moment the borrower stops paying the instalments. This agreement conveying conditional ownership of assets as a security for a loan becoming void when the debt is repaid.
This involves the replacement of current debt with another debt with more convenient terms and conditions.
It is a process for conversion of money obtained illegally to appear to have originated from legitimate sources.
In terms of extant instructions, Mobile branches are allowed to be opened/operated only in Tier 3-6 Centres (i.e. up to centres with population of below 50000). They provide banking services at the doorstep.
Cheque issued by a customer under a pre-approved arrangement with the bank whereby the bank agrees to pay them at designated centres and branches in the country.
It is the difference between the total cost of a project and the sanctioned loan amount.
National Savings Certificates
(NSC) It is one of the most popular post office tax saving scheme. It is primarily used for small saving and income tax saving investments in India.
It refers to an asset which like money acts as a store of value, but which is not immediately acceptable as a medium of exchange, e.g. a building society deposit.
Net Operating Loss
A total loss that is calculated for a tax year and is attributed to business or casualty losses.
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 as negative amortisation.
Net Tangible Assets
It means fixed assets plus current assets minus intangible assets such as goodwill and minus current liabilities.
A possession or asset which cannot be changed into cash very easily is called non-liquid asset.
Non Performing Asset
A non performing asset (NPA) refers to a classification for loans on the books of financial institutions that are in default or are in arrears on scheduled payments of principal or interest.
Non Recourse Loan A loan
which is secured by collateral and for which borrower is not personally liable, is called a non recourse loan.
No Documentation Loan
When the applicant furnishes minimum information, giving only name, address, contact information for the employer and social security number for the application of the loan, it is called a no documentation loan.
Offline Debit Card
This refers to a card which is issued by a bank and has a VISA or Mastercard logo on it. It can be issued, either instead of or alongwith a ATM card.
It is a type of market in which there is a relatively high degree of concentration, i.e. a small number of firms account for a large proportion of output, employment, etc.
An economy that has trad relationship with other countries is called an open economy. It exports and imports things as a normal part of its activity.
It is non-legal tender money, but it is generally accepted by the people as a medium of exchange.
The accessing of bank information, accounts and transactions with the help of a computer through the financial institution’s website on the internet, is called online banking. It is also called internet banking or e-banking.
It is a cheque or rather an amount of cheque, which is above the balance available in the account of the payer.
A service which permits a verification account to be connected to other savings or line of credit for facilitation of protection against overdrafts is called overdraft protection.
Open End Credit
This means a line 9/ credit that can be used a number of times, upto a certain limit. Another name for this type of credit is charge account or revolving credit.
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.
Dividends, which are a distribution of the profits of a company are called ordinary dividends.
It is the price at which a share or other security is issued, i.e. the face value of the investment. A share is said to be standing above par if its quoted price on the stock exchange is greater than that at which the share was issued.
Payee is the person to whom the money is to be paid by the payer.
Payer is the person who pays the money to the payee.
A transaction that has not yet beden settled.
Maximum amount that a person can consume per year into the indefinite future without reducing his or her wealth.
A bond that pays a fixed sum of money each year forever and has no redemption date. Sometime, called a consol.
Personal Disposable Income
The gross income of the personal sector less all direct taxes and national contribution.
Income earned by or paid to individuals, before deducting personal income taxes.
Personal Identification Number
A PIN is usually required when performing financial transactions using a debit or credit card. It is a secret code of numbers and alphabets given to customers to perform transactions through an automatic teller machine or an ATM.
Positional Goods Goods
that are necessarily scarce and whose security cannot be reduced by increased productivity e.g. gold.
It is the economic propositions which can, at least in principle, be verified by observation of events or states of the real world that is, without reference to value judgements.
Point of Sale
(PoS) Point of sale terminal is where cash registers are replaced by computerised systems.
It is the difference, where positive, between the current price or value of a security or ‘ currency and its issue price or par value.
It is the sale of government owned equity in nationalised industries or other commercial enterprises to private investors, with or without the loss of government control in these organisations.
It is a type of business organisation that permits a limited number of shareholders to enjoy limited liability and to be taxed as a company.
It is a outstanding amount which appears on the credit card statement on date when it is generated.
It is basic amount which is invested to yield returns over a certain period of time at a given rate of interest.
Post Dated Cheques
(PDCs) Mode of Repayment A payment mode wherein the customer provides Post Dated Cheques (PDCs) for the repayment of the loan dues.
Credit card or a line of credit that is approved based upon available data without further information supplied by the potential card member.
Closure of the loan account prior to the tenure fixed for the account.
This is the rate on which each bank fixes its own prime lending rate for advances.
This is a binding legal document that a borrower signs to obtain a loan.
It is also called as the acid test ratio. It measures the company’s liabilities and determines its assets to pay off its obligations.
Bonds which cease the payments because the reference rate of the bond increases or decreases, as compared to pre-determined rate on a given index.
Rate covenant in a municipal bond determines the rates to be charged to buyers.
Real Exchange Rate
An index of the relative prices of domestic and for foreign goods.
Real income is income expressed in terms of a general level of prices of a particular year taken as base.
A hard copy, description of the transaction that occurred at the point of sale.
It is an imprecise term given to a sharp slow down in the rate of economic growth or a modest decline in economic activity, as distinct from a lump or depression, which is a more severe and prolonged downturn. Recessions are a feature of the trade cycle.
It is a tax which takes a decreasing proportion of income as income rises.
It is a currency which, government an international institutions are willing to hold in their Gold and Foreign Exchange Reserves and which finances a significant proportion of international trade.
A request to a merchant for documentation concerning a transaction, usually a cardholder dispute or suspicious sale or return. A retrieval request can lead to a charge back.
This means clearing the current loan with the proceeds of a new one and using the same property for collateral.
Revolving Line of Credit
It is a rule followed by the lender, which binds him to allow a certain credit to the borrower.
A date set by the issuer, on which an individual must own the shares, so as to be eligible to receive the dividend.
Reconveyance In banking terms, reconveyance is transfer of property to its real owner, once the loan or the mortgage is paid off.
Redemption Fee A 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 a reference asset.
The basis of floating rate security is called as the reference rate.
The act of paying back the amount or returning the funds is called as refunding.
The risk that arises from the fact that dividends or any yields may not be eligible for investment to earn the rate of interest is called as the reinvestment risk.
The liquidity, risk and return of one instrument in relation to another financial instrument is the relative value.
Taking back of property by a seller or a lender from the buyer or the borrower due to default of payment.
An account which is maintained by depositing undistributed parts of profit for future needs is called as a reserve account.
Cash money or liquidity that member banks need to hold with the Central Bank.
The anticipated value that a company calculates to sell its asset at the end of its full life.
In recurring billing, the credit cardholder authorises a merchant or vendor to charge his credit card on a regular basis.
It is basically the rate at which RBI lends to commercials banks for meeting the short term deficits. RBI varies repo rate from time to time, to achieve its monetary policy objectives.
When you do not have enough available funds in your account (including any overdraft protection transfer from another account) to cover a cheque, the bank may decide not to pay the cheque and to return it to the payee. A returned item fee may be charged to your account.
Duly authenticated extension of the validity period for negotiation/payment of cheque/draft or a negotiable instrument.
A financial product, which provides senior citizens with funds against their home equity. Senior citizens, can get a regular amount monthly, quarterly or as a lump sum. They can live in their homes for their lifetime and after that banks can recover the amount by selling the property or if the heirs of the property want, they can claim it by repaying the dues to the bank.
A credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card. As credit is paid off, it becomes available again to use for another purchase or cash advance.
It is a tax levied as a proportion of the retail price of a commodity at the point of sale.
It is a bank which accepts interest-bearing deposits of small amounts.
Those deposits on which the bank pays a certain percentage of interest to the depositors, but the bank place certain restrictions on withdrawal.
It is a financial institution which accepts deposits and makes loans, but which has relatively few branches and therefore, does not play a major role in the payments system as far as the general public is concerned.
A loan which is backed by a pledging of real or personal property (collateral) by the borrower to the lender.
Property or assets which are pledged to the lender by the borrower, as a guarantee for the repayment of a loan.
A person who finds a buyer for the seller of a property and aids the latter in negotiation, in lieu of a commission.
A form of financing wherein the seller of a property finances the buyer, who finds it difficult to procure a loan or fails short of the amount needed to buy the property. In short, it is a part of the purchase amount which the seller offers to finance. This term is also known as carryback loan or seller’s second.
It is a currency whose exchange rate is tending to fall because of persistent balance of payments (BoP) deficits or because of the building up of speculative selling of the currency in expectation of a change in its exchange rate.
Taking a financial position that will yield profits if prices move in a particular direction in
future, but will yield losses if they move the other way.
It means inflation associated with static or declining output and employment.
He is a member of the stock exchange, who buys and sells securities for clients, in return for a commission on the price of the shares.
It refers to government grants to suppliers of goods and services. A subsidy may be intended to keep prices down (i.e. to raise real incomes of buyers), to maintain incomes of producers (e g. farmers) or to maintain a service or employment.
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 will be a lead bank which provides a part of the loan and syndicates the balance amount to other banks.
Signed instructions given by a customer to his/her bank to make regular transfer of funds for specified purposes and valid for the period indicated by the customer until the instruction is withdrawn.
Stop payments are generally placed on lost or stolen cheques or on cheques related to disputed purchases. Banks usually levy charges for registering stop payment instructions.
Stored Value Card
This is a special type of credit card, which has a stored money value. Stored value card can be reloadable, in which case more money can be added to the stored value card and can be reused.
A compulsory payment to government, against which there is no quid pro quo.
A situation which is providing some relief from tax, In whole or part.
Illegal escape from tax payment; black market incomes result from tax evasion.
It refers to the phenomenon whereby those on whom taxes are leveid are able to pass the burden either partly or fully on to others.
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 as a ‘yield curve’.
A kind of bank deposit which the investor is not able to withdraw before a time fixed when making the deposit.
This is the sum of money that an option’s premium surpasses its intrinsic worth and is also called as ‘time premium’.
It refers to the total money receipts of a firm from the sale of a certain given quantity of output.
It is the currency in which international trade is invoiced.
Transfer Deed It is a legal document by which ownership of securities is transferred from the seller to the buyer.
Transfer Payments It refers to grants or other payments not made in return for a productive service, e.g. pensions, unemployment benefits and other forms of income support, including charitable donations by companies.
They are issued through banks acting as sale agents or sold directly to the public. The purchaser pays for the cheque in advance and signs them twice once when ordering the cheque and once when cashing them.
A ‘per transaction’ charge incurred by merchants, who are on scale pricing. This is in addition to the percentage discount fees.
Under the unit banking system, the banking operations are carried through single banking office rather than through a network of branches. Under this system, the area of operations as well as the size of the bank is smaller and far more limited.
It can function with minimum infrastructure such as CBS terminal linked to passbook printer and a safe for cash retention to be managed full time by bank’s staff. This may be treated as a regular branch or a satellite office.
Any investment or commercial financial firm or a securities house that works with an issuing entity for the purpose of selling a new issue.
Universal Life Insurance
A type of life insurance which blends term insurance protection with a savings element.
An association of banks that governs the issuing and acquiring of Visa card transactions.
Banking which offers services to other corporate entities, large institutions and other financial institutions.
Removing of funds from a bank account is called as making a withdrawal.
A term which signifies that the buyer is responsible for non-performance of an asset or non-payment of an instrument, instead of the seller.
The difference between current assets and current liabilities.
The returns earned on a stock or bonds, as per the effective rate of interest on the effective date, is called as a yield in the banking terms.
Yield to Maturity
(YTM) The average annual yield that an investor receives because he holds it for life or till the maturity date, is called as the yield to maturity.
Zero Balance Account
A bank account which does not require any minimum balance is termed as a zero balance account.
Zero Coupon Yield Curve
It is also called as spot yield curve and is used to determine discount factors.
Zero Liability Protection
A bank guarantee, if your card is lost or stolen, you may not be responsible for unauthorised purchases made with your card if you report the theft promptly. The Zero Liability Protection Programme is free and automatically available on all bank consumer credit cards.
Zero Rated Bond
Bond that pays no interest but instead is sold at a deep .discount on its par value, or an interest paying bond that has been stripped of its coupon which is sold separately as a security in its own right.
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