Account Agreement:
The contract governing your open-end credit account, it provides information on
changes that may occur to the account.
Account History: The
payment history of an account over a specific period of time, including the
number of times the account was past due or over limit.
Account Holder: Any
and all persons designated and authorized to transact business on behalf of an
account. Each account holder's signature needs to be on file with the bank. The
signature authorizes that person to conduct business on behalf of the account.
Acquiring Bank: In
a merger, the bank that absorbs the bank acquired.
Accrued interest: Interest due from issue date or from the
last coupon payment date to the settlement date. Accrued interest on bonds must
be added to their purchase price.
Adjustable-Rate
Mortgages (ARMS): Also known as variable-rate mortgages. The initial
interest rate is usually below that of conventional fixed-rate loans. The
interest rate may change over the life of the loan as market conditions
change. There is typically a maximum (or
ceiling) and a minimum (or floor) defined in the loan agreement. If interest
rates rise, so does the loan payment. If interest rates fall, the loan payment
may as well.
Arbitrage: Buying
a financial instrument in one market in order to sell the same instrument at a
higher price in another market.
Adverse Action: Under
the Equal Credit Opportunity Act, a creditor's refusal to grant credit on the
terms requested, termination of an existing account, or an unfavorable change
in an existing account.
Adverse Action
Notice: The notice required by the Equal Credit Opportunity Act advising a
credit applicant or existing debtor of the denial of their request for credit
or advising of a change in terms considered unfavorable to the account holder.
AER: Annual
earnings rate on an investment.
Affidavit: A
sworn statement in writing before a proper official, such as a notary public.
Alteration: Any
change involving an erasure or rewriting in the date, amount, or payee of a
check or other negotiable instrument.
Amortization: The
process of reducing debt through regular installment payments of principal and
interest that will result in the payoff of a loan at its maturity.
Anytime Banking:
With introduction of ATMs, Tele-Banking and internet banking, customers can
conduct their business anytime of the day and night. The 'Banking Hours' is not
a constraint for transacting banking business.
Anywhere Banking :
Refers to banking not only by ATMs, Tele-Banking and internet banking, but also
to core banking solutions brought in by banks where customer can deposit his
money, cheques and also withdraw money from any branch connected with the
system. All major banks in India have brought in core banking in their
operations to make banking truly anywhere banking.
Annual Percentage
Rate (APR): The cost of credit on a yearly basis, expressed as a
percentage.
Annual Percentage
Yield (APY): A percentage rate reflecting the total amount of interest paid
on a deposit account based on the interest rate and the frequency of
compounding for a 365-day year.
Annuity : A life
insurance product which pays income over the course of a set period. Deferred
annuities allow assets to grow before the income is received and immediate
annuities (usually taken from a year after purchase) allow payments to start
from about a year after purchase.
APR: The annual percentage rate of interest,
usually on a loan or mortgage, usually displayed in brackets and representing
the true cost of the loan or mortgage as it shows any additional payments
beyond the interest rate.
Application: Under
the Equal Credit Opportunity Act (ECOA), an oral or written request for an extension
of credit that is made in accordance with the procedures established by a
creditor for the type of credit requested.
Appraisal: The
act of evaluating and setting the value of a specific piece of personal or real
property.
Ask Price: The
lowest price at which a dealer is willing to sell a given security.
Asset-Backed
Securities (ABS): A type of security that is backed by a pool of bank
loans, leases, and other assets. Most ABS are backed by auto loans and credit
cards – these issues are very similar to mortgage-backed securities.
At-the-money: The
exercise price of a derivative that is closest to the market price of the
underlying instrument.
ATM: ATMs are Automatic Teller Machines, which do
the job of a teller in a bank through Computer Network. ATMs are located on the
branch premises or off branch premises. ATMs are useful to dispense cash,
receive cash, accept cheques, give balances in the accounts and also give
mini-statements to the customers.
Authorization: The
issuance of approval, by a credit card issuer, merchant, or other affiliate, to
complete a credit card transaction.
Automated Clearing
House (ACH): A computerized facility used by member depository institutions
to electronically combine, sort, and distribute inter-bank credits and debits.
ACHs process electronic transfers of government securities and provided
customer services, such as direct deposit of customers' salaries and government
benefit payments (i.e., social security, welfare, and veterans' entitlements),
and preauthorized transfers.
Automated Teller
Machine (ATM): A machine, activated by a magnetically encoded card or other
medium that can process a variety of banking transactions. These include
accepting deposits and loan payments, providing withdrawals, and transferring
funds between accounts.
Automatic Bill
Payment: A checkless system for paying recurring bills with one
authorization statement to a financial institution. For example, the customer
would only have to provide one authorization form/letter/document to pay the
cable bill each month. The necessary debits and credits are made through an
Automated Clearing House (ACH).
Availability Date:
Bank's policy as to when funds deposited into an account will be available for
withdrawal.
Availability Policy:
Bank's policy as to when funds deposited into an account will be available for
withdrawal.
Available Balance:
The balance of an account less any hold, uncollected funds, and restrictions
against the account.
Available Credit: The
difference between the credit limit assigned to a cardholder account and the
present balance of the account.
Banking:
Accepting for the purpose of lending or investment of deposits of money from
Public, Repayable on demand or otherwise and withdraw able by cheques, drafts,
order, etc.
Bank Ombudsman: Bank
Ombudsman is the authority to look into complaints against Banks in the main
areas of collection of cheque / bills, issue of demand drafts, non-adherence to
prescribed hours of working, failure to honour guarantee / letter of credit
commitments, operations in deposit accounts and also in the areas of loans and
advances where banks flout directions / instructions of RBI. This Scheme was
announced in 1995 and is functioning with new guidelines from 2007. This scheme
covers all scheduled banks, the RRBs and co-operative banks.
Bancassurance: Bancassurance refers to the distribution of
insurance products and the insurance policies of insurance companies which may
be life policies or non-life policies like home insurance - car insurance,
medi-policies and others, by banks as corporate agents through their branches
located in different parts of the country by charging a fee.
Banker's Lien:
Bankers lien is a special right of lien exercised by the bankers, who can
retain goods bailed to them as a security for general balance of account.
Bankers can have this right in the absence of a contract to the contrary.
Basel-II: The
Committee on Banking Regulations and Supervisory Practices, popularity known as
Basel Committee, submitted its revised version of norms in June, 2004. Under
the revised accord the capital requirement is to be calculated for credit,
market and operational risks. The minimum requirement continues to be 8% of
capital fund (Tier I & II Capital) Tier II shall continue to be not more
than 100% of Tier I Capital.
Brick & Mortar Banking:
Brick and Mortar Banking refers to traditional system of banking done only in a
fixed branch premises made of brick and mortar. Now there are banking channels
like ATM, Internet Banking, tele banking etc.
Business of Banking :
Accepting deposits, borrowing money, lending money, investing, dealing in bills,
dealing in Foreign Exchange, Hiring Lockers, Opening Safe Custody Accounts,
Issuing Letters of Credit, Travelers’ Cheques, doing Mutual Fund business,
Insurance Business, acting as Trustee or doing any other business which Central
Government may notify in the official Gazette.
Bouncing of a cheque:
Where an account does not have sufficient balance to honour the cheque issued
by the customer, the cheque is returned by the bank with the reason "funds
insufficient" or "Exceeds arrangement”. This is known as 'Bouncing of
a cheque’.
Basis Point: One
hundredth of 1%. A measure normally used in the statement of interest rate
e.g., a change from 5.75% to 5.81% is a change of 6 basis points. Bear Markets:
Unfavorable markets associated with falling prices and investor pessimism.
Bid-ask Spread:
The difference between a dealers’s bid and ask price.
Bid Price: The
highest price offered by a dealer to purchase a given security.
Blue Chips: Blue
chips are unsurpassed in quality and have a long and stable record of earnings
and dividends. They are issued by large and well-established firms that have
impeccable financial credentials.
Bond: Publicly
traded long-term debt securities, issued by corporations and governments,
whereby the issuer agrees to pay a fixed amount of interest over a specified
period of time and to repay a fixed amount of principal at maturity.
Book Value: The
amount of stockholders’ equity in a firm equals the amount of the firm’s assets
minus the firm’s liabilities and preferred stock.
Broker: Individuals
licensed by stock exchanges to enable investors to buy and sell securities.
Brokerage Fee:
The commission charged by a broker.
Bull Markets: Favorable
markets associated with rising prices and investor optimism.
Call Option: The
right to buy the underlying securities at a specified exercise price on or
before a specified expiration date.
Callable Bonds:
Bonds that give the issuer the right to redeem the bonds before their stated
maturity.
Capital Gain: The
amount by which the proceeds from the sale of a capital asset exceed its
original purchase price.
Capital Markets:
The market in which long-term securities such as stocks and bonds are bought
and sold.
Certificate of
Deposits (CDs): Savings instrument in which funds must remain on deposit
for a specified period and premature withdrawals incur interest penalties.
Certificate of Deposit:.
Certificate of Deposits are negotiable receipts in bearer form which can be
freely traded among investors. This is also a money market instrument,issued
for a period ranging from 7 days to f one year .The minimum deposit amount is
Rs. 1 lakh and they are transferable by endorsement and delivery.
Cheque: Cheque is
a bill of exchange drawn on a specified banker ordering the banker to pay a
certain sum of money to the drawer of cheque or another person. Money is
generally withdrawn by clients by cheques. Cheque is always payable on demand.
Cheque Truncation: Cheque
truncation truncates or stops the flow of cheques through the banking system.
Generally truncation takes place at the collecting branch, which sends the
electronic image of the cheques to the paying branch through the clearing house
and stores the paper cheques with it.
Closed-end (Mutual)
Fund: A fund with a fixed number of shares issued, and all trading is done
between investors in the open market. The share prices are determined by market
prices instead of their net asset value.
Collateral: A
specific asset pledged against possible default on a bond. Mortgage bonds are
backed by claims on property. Collateral trusts bonds are backed by claims on
other securities. Equipment obligation bonds are backed by claims on equipment.
Commercial Paper:
Short-term and unsecured promissory notes issued by corporations with very high
credit standings.
Common Stock:
Equity investment representing ownership in a corporation; each share
represents a fractional ownership interest in the firm.
Compound Interest: Interest
paid not only on the initial deposit but also on any interest accumulated from
one period to the next.
Contract Note: A note which must accompany every security
transaction which contains information such as the dealer’s name (whether he is
acting as principal or agent) and the date of contract.
Controlling
Shareholder: Any person who is, or group of persons who together are,
entitled to exercise or control the exercise of a certain amount of shares in a
company at a level (which differs by jurisdiction) that triggers a mandatory
general offer, or more of the voting power at general meetings of the issuer,
or who is or are in a position to control the composition of a majority of the
board of directors of the issuer.
Convertible Bond:
A bond with an option, allowing the bondholder to exchange the bond for a
specified number of shares of common stock in the firm. A conversion price is
the specified value of the shares for which the bond may be exchanged. The
conversion premium is the excess of the bond’s value over the conversion price.
Corporate Bond:
Long-term debt issued by private corporations.
Coupon: The
feature on a bond that defines the amount of annual interest income.
Coupon Frequency:
The number of coupon payments per year.
Coupon Rate: The
annual rate of interest on the bond’s face value that a bond’s issuer promises
to pay the bondholder. It is the bond’s interest payment per dollar of par
value.
Covered Warrants:
Derivative call warrants on shares which
have been separately deposited by the issuer so that they are available for
delivery upon exercise.
Credit Rating: An
assessment of the likelihood of an individual or business being able to meet
its financial obligations. Credit ratings are provided by credit agencies or
rating agencies to verify the financial strength of the issuer for investors.
Collecting Banker:
Also called receiving banker, who collects on instruments like a cheque, draft
or bill of exchange, lodged with himself for the credit of his customer's
account.
Consumer Protection Act:
It is implemented from 1987 to enforce consumer rights through a simple legal
procedure. Banks also are covered under the Act. A consumer can file complaint
for deficiency of service with Consumer District Forum for amounts upto Rs.20
Lacs in District Court, and for amounts above Rs.20 Lacs to Rs.1 Crore in State
Commission and for amounts above Rs.1 Crore in National Commission.
Co-operative Bank : An
association of persons who collectively own and operate a bank for the benefit
of consumers / customers, like Saraswat Co-operative Bank or Abhyudaya
Co-operative Bank and other such banks.
Co-operative Society
: When an association of persons collectively own and operate a unit for
the benefit of those using its services like Apna Bazar Co-operative Society or
Sahakar Bhandar or a Co-operative Housing Society.
Core Banking
Solutions (CBS): Core Banking Solutions is a buzz word in Indian banking at
present, where branches of the bank are connected to a central host and the
customers of connected branches can do banking at any breach with core banking
facility.
Creditworthiness:
It is the capacity of a borrower to repay the loan / advance in time along with
interest as per agreed terms.
Crossing of Cheques:
Crossing refers to drawing two parallel lines across the face of the cheque. A
crossed cheque cannot be paid in cash across the counter, and is to be paid
through a bank either by transfer, collection or clearing. A general crossing
means that cheque can be paid through any bank and a special crossing, where
the name of a bank is indicated on the cheque, can be paid only through the
named bank.
Customer: A
person who maintains any type of account with a bank is a bank customer.
Consumer Protection Act has a wider definition for consumer as the one who
purchases any service for a fee like purchasing a demand draft or a pay order.
The term customer is defined differently by Laws, softwares and countries.
Current Account:
Current account with a bank can be opened generally for business purpose. There
are no restrictions on withdrawals in this type of account. No interest is paid
in this type of account.
Currency Board: A
monetary system in which the monetary base is fully backed by foreign reserves.
Any changes in the size of the monetary base have to be fully matched by corresponding
changes in the foreign reserves.
Current Yield: A
return measure that indicates the amount of current income a bond provides
relative to its market price. It is shown as: Coupon Rate divided by Price
multiplied by 100%.
Custody of
Securities: Registration of securities in the name of the person to whom a
bank is accountable, or in the name of the bank’s nominee; plus deposition of
securities in a designated account with the bank’s bankers or with any other
institution providing custodial services.
Debit Card: A
plastic card issued by banks to customers to withdraw money electronically from
their accounts. When you purchase things on the basis of Debit Card the amount
due is debited immediately to the account. Many banks issue Debit-Cum-ATM
Cards.
Debtor: A person
who takes some money on loan from another person.
Demand Deposits:
Deposits which are withdrawn on demand by customers. E.g. savings bank and current account deposits.
Demat Account:
Demat Account concept has revolutionized the capital market of India. When a
depository company takes paper shares from an investor and converts them in
electronic form through the concerned company, it is called Dematerialization
of Shares. These converted Share Certificates in Electronic form are kept in a
Demat Account by the Depository Company, like a bank keeps money in a deposit
account. Investor can withdraw the shares or purchase more shares through this
demat Account.
Derivative Call (Put)
Warrants: Warrants issued by a third party which grant the holder the right
to buy (sell) the shares of a listed company at a specified price.
Derivative
Instrument: Financial instrument whose value depends on the value of
another asset.
Discount Bond: A bond selling below par, as interest in-lieu
to the bondholders.
Dishonour of Cheque:
Non-payment of a cheque by the paying banker with a return memo giving reasons
for the non-payment. Default Risk: The possibility that a bond issuer will
default ie, fail to repay principal and interest in a timely manner.
Diversification: The
inclusion of a number of different investment vehicles in a portfolio in order
to increase returns or be exposed to less risk.
Duration: A
measure of bond price volatility, it captures both price and reinvestment risks
to indicate how a bond will react to different interest rate environments.
Earnings: The
total profits of a company after taxation and interest.
Earnings per Share
(EPS): The amount of annual earnings available to common stockholders as
stated on a per share basis.
Earnings Yield: The
ratio of earnings to price (E/P). The reciprocal is price earnings ratio (P/E).
E-Banking :
E-Banking or electronic banking is a form of banking where funds are
transferred through exchange of electronic signals between banks and financial
institution and customers ATMs, Credit Cards, Debit Cards, International Cards,
Internet Banking and new fund transfer devices like SWIFT, RTGS belong to this
category.
EFT - (Electronic
Fund Transfer): EFT is a device to facilitate automatic transmission and
processing of messages as well as funds from one bank branch to another bank
branch and even from one branch of a bank to a branch of another bank. EFT
allows transfer of funds electronically with debit and credit to relative
accounts.
Either or Survivor: Refers
to operation of the account opened in two names with a bank. It means that any
one of the account holders have powers to withdraw money from the account,
issue cheques, give stop payment instructions etc. In the event of death of one
of the account holder, the surviving account holder gets all the powers of
operation.
Electronic Commerce
(E-Commerce): E-Commerce is the paperless commerce where the exchange of
business takes place by Electronic means.
Endorsement: When
a Negotiable Instrument contains, on the back of the instrument an endorsement,
signed by the holder or payee of an order instrument, transferring the title to
the other person, it is called endorsement.
Bouncing of a cheque:
Where the name of the endorsee or transferee is not mentioned on the
instrument.
Endorsement in Full:
Where the name of the endorsee or transferee appears on the instrument while
making endorsement.
Equity: Ownership
of the company in the form of shares of common stock.
Equity Call Warrants:
Warrants issued by a company which give the holder the right to acquire new
shares in that company at a specified price and for a specified period of time.
Ex-dividend (XD):
A security which no longer carries the right to the most recently declared
dividend or the period of time between the announcement of the dividend and the
payment (usually two days before the record date). For transactions during the
ex-dividend period, the seller will receive the dividend, not the buyer.
Ex-dividend status is usually indicated in newspapers with an (x) next to the
stock’s or unit trust’s name.
Execution of Documents:
Execution of documents is done by putting signature of the person, or affixing
his thumb impression or putting signature with stamp or affixing common seal of
the company on the documents with or without signatures of directors as per
articles of association of the company.
Face Value/ Nominal
Value: The value of a financial instrument as stated on the instrument.
Interest is calculated on face/nominal value.
Fixed-income
Securities: Investment vehicles that offer a fixed periodic return.
Fixed Rate Bonds:
Bonds bearing fixed interest payments
until maturity date.
Floating Rate Bonds: Bonds
bearing interest payments that are tied to current interest rates.
Factoring:
Business of buying trade debts at a discount and making a profit when debt is
realized and also taking over collection of trade debts at agreed prices.
Foreign Banks:
Banks incorporated outside India but operating in India and regulated by the
Reserve Bank of India (RBI),. e..g., Barclays Bank, HSBC, Citibank, Standard
Chartered Bank, etc.
Forfeiting: In
International Trade when an exporter finds it difficult to realize money from
the importer, he sells the right to receive money at a discount to a forfaiter,
who undertakes inherent political and commercial risks to finance the exporter,
of course with assumption of a profit in the venture.
Forgery: when a
material alteration is made on a document or a Negotiable Instrument like a
cheque, to change the mandate of the drawer, with intention to defraud.
Fundamental Analysis:
Research to predict stock value that focuses on such determinants as earnings
and dividends prospects, expectations for future interest rates and risk
evaluation of the firm.
Future Value: The
amount to which a current deposit will grow over a period of time when it is
placed in an account paying compound interest.
Future Value of an
Annuity: The amount to which a stream of equal cash flows that occur in
equal intervals will grow over a period of time when it is placed in an account
paying compound interest.
Futures Contract:
A commitment to deliver a certain amount of some specified item at some
specified date in the future.
Garnishee Order:
When a Court directs a bank to attach the funds to the credit of customer's
account under provisions of Section 60 of the Code of Civil Procedure, 1908.
General Lien: A
right of the creditors to retain possession of all goods given in security to
him by the debtor for any outstanding debt.
Guarantee: A
contract between guarantor and beneficiary to ensure performance of a promise
or discharge the liability of a third person. If promise is broken or not
performed, the guarantor pays contracted amount to the beneficiary.
Hedge: A
combination of two or more securities into a single investment position for the
purpose of reducing or eliminating risk.
Holder: Holder
means any person entitled in his own name to the possession of the cheque, bill
of exchange or promissory note and who is entitled to receive or recover the
amount due on it from the parties. For example, if I give a cheque to my friend
to withdraw money from my bank,he becomes holder of that cheque. Even if he
loses the cheque, he continues to be holder. Finder cannot become the holder.
Holder in due course
: A person who receives a Negotiable Instrument for value, before it was
due and in good faith, without notice of any defect in it, he is called holder
in due course as per Negotiable Instrument Act. In the earlier example if my
friend lends some money to me on the basis of the cheque, which I have given to
him for encashment, he becomes holder-in-due course.
Hypothecation:
Charge against property for an amount of debt where neither ownership nor
possession is passed to the creditor. In pledge, possession of property is
passed on to the lender but in hypothecation, the property remains with the borrower
in trust for the lender.
Identification:
When a person provides a document to a bank or is being identified by a person,
who is known to the bank, it is called identification. Banks ask for
identification before paying an order cheque or a demand draft across the
counter.
Indemnifier: When
a person indemnifies or guarantees to make good any loss caused to the lender
from his actions or others' actions.
Indemnity:
Indemnity is a bond where the indemnifier undertakes to reimburse the
beneficiary from any loss arising due to his actions or third party actions.
Income: The
amount of money an individual receives in a particular time period.
Index Fund: A mutual fund that holds shares in proportion
to their representation in a market index, such as the S&P 500.
Initial Public
Offering (IPO): An event where a company sells its shares to the public for
the first time. The company can be referred to as an IPO for a period of time
after the event.
Inside Information:
Non-public knowledge about a company possessed by its officers, major owners,
or other individuals with privileged access to information.
Insider Trading:
The illegal use of non-public information about a company to make profitable
securities transactions
Insolvent:
Insolvent is a person who is unable to pay his debts as they mature, as his
liabilities are more than the assets . Civil Courts declare such persons
insolvent. Banks do not open accounts of insolvent persons as they cannot enter
into contract as per law.
Interest Warrant:
When cheque is given by a company or an organization in payment of interest on
deposit , it is called interest warrant. Interest warrant has all the
characteristics of a cheque.
International Banking:
involves more than two nations or countries. If an Indian Bank has branches in
different countries like State Bank of India, it is said to do International
Banking.
Introduction:
Banks are careful in opening any account for a customer as the prospective
customer has to be introduced by an existing account holder or a staff member
or by any other person known to the bank for opening of account. If bank does
not take introduction, it will amount to negligence and will not get protection
under law.
Intrinsic Value: The
difference of the exercise price over the market price of the underlying asset.
Investment: A
vehicle for funds expected to increase its value and/or generate positive
returns.
Investment Adviser:
A person who carries on a business which provides investment advice with
respect to securities and is registered with the relevant regulator as an
investment adviser.
IPO price: The
price of share set before being traded on the stock exchange. Once the company
has gone Initial Public Offering, the stock price is determined by supply and
demand.
JHF Account :
Joint Hindu Family Account is account of a firm whose business is carried out
by Karta of the Joint family, acting for all the family members.. The family
members have common ancestor and generally maintain a common residence and are
subject to common social, economic and religious regulations.
Joint Account:
When two or more individuals jointly open an account with a bank.
Junk Bond:
High-risk securities that have received low ratings (i.e. Standard & Poor’s
BBB rating or below; or Moody’s BBB rating or below) and as such, produce high
yields, so long as they do not go into default.
Karta: Manager of
a Hindu Undivided Family (HUF) who handles the family business. He is usually
the eldest male member of the undivided family.
Kiosk Banking:
Doing banking from a cubicle from which food, newspapers, tickets etc. are also
sold.
KYC Norms: Know
your customer norms are imposed by R.B.I. on banks and other financial
institutions to ensure that they know their customers and to ensure that
customers deal only in legitimate banking operations and not in money
laundering or frauds.
Law of Limitation: Limitation
Act of 1963 fixes the limitation period of debts and obligations including
banks loans and advances. If the period fixed for particular debt or loan
expires, one cannot file a suit for is recovery, but the fact of the debt or
loan is not denied. It is said that law of limitation bars the remedy but does
not extinguish the right.
Lease Financing:
Financing for the business of renting houses or lands for a specified period of
time and also hiring out of an asset for the duration of its economic life.
Leasing of a car or heavy machinery for a specific period at specific price is
an example.
Letter of Credit:
A document issued by importers bank to its branch or agent abroad authorizing
the payment of a specified sum to a person named in Letter of Credit (usually
exporter from abroad). Letters of Credit are covered by rules framed under
Uniform Customs and Practices of Documentary Credits framed by International
Chamber of Commerce in Paris.
Limited Companies Accounts:
Accounts of companies incorporated under the Companies Act, 1956 . A company
may be private or public. Liability of the shareholders of a company is
generally limited to the face value of shares held by them.
Leverage Ratio:
Financial ratios that measure the amount of debt being used to support
operations and the ability of the firm to service its debt.
Libor: The London
Interbank Offered Rate (or LIBOR) is a daily reference rate based on the
interest rates at which banks offer to lend unsecured funds to other banks in
the London wholesale money market (or interbank market). The LIBOR rate is
published daily by the British Banker’s Association and will be slightly higher
than the London Interbank Bid Rate (LIBID), the rate at which banks are
prepared to accept deposits.
Limit Order: An
order to buy (sell) securities which specifies the highest (lowest) price at
which the order is to be transacted.
Limited Company:
The passive investors in a partnership, who supply most of the capital and have
liability limited to the amount of their capital contributions.
Liquidity: The
ability to convert an investment into cash quickly and with little or no loss
in value.
Listing: Quotation
of the Initial Public Offering company’s shares on the stock exchange for
public trading.
Listing Date: The
date on which Initial Public Offering stocks are first traded on the stock
exchange by the public
Margin Call: A
notice to a client that it must provide money to satisfy a minimum margin
requirement set by an Exchange or by a bank / broking firm.
Market
Capitalization: The product of the number of the company’s outstanding
ordinary shares and the market price of each share.
Market Maker: A
dealer who maintains an inventory in one or more stocks and undertakes to make
continuous two-sided quotes.
Market Order: An
order to buy or an order to sell securities which is to be executed at the
prevailing market price.
Money Market:
Market in which short-term securities are bought and sold.
Marginal Standing
Facility Rate: MSF scheme has become effective from 09th May, 2011 launched
by the RBI. Under this scheme, Banks will be able to borrow upto 1% of their
respective Net Demand and Time Liabilities.
The rate of interest on the amount accessed from this facility will be
100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce
volatility in the overnight rates and improve monetary transmission.
Mandate: Written
authority issued by a customer to another person to act on his behalf, to sign
cheques or to operate a bank account.
Material Alteration:
Alteration in an instrument so as to alter the character of an instrument for
example when date, amount, name of the payee are altered or making a cheque
payable to bearer from an order one or opening the crossing on a cheque.
Merchant Banking :
When a bank provides to a customer various types of financial services like
accepting bills arising out of trade, arranging and providing underwriting, new
issues, providing advice, information or assistance on starting new business,
acquisitions, mergers and foreign exchange.
Micro Finance: Micro
Finance aims at alleviation of poverty and empowerment of weaker sections in
India. In micro finance, very small amounts are given as credit to poor in
rural, semi-urban and urban areas to enable them to raise their income levels
and improve living standards.
Minor Accounts: A
minor is a person who has not attained legal age of 18 years. As per Contract
Act a minor cannot enter into a contract but as per Negotiable Instrument Act,
a minor can draw, negotiate, endorse, receive payment on a Negotiable
Instrument so as to bind all the persons, except himself. In order to boost
their deposits many banks open minor accounts with some restrictions.
Mobile Banking :
With the help of M-Banking or mobile banking customer can check his bank
balance, order a demand draft, stop payment of a cheque, request for a cheque
book and have information about latest interest rates.
Money Laundering:
When a customer uses banking channels to cover up his suspicious and unlawful
financial activities, it is called money laundering.
Money Market:
Money market is not an organized market like Bombay Stock Exchange but is an
informal network of banks, financial institutions who deal in money market
instruments of short term like CP, CD and Treasury bills of Government.
Moratorium:
R.B.I. imposes moratorium on operations of a bank; if the affairs of the bank
are not conducted as per banking norms. After moratorium R.B.I. and Government
explore the options of safeguarding the interests of depositors by way of
change in management, amalgamation or take over or by other means.
Mortgage:
Transfer of an interest in specific immovable property for the purpose of
offering a security for taking a loan or advance from another. It may be
existing or future debt or performance of an agreement which may create
monetary obligation for the transferor (mortgagor).
Mutual Fund: A
company that invests in and professionally manages a diversified portfolio of
securities and sells shares of the portfolio to investors.
NABARD: National
Bank for Agriculture & Rural Development was setup in 1982 under the Act of
1981. NABARD finances and regulates rural financing and also is responsible for
development agriculture and rural industries.
Negotiation: In
the context of banking, negotiation means an act of transferring or assigning a
money instrument from one person to another person in the course of business.
Net Asset Value:
The underlying value of a share of stock in a particular mutual fund; also used
with preferred stock.
Non-Fund Based Limits:
Non-Fund Based Limits are those type of limits where banker does not part with
the funds but may have to part with funds in case of default by the borrowers,
like guarantees, letter of credit and acceptance facility.
Non-Resident: A
person who is not a resident of India is a non-resident.
Non-Resident Accounts:
Accounts of non-resident Indian citizens opened and maintained as per R.B.I.
Rules.
Notary Public: A
Lawyer who is authorized by Government to certify copies of documents .
NPA Account: If
interest and instalments and other bank dues are not paid in any loan account
within a specified time limit, it is being treated as non-performing assets of
a bank.
Off Balance Sheet Items:
Those items which affect the financial position of a business concern, but
do not appear in the Balance Sheet E,g guarantees, letters of credit . The
mention "off Balance Sheet items" is often found in Auditors Reports
or Directors Reports.
Offer for Sale:
An offer to the public by, or on behalf of, the holders of securities already
in issue.
Offer for
Subscription: The offer of new securities to the public by the issuer or by
someone on behalf of the issuer.
Online Banking:
Banking through internet site of the bank which is made interactive.
Open-end (Mutual)
Fund: There is no limit to the number of shares the fund can issue. The
fund issues new shares of stock and fills the purchase order with those new
shares. Investors buy their shares from, and sell them back to, the mutual fund
itself. The share prices are determined by their net asset value.
Open Offer: An
offer to current holders of securities to subscribe for securities whether or
not in proportion to their existing holdings.
Option: A
security that gives the holder the right to buy or sell a certain amount of an
underlying financial asset at a specified price for a specified period of time.
Oversubscribed: When
an Initial Public Offering has more applications than actual shares available.
Investors will often apply for more shares than required in anticipation of
only receiving a fraction of the requested number. Investors and underwriters
will often look to see if an IPO is oversubscribed as an indication of the
public’s perception of the business potential of the IPO company.
Pass Book: A
record of all debit and credit entries in a customer's account. Generally all
banks issue pass books to Savings Bank/Current Account Holders.
Par Bond: A bond
selling at par (i.e. at its face value).
Par Value: The
face value of a security.
Perpetual Bonds:
Bonds which have no maturity date.
Placing:
Obtaining subscriptions for, or the sale of, primary market, where the new
securities of issuing companies are initially sold.
Personal
Identification Number (PIN): Personal Identification Number is a number
which an ATM card holder has to key in before he is authorized to do any
banking transaction in a ATM .
Plastic Money:
Credit Cards, Debit Cards, ATM Cards and International Cards are considered
plastic money as like money they can enable us to get goods and services.
Pledge: A
bailment of goods as security for payment of a debt or performance of a
promise, e.g pledge of stock by a borrower to a banker for a credit limit.
Pledge can be made in movable goods only.
Post-Dated Cheque:
A Cheque which bears the date which is
subsequent to the date when it is drawn. For example, a cheque drawn on 8th of
February, 2007 bears the date of 12th February, 2007.
Power of Attorney: It
is a document executed by one person - Donor or Principal, in favour of another
person, Donee or Agent - to act on behalf of the former, strictly as per
authority given in the document.
Portfolio: A
collection of investment vehicles assembled to meet one or more investment
goals.
Preference Shares: A
corporate security that pays a fixed dividend each period. It is senior to
ordinary shares but junior to bonds in its claims on corporate income and
assets in case of bankruptcy.
Premium (Warrants):
The difference of the market price of a warrant over its intrinsic value.
Premium Bond:
Bond selling above par.
Present Value: The
amount to which a future deposit will discount back to present when it is
depreciated in an account paying compound interest.
Present Value of an
Annuity: The amount to which a stream of equal cash flows that occur in
equal intervals will discount back to present when it is depreciated in an
account paying compound interest.
Price/Earnings Ratio
(P/E): The measure to determine how the market is pricing the company’s
common stock. The price/earnings (P/E) ratio relates the company’s earnings per
share (EPS) to the market price of its stock.
Privatization:
The sale of government-owned equity in nationalized industry or other
commercial enterprises to private investors.
Prospectus: A
detailed report published by the Initial Public Offering company, which
includes all terms and conditions, application procedures, IPO prices etc, for
the IPO
Put Option: The
right to sell the underlying securities at a specified exercise price on of
before a specified expiration date.
Premature Withdrawals:
Term deposits like Fixed Deposits, Call Deposits, Short Deposits and Recurring
Deposits have to mature on a particular day. When these deposits are sought to
be withdrawn before maturity , it is premature withdrawal.
Prime Lending Rate
(PLR): The rate at which banks lend to their best (prime) customers.
Priority Sector
Advances : consist of loans and advances to Agriculture, Small Scale
Industry, Small Road and Water Transport Operators, Retail Trade, Small
Business with limits on investment in equipments, professional and self
employed persons, state sponsored organisations for lending to SC/ST,
Educational Loans, Housing Finance up to certain limits, self-help groups and
consumption loans.
Promissory Note:
Promissory Note is a promise / undertaking given by one person in writing to
another person, to pay to that person , a certain sum of money on demand or on
a future day.
Provisioning: Provisioning is made for the likely loss
in the profit and loss account while finalizing accounts of banks. All banks
are supposed to make assets classification and make appropriate provisions for
likely losses in their balance sheets.
Public Sector Bank: A
bank fully or partly owned by the Government.
Rate of Return: A
percentage showing the amount of investment gain or loss against the initial
investment.
Real Interest Rate:
The net interest rate over the inflation rate. The growth rate of purchasing
power derived from an investment.
Redemption Value: The
value of a bond when redeemed.
Reinvestment Value:
The rate at which an investor assumes interest payments made on a bond which
can be reinvested over the life of that security.
Relative Strength
Index (RSI): A stock’s price that changes over a period of time relative to
that of a market index such as the Standard & Poor’s 500, usually measured
on a scale from 1 to 100, 1 being the worst and 100 being the best.
Repurchase Agreement:
An arrangement in which a security is sold and later bought back at an
agreed price and time.
Resistance Level:
A price at which sellers consistently outnumber buyers, preventing further
price rises.
Return: Amount of investment gain or loss.
Rescheduling of Payment:
Rearranging the repayment of a debt over
a longer period than originally agreed upon due to financial difficulties of
the borrower.
Restrictive Endorsement:
Where endorser desires that instrument is to be paid to particular person only,
he restricts further negotiation or transfer by such words as "Pay to
Ashok only". Now Ashok cannot negotiate the instrument further.
Right of Appropriation:
As per Section 59 of the Indian Contract Act, 1972 while making the payment, a
debtor has the right to direct his creditor to appropriate such amount against
discharge of some particular debt. If the debtor does not do so, the banker can
appropriate the payment to any debt of his customer.
Right of Set-Off :
When a banker combines two accounts in the name of the same customer and
adjusts the debit balance in one account with the credit balance in other account,
it is called right of set-off. For example, debit balance of Rs.50,000/- in
overdraft account can be set off against credit balance of Rs.75,000/- in the
Savings Bank Account of the same customer, leaving a balance of Rs.25,000/-
credit in the savings account.
Rights Issue: An
offer by way of rights to current holders of securities that allows them to
subscribe for securities in proportion to their existing holdings.
Risk-Averse,
Risk-Neutral, Risk-Taking:
Risk-averse describes an investor who requires greater
return in exchange for greater risk.
Risk-neutral describes an investor who does not require
greater return in exchange for greater risk.
Risk-taking describes an investor who will accept a lower
return in exchange for greater risk.
Safe Custody:
When articles of value like jewellery, boxes, shares, debentures, Government
bonds, Wills or other documents or articles are given to a bank for safe
keeping in its safe vault, it is called safe custody.. Bank charges a fee from
its clients for such safe custody.
Savings Bank Account:
All banks in India are having the facility of opening savings bank account with
a nominal balance. This account is used for personal purposes and not for
business purpose and there are certain restrictions on withdrawals from this
type of account. Account holder gets nominal interest in this account.
Senior Bond: A
bond that has priority over other bonds in claiming assets and dividends.
Settlement:
Conclusion of a securities transaction when a customer pays a broker/dealer for
securities purchased or delivered, securities sold, and receive from the broker
the proceeds of a sale.
Short Hedge: A
transaction that protects the value of an asset held by taking a short position
in a futures contract.
Short Position:
Investors sell securities in the hope that they will decrease in value and can
be bought at a later date for profit.
Short Selling:
The sale of borrowed securities, their eventual repurchase by the short seller
at a lower price and their return to the lender.
Speculation: The
process of buying investment vehicles in which the future value and level of
expected earnings are highly uncertain.
Stock Splits:
Wholesale changes in the number of shares. For example, a two for one split
doubles the number of shares but does not change the share capital.
Subordinated Bond:
An issue that ranks after secured debt,
debenture, and other bonds, and after some general creditors in its claim on
assets and earnings. Owners of this kind of bond stand last in line among
creditors, but before equity holders, when an issuer fails financially.
Substantial
Shareholder: A person acquires an interest in relevant share capital equal
to, or exceeding, 10% of the share capital.
Support Level: A
price at which buyers consistently outnumber sellers, preventing further price
falls.
Teller : Teller
is a staff member of a bank who accepts deposits, cashes cheques and performs
other banking services for the public.
Technical Analysis:
A method of evaluating securities by relying on the assumption that market
data, such as charts of price, volume, and open interest, can help predict
future (usually short-term) market trends. Contrasted with fundamental analysis
which involves the study of financial accounts and other information about the
company. (It is an attempt to predict movements in security prices from their
trading volume history.)
Time Horizon: The
duration of time an investment is intended for.
Trading Rules:
Stipulation of parameters for opening and intra-day quotations, permissible
spreads according to the prices of securities available for trading and board
lot sizes for each security.
Trust Deed: A
formal document that creates a trust. It states the purpose and terms of the
name of the trustees and beneficiaries.
Underwriting : is
an agreement by the underwriter to buy on a fixed date and at a fixed rate, the
unsubscribed portion of shares or debentures or other issues. Underwriter gets
commission for this agreement.
Underlying Security: The security subject to being purchased or
sold upon exercise of the option contract.
Universal Banking :
When Banks and Financial Institutions are allowed to undertake all types of
activities related to banking like acceptance of deposits, granting of
advances, investment, issue of credit cards, project finance, venture capital
finance, foreign exchange business, insurance etc. it is called Universal
Banking.
Valuation:
Process by which an investor determines the worth of a security using risk and
return concept.
Virtual Banking:
Virtual banking is also called internet banking, through which financial and
banking services are accessed via internet's World Wide Web. It is called
virtual banking because an internet bank has no boundaries of brick and mortar
and it exists only on the internet.
Warrant: An
option for a longer period of time giving the buyer the right to buy a number
of shares of common stock in company at a specified price for a specified
period of time.
Wholesale Banking:
Wholesale banking is different from Retail Banking as its focus is on providing
for financial needs of industry and institutional clients.
Window Dressing:
Financial adjustments made solely for the purpose of accounting presentation,
normally at the time of auditing of company accounts.
Yield (Internal rate
of Return): The compound annual rate of return earned by an investment
Yield to Maturity: The
rate of return yield by a bond held to maturity when both compound interest
payments and the investor’s capital gain or loss on the security are taken into
account.
Zero Coupon Bond:
A bond with no coupon that is sold at a deep discount from par value.
