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.
