Glossary banking terms

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GLOSSARY Information Technology algorithm: A step – by – step method of accomplishing a task. A series of mathematical commands, that cipher and decipher. batch: A group of commands that are executed one at a time. batch File: A file in a DOS / Windows environment with the. bat extension. This file type is executable in DOS or at a Windows command prompt. Batch programs are written in a batch programming language that utilises a superset of standard DOS commands. buffer: A temporary location to store or group information in hardware or software. Buffers are used whenever data is received in sizes that may be different than the ideal size for the hardware or software that uses the buffer. buffered memory: Memory modules that have extra chips on them to support Error Checking and Correcting ( ECC ) functionality. bug: This is commonly an error in design or programming in a hardware device or piece of software. bus topology: This network topology has computers connected to a strand of network cabling that is connected to network repeaters at one end and terminated at the other. cable modem: The device that you attach a coaxial cable from your cable company directly into that can provide you with high speed internet access. channel: It consists of controller card, interface cable and power supply. cheque truncation: It stops the flow of cheques through the banking system and converts it into an electronic processing system. coaxial cable: It consists of a single copper wire, surrounded by a copper braid or foil that acts as a ground. The entire wire is coated with insulation. The cable carries digital signals at high speeds. data – information: Any series of bits, characters or objects that has meaning. Data is stored and transmitted by computers. data compression: Takes something large and makes it smaller. data encryption standard ( DES ): An encryption method developed by IBM in 1977. It uses a private 56 – bit key that is applied to each 64 – bit block of data. data mining: The act of analyzing a database or data warehouse and searching for new facts based on the data. database: An ordered set of data. digital signature: A form of electronic signature that works with a public and private key encryption system and a certificate authority. disk mirroring: Disk mirroring involves two hard drives that are on the same drive controller. The same data is written to both drives over the same channel. disk duplexing: Disk duplexing is much like disk mirroring, but each drive is on a separate controller. dumb terminal: These are hooked up to mainframes and are little more than a monitor attached to a keyboard. All these are good for running programs using the mainframe ‘ s hard drive and memory, thus the ” dumb ” in the name. dynamic signature verification It finds out whether a signature is genuine or not. e – mail: This stands for electronic mail. It is a service provided over the Internet that allows you to send information to another person or list of people. electronic purse: The space in a card is used to store different types of accounts of a user. electronic signature: Any form of electronic identifier, including a digital signature. encryption: The act of altering data to make it unreadable unless you know how to decrypt it. Ethernet: A network topology that is able to send data at 10 Mbits / second. Workstations can exist on the same cable. but only one can communicate at a time. To get by these limitations, switched Ethernet and Fast Ethernet were invented and were also combined. Nowadays, most networking devices are switched fast Ethernet. FTP ( file transfer protocol ): A common method of moving files, from system to system, by using TCP / IP. To work properly, it requires an FTP client to contact an FTP server in order to transmit data back and forth. fault tolerant computer system: The ability of a system to continue operations following failure in one or more components. full duplex: Originally this referred to a communication between a modem and a remote system, where characters were sent both ways over the phone line so that they could be accurately displayed on a terminal. gopher: This is often said to be the first incarnation of the World Wide Web. It is an information source based on textual links, now outdated and superseded by the Web graphical user interface ( GUI ): Any system that uses graphics to represent the functionsof a program. All Windows operating systems are GUIs.

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half duplex: Originally a modem communications term, half duplex now mainly refers to network communications that transmit in one direction at a time. Also, see duplex and full duplex. host: A generic term used to describe a computer or program that makes a resource available, usually over a network. internet: Global network of networks. It is system that allows user computers to exchange data, messages, etc. LAN: A small and an isolated network at one office or physical location. Most office computers are connected to a UAN, but may also be connected to the Internet or a WAN. management information systems / services ( MIS ): The department at most companies that provides real – time information to the management. MODEM ( Modulator / Demodulator ): A device that serves as a bridge between your digital computer and some form of analogue line used to transmit data, such as a phone line ( standard modem ) or analogue cable connection ( cable modem ). multiplexer ( mux ): A logic circuit that sends one of several inputs out over a single output channel node: One computer / machine or address on a network. If you managed a network with 10 printers, 50 servers and 150 client machines, you could say you managed a network with 210 nodes. online: This term refers to anything that is on the Internet and electronically transmitted. optical fibre: Provides high quality transmission at very high speeds. packet: A collection of information. The term is most often used to refer to the chunks of information sent over computer networks. peripheral: Any device that is not part of the motherboard, aside from memory and the CPU. Forexample, video cards, sound cards, modems and hard drives are peripherals. point – to – point protocol ( PPP ): The mode of transport used to connect a computer to the Internet via a dial – up adapter ( a modem ). protocol: A general behavior that computers and network devices must follow to understand one another. real – time: Tasks that are time – critical and must happen in our time ( as opposed to the much faster computer ). The user interface should always be real – time. If you move the mouse, your pointer should move on screen immediately. Unfortunately. Windows can bog down enough, so that this does not happen.

opology: A network that is connected on both ends to one source, with client machines hanging off of the ring If you break the ring, all computers in the ring lose connectivity. RTGS: Real time gross settlement system. Instant credit through the RBI clearing system safe mode: An operating mode used in Microsoft operating systems. It was introduced in Windows 95 first and was loaded automatically, if Windows 95 crashed during the boot up. You can access Safe Mode if you press the ” F8 ” key when new Windows operating systems are booting — this will bring you to a menu that allows you to boot into safe mode. Safe Mode boots the operating system with minimal driver support. The purpose of it is to help resolve boot problems. server: A machine whose sole purpose is to supply data so that other machines can use that data, simplex transmission: It transmits data in one direction only, smart card: A plastic card with an Integrated chip installed.. standalone: A hardware device or piece of software that works with nothing else required. star topology: A network topology that has network hubs at the centre, with all connected computers linked back to the hub by a single cable. Thus, if one cable goes down, the rest of the computers can still communicate. SWIFT: Society for worldwide inter – bank financial telecommunication is an instant transfer of messages internationally. token ring: A network topology pioneered by IBM and eventually made into the IEEE 802. 5 standard. Token ring networks are wired, in a ring topology and nodes on the network pass a token around. Whichever node has the token is allow ed to use the network. Usenet newsgroups: Also referred to simply as “ new ‘ sgroups, ” Usenet newsgroups are a huge bunch of Internet discussion groups that replicate across the Internet every so often. vein recognition: Uses unique vein structure of the human body to identify individuals.

visual recognition: Digitizing a picture of a person, storing in a smart card then using it for identificaton. voice recognition system: It compares voices with original recorded. VSAT: An outdoor small dish antenna interfacing with a satellite.

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WAN ( Wide Area Network ): Any network that spans more than one location. Typically at least ons of the locations is fairly remote. WAP ( Wireless Application Protocol ): A proposed standard that allows for transfer of data securely between wireless devices, such as, PDAs, cell phones, pagers or other combinations of those devices. WAP supports many different wireless networks. world wide web ( Www or Web ): This is basically a means of communicating text, graphics and ether multimedia objects over the Internet.

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corporation: The most common form of business organization with many legal rights as an entity separate from its owners perpetual existence ). This form of business is characterized by the limited liability of its owners, the issuance of shares of easily transferable stock and existence as a going concern. coupon: The interest rate on a fixed income security, determined at the time of issuance and expressed as a percentage of par value or face value. It is called coupon since the interest cheques are given in advance along w ‘ ith the bond document and appear like coupons. credit agency: Is a company which collects information about the creditworthiness of individuals and corporations and provides it for a fee to interested parties. credit analysis. The process of evaluating an applicant ‘ s loan request or a corporation ‘ s debt issue in order to determine the likelihood that the borrower will live up to his / her obligations. credit card: Any card that may be used repeatedly to borrow money or buy products and services on credit. Issued mostly by banks. credit limit: The maximum amount of credit that a bank or other lender will extend to a customer or the maximum that a credit card company will allow a card holder to borrow on a single card. credit rating: A published ranking, based on detailed financial analysis by a credit bureau, of one ‘ s financial history, specifically as it relates to one ‘ s ability to meet debt obligations. credit risk: The possibility that a bond issuer / borrower will default, by failing to repay principal and interest in a timely manner. Sovereign bonds issued by the government for the most part, are immune from default ( if the government needs money it canjust print more ). Bond, issued by corporations is more likely to be defaulted on, since companies could go bankrupt. Quasi govt, bodies occasionally default as well although it is much less common. Also called default risk. creditor: A person or organization which extends credit to others. creditworthiness: A creditor ‘ s measure of an individual ‘ s or company ‘ s ability to meet debt obligations. crossed cheque: A form of cheque which has two parallel or transverse lines across the face so that the bank on which it is drawn may not pay to any other party than to a bank where the payee has an account. current account: A deposit account at a bank which does not pay interest but can be withdrawn any time. It is basically for operating a business. custodian: is an organization, which holds in custody and safekeeping the securities and other assets of another organization or individual.

They are bills which have a usance period and require acceptance by the drawee DP bills: They are bills where delivery of goods is against payment by the drawee. debenture: Debt mostly unsecured backed only by the integrity of the borrower, not by collateral, and documented by an agreement. One example is an unsecured bond. debit card: A card which allows customers to access their funds immediately, electronically. Unlike a credit card, a debit card does not have any float. debt: An amount owed to a person or organization for funds borrowed. Debt can be represented by a pro – note, bond, mortgage or other form stating repayment terms and, if applicable, interest requirements. These different forms all imply intent to pay back an amount owed by a specific date, which is set forth in the repayment terms. debt financing: Financing by selling bonds, bills or notes to individuals or institutions. debt instrument: A written promise to repay a debt. Examples include bills, bonds, notes, CDs, commercial paper and banker ‘ s acceptances / L / Cs. debt market: The market for trading debt instruments. debt / equity ratio: A measure of a company ‘ s financial leverage. Debt / equity ratio is equal to long – term debt divided by shareholders ‘ equity. Typically, the data from the prior fiscal year is used in the calculation. Investing in a company with a higher debu / equity ratio may be riskier, especially in times of rising interest rates, due to the additional interest that has to be paid out for the debt. debtor: An individual or company that owes debt to another individual or company ( the creditor ), as a result of borrowing or issuing bonds. deed of trust: A deed in which title is conveyed to a trustee. default: Failure to make required debt payments on a timely basis or to comply with other conditions of an obligation or agreement. deferred credit: Revenue received by a firm but not yet reported as income.

ich has been incurred and will be paid back at some point in the future. demand deposit: An account balance which can be drawn upon on demand, i. e. without prior notice. Savings deposit is an example.

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depreciation: Is the decrease in the value of equipment from wear and tear and the passage of time. It is notional charge / debit to the profit and loss ale, which helps build cash reserves for replacement of existing assets at a future date. derivative: A financial instrument whose characteristics and value depend upon the characteristics and value of an underlying commodity, bond, equity or currency. Examples of derivatives include futures and options. Investors sometimes purchase or sell derivatives to manage the risk associated with the underlying security, to protect against fluctuations in value or to profit from periods of inactivity or decline. These techniques can be quite complicated and risky. discharge: To satisfy or dismiss the obligation of a debt. Simply put, it is the full repayment of a debt or an obligation. disclosure: The release of relevant information. dishonor: To not pay, such as for a bounced cheque. It is also failure to meet / pay legitimate demand raised by a bill of exchange made in normal trade. dissolution: The end of the legal existence of a corporation, by shareholder vote, acquisition by another corporation or order of a legal authority. dividend: A taxable payment declared by a company ‘ s board of directors and given to its shareholders, usually annually, out of the company ‘ s current or retained earnings. Dividends are normally given as cash ( cash dividend ). It is the shareholders ‘ earning on his investment in the company. drawee: The party directed to pay the amount of a draft or cheque or a bill of exchange. drawer: The party who draws the draft, cheque or bill of exchange upon another party for payment. due date: Date on which an obligation must be paid. effective annual interest rate: The actual annual interest rate thataccrues, after taking into consideration the effects of compounding ( when compounding occurs more than once per year ). electronic funds transfer ( EFT ): Any transfer of funds that is initiated by electronic means, such as an electronic terminal, telephone, computer, ATM or magnetic tape.

tity but subject to another person ‘ s valid claim. endorsement: A signature used to legally transfer a negotiable instrument. equity: Ownership interest in a corporation in the form of equity capital. It also refers to total assets minus total liabilities, in which case, it is also referred to as shareholder ‘ s equity or net worth or book value. Simply put, it is the money brought in by the owners / shareholders and over time could also include accumulated profits. equated monthly installment ( EMI ): An equal amount repaid periodically comprising of interest and principal over the period of the loan or debt. The composition of interest ( declining ) and installment of principal ( increasing ) changes, while the amount remains the same. escrow account: A trust account held in the borrower ‘ s name to repay obligations such as borrowing. Credits to the account are first appropriated to discharge the borrower ‘ s liability ‘. exchange: Any organization, association or group which provides or maintains a market place where securities, options, futures or commodities can be traded. executor: An individual or institution nominated in a will and appointed by a court to settle the estate of a deceased. export – import Bank: An independent bank which encourages exports by providing credit and insurance. Also called Exim bank.

• For an equity security, face value is usually a very small amount that bears no relationship to its market price. For a debt security, face value is the amount repaid to the investor when the bond matures. In the secondary market, a bond ‘ s price fluctuates with interest rates. If interest rates are higher than the coupon rate on a bond, the bond will be sold below face value ( at a ” discount ” ). If interest rates have fallen, the bond, will be sold above face value. factor: A firm engaged in the business of financing accounts receivable, an activity known as factoring. The firm so buying the receivables becomes the creditors to the receivables. This helps the liquidity of the selling entity. factoring: The selling of a company ‘ s accounts receivable, at a discount, to a factor, who then assumes the credit risk of the account debtors and receives cash as the debtors settle their accounts. Also called accounts receivable financing. financial institution: Institution which collects funds from the public and places them in financial assets, such as deposits, loans and bonds, rather than tangible property -. floating rate: Any interest rate that changes on a periodic basis. The change, usually tied to movement of an outside indicator, such as the prime interest rate. Movement above or below certain levels is often prevented by a predetermined floor and ceiling for a given rate. For an individual taking out a loan when rates are low, a fixed rate loan would allow him or her to lock in the low rates and not be concerned with fluctuations. On the other hand, if

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interest rates were historically high at the time of the loan, he or she would benefit from a floating rate loan, because as the prime rate falls to historically normal levels, the rate on the loan would decrease. forfeiture: A loss of money, property or privileges due to a breach of legal obligation, which serves as compensation for resulting losses. An example is of equity shares issued on part payment basis. When the calls for payment of the balance is not heeded then the amount initially paid is forfeited or lost by the prospective investor and the shares are said to be forfeited. front – end load: A charge paid when an individual buys an investment, such as a mutual fund. The load is clubbed with the first payment made by an investor, so the total initial payment is higher than the later payments. The purpose of a load is to cover administrative expenses and garnishee order Monetary judgment by the court against defendant by

rt against defendant by ordering third party ( garnishee ) to pay money owed by the defendant ( judgment debtor to the plaintiff ( udgment creditor ). This is so when there is default in debt repayment. general lien: A lien applied to all goods, not just the goods giving rise to the debt, owned by the borrower. government securities: Securities issued by a government to raise the funds necessary to pay for expenses / investments. guarantee: To accept responsibility for an obligation if the entity with primary responsibility for the obligation does not meet it. That is the guarantor pays when the debtor fails to do so. guarantor: One who guarantees an obligation and has a legal duty to fulfill it. hedging: Protecting assets from currency fluctuations. This is generally done by taking positions or doing things. which will offset the adverse effects on the original investment. For instance, a weak rupee leads to the purchase of shares of the export oriented companies, who will benefit from a falling rupee. This will provide a hedge against fall in value of other assets, if at all. holder in due course: is a person who is in possession of an instrument for which consideration has been paid and who believes that there is no defect in the title. hybrid debt: Instruments which are similar to equity, which absorb losses without forcing / causing liquidation. hypothecation: The pledging of securities or other assets as collateral to secure a loan. The act ofpledging is often without transfer of goods, as in funding of inventory of raw materials / finished goods. There is charge on the inventory whose value at any point in time not fall below the amount specified by the bank. The working capital cycle will ensure healthy movement of goods. inactive account: A bank account in which there have not been any transactions for an extended period of time. Such accounts are often charged a fee if there are no operations. initial public offering: IPO: the first sale of shares by a company to the public. insolvent: Unable to meet debt obligations. Opposite of solvent. interest cover: A company ‘ s pre tax operating income ( or occasionally, cash flow ) divided by its interest obligations, for a given period. Mathematically, it is the ratio of earnings before interest, tax and depreciation divided by the amount of interest payable. A ratio of 1. 5 to 2 per cent is considered ideal by lending institutions. interest rate: A rate which is charged or paid for the use of money. An interest rate is expressed as an annual percentage of the principal. Internal Rate of Return ( IRR ): The rate of return that would make the present value of future cash flows of an investment or business opportunity plus the terminal value of the business equal the current market price of the investment or opportunity. Simply put, it is the discount rate, which makes the current investment in a business equal to the present value of future cash flows arising out of the business plus the terminal value of the business, i. e. the NPV of the business equals zero. introduction: Introduction of a potential customer to a bank by an account holder, employee or a well known person. It is necessary for a bank seeking protection under Sec. 131 of the N. I. Act. This formality is necessary for opening of accounts. irrevocable: Not able to be undone. There are certain terms in a negotiable instrument or a legal document or a document whose tenor cannot be overlooked / avoided / bypassed and have to be adhered to. joint account: Any account owned by two or more people. joint and several liability: An obligation for which multiple individuals are liable for payment as in case of obligations of a partnership concern. judgment creditor: Under garnishee order, the creditor or person to receive its benefit is called so. judgment debtor: Under garnishee order the debtor or the person liable to the creditor is called so. Law of limitation: Law that sets out a period after which a legal document cannot be enforced unless revalidated before the said date.

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lease: A contractual arrangement whereby the Lessor grants the lessee the right to use his asset tor a fixed period in return for periodic ( lease ) rentals. ledger: A book / folder / file of accounting entries where transactions are listed in separate accounts. lender of last resort: A function of a central bank, such as the Reserve bank, in which it lends money to a bank which is facing unusually heavy withdrawals. lessee: A person who obtains a property on lease from its owner. Lessor: An owner of property who rents it to another party. letter of credit ( L / C ): A binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessary documents. leverage: Is the amount of long term debt relative to equity with a higher ratio greater amount of leverage. A business entity ‘ s funding pattern generally is a judicious mix of equity and debt. Loosely speaking, it represents the influence one financial variable has over some other related financial variable. liability: It is a claim on the assets of a business. It is the amount owed by the business to the shareholders, both preferential and equity. creditors both long term ( banks and institutions ) and short term. LIBOR: It is the London Interbank offering rate. It is the standard for international transactions by Indian entities.

aim against an asset which is used to secure a loan and which must be paid when Liens can be structured in many different ways. In some cases, the creditor will have legal claim against an asset, while not actually holding it in possession and in other cases, the creditor will actually hold on to the asset until the debt is paid of. lien, banker ‘ s: Banker ‘ s lien gives it a right of sale on possession of goods in the event of failure ofthe debtor to meet the obligation. Banker ‘ s lien is an implied pledge. lien, negative: In which borrowers undertake that the assets are free from any charge and that no charge will be created without bankers prior consent. The first right of charge lies with bank. liquidate: To convert an asset to cash. Or to sell off an entity to meet legal obligation. liquidity ratio: Total value of cash and marketable assets ( receivables and easily realizable ) divided by current liabilities. For a bank, this is the cash held by the bank as a proportion of deposits in the bank. The liquidity ratio measures the extent to which a corporation or other entity can quickly liquidate assets and cover short – term liabilities and therefore is of interest concern to short – term creditors. long – term debt: Loans and obligations with a maturity of longer than one year; accompanied by interest payments. mandate: Power given to a person or group of persons for carrying out certain jobs / activities obligations. margin: Margin refers to an amount required to be brought in by a borrower, as specified by the lender, as his own contribution ( equity ) to the business. market value: A security ‘ s last reported sale price on an exchange. OR The market price of an entire company calculated by multiplying the number of shares outstanding, by the price per share. This is also called market cap or market capitalization. marketable security: Security that probably could be converted into cash quickly and easily. material alteration: Any alteration that changes the tenor of an instrument. To validate a material alteration, the drawer must authenticate. maturity date: The date on which a debt becomes due for payment. memorandum of association: Document which governs the association of a company with the outside world; gives details of the type of company, objects of the company ( activities the company may carry out ). capital structure, etc. moratorium: A period of time during which a certain activity is notallowed or required. For instance, when repayment on a loan starts only after a lapse of a certain period after its disbursement, then that period is called the moratorium on the loan. mortgage: A loan to finance the purchase of real estate or plant and machinery, usually with specified payment periods and interest rates. The borrower ( mortgagor ) gives the lender ( mortgagee ) a Hen on the property as collateral for the loan. NAV: Net Asset Value. The value in rupees of a single mutual fund share based on the value of the underlying assets of the fund minus its liabilities / expenses, divided by the number of shares outstanding. Calculated at the end of each business day.

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negligence: Failure to act during the normal course of business in an usually accepted manner. negotiable instrument: A transferable, signed document that promises to pay the bearer a sum of money at a future date or on demand. Examples include cheques, bills of exchange and promissory notes. net present value: NPV: Amethod of evaluating investment proposals. It is the present value ol future cash flows less the sunk costs ( initial investment ). When evaluating two proposals, the assumption is that the one with higher NPV is the better of the two. Sometimes a comparative ratio of the NPVs to the initial investment is also used for the purpose. net worth: For a company, it is total assets minus total outside liabilities. Net worth is an important determinant of the value of a company, considering it is composed primarily of all the money that has been invested since its inception, as well as the retained earnings for the duration of its operation. Net worth can be used to determine creditworthiness because it gives a snapshot of the company s investment history. Also called owner ‘ s equity, shareholders equity, or net assets. Non performing asset: A loan that is not meeting its stated principal and interest payments. More generally an asset that is not producing income. non – recourse debt: Debt for which the borrower is not personally liable. Nostro account: A banking term to describe an account one bank holds with a bank in a foreign country, usually in the currency of that foreign country. notary public: A person authorized by the state to notarize certain documents. online banking: A system allowing individuals to perform banking activities at home, via internet. operating cycle: The average time between purchasing or acquiring inventory and receiving cash proceeds from its sale in finished goods form. Also called working capital cycle in which the period covers the time from purchase of raw materials, its conversion to final goods, subsequent sale and realisation of the proceeds. opportunity cost: It is the rate of return that can be earned on the best alternative investment.

ount and use the amount to payoff the judgment debt. Overdraft: The amount by which withdrawals exceed deposits or the extension of credit by a lending institution to allow for such a situation. passbook: Book issued by a bank to record deposits, withdrawals and interest earned in a deposit account. pavee: One who receives a payment, such as through cash, cheque, money order. bill of exchange, etc. paying banker: Bank on whom the negotiable instrument is drawn and which is sent for collection. personal guarantee: Promise made by an entrepreneur which obligates him / her to personally repay debts his / her corporation defaults on. personal identification number ( PIN ): Code used by an individual so that he / she can access his / her bank account at an ATM machine. pledging: Offering assets to a lender as collateral for a loan. Though the asset will be pledged and may be in the custody of the lender, it is still owned by the borrower unless he / she defaults on the loan. post – date: To put a future date on a document or cheque, postponing the effective or negotiable date. power of attorney: A legal document that enables an individual to designate another person called the attorney, in fact, to act on his / her behalf as long as the individual does not become disabled or incapacitated. preamble: It is an introductory statement, a preliminary explanation. It tells about the rules governing a body, which form the basis for their existence and future action. preferential shares: Shares on which a specific dividend is paid before any dividends are paid to equity shareholders, and which takes precedence over equity in the event of a liquidation. Preferential shareholders do not enjoy any of the voting rights of equity shareholders. prime rate: The interest rate that commercial banks charge their most creditworthy borrowers, such as large corporations. The prime rate is a lagging indicator. Also, called prime. probate: The review or testing of a will before a court of law to ensure that the will is authentic.

quarterly or annual financial document published by a public company. showing earnings, expenses and net profit. Net income is determined from this financial report by subtracting total expenses from total revenue. The profit and loss statement and the balance sheet are the two major financial reports that every company publishes. The difference between this statement and the balance sheet deals with the periods of time that each one represents. The profit and loss statement shows transactions over a given period ( usually quarterly or annually ), whereas the balance sheet gives holdings on a specific date. promissory note: A promise by the drawer of the note to pay a certain sum of money on certain date to the drawee. prospectus: Description of a company raising funds from the capital market, to the prospective investors.

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prudential limits: Limits of sector wise credit exposure set by RBI on commercial banks. These limits helps control, among other things too much exposure to a particular sector vis – a – vis others as also the effects of artificial prices, demand – supply mismatches, default situations and so on. reconciliation: Adjusting one ‘ s cheque / cash book balance to match a bank statement. redemption: The return of an investor ‘ s principal amount in a security, such as a bond, debenture or mutual fund shares, at or prior to maturity. remit: To make a payment by transfer. Examples of remittance include cash, cheque / draft and electronic transfer. reserve ratio: Amount of money and liquid assets that the member banks must hold in gilt securities or cash with the RBI, usually a specified percentage of their demand deposits and time deposits. Also called reserve requirement. resolution: An official document representing an action on the part of the board of directors of a corporation. For instance, a board may resolve to borrow funds from or place deposits in a bank and may appoint certain directors or officials to operate the bank account. retail banking Banking services for individual customers. retained earnings: Earnings not paid out as dividends but instead reinvested in the core business or used to payoff debt. revaluation reserves: Reserves that are created after revaluation of assets that are under valued in the books of accounts. An example is of an asset, which commands a market price well above the book value ( after depreciation ) and therefore the company

les to increase its value in the books and create a reserve ( notional ) revolving line of credit: An agreement by a bank to lend a specific amount to a borrower and to allow that amount to be borrowed again once it has been repaid. Also called revolving credit. right of recourse: The right to recover a bad debt. Sans recourse: Without liability to the endorser. The liability is solely that of the draweelacceptor. savings deposits: Accounts that pay interest and can be withdrawn on demand, offered by banks. secondary market: A market in which an investor purchases a security from another investor rather than the issuer. subsequent to the original issuance in the primary market. It is a place where buyers and sellers of a security meet to deal / operate. secured debt: Backed by a pledge of collateral / assets. Opposite of unsecured. secured loan: A loan which is backed by assets belonging to the borrower in order to decrease the risk assumed by the lender. The assets may be forfeited to the lender if the borrower fails to make the necessary payments. securitisation: The process of aggregating similar instruments, such as loans or mortgages into a negotiable / tradable security.

ting debit in one account of a borrower with credit in another

e interest calculated on a principal sum, not compounded on earned interest. sinking fund: A fund into which a company sets aside money over time, in order to retire its preferential shares, bonds or debentures. statutory: Something which is enacted by legislation. As a law perhaps. stop pay nient: An order to a bank not to honour the payment of a cheque after it has been delivered but before it has been cashed. subordinated debt: Debt that is either unsecured or has a lower priority than that of another debt claim on the same asset or property. Also called a junior debt. surety: A pledge. guarantee or bond, usually to back the performance of an individual or company. swap: An exchange of streams of payments over time according to specified terms. Also an exchange of loan portfolio by banks. tangible asset: Assets having a physical existence, such as cash, equipment and real estate; accounts receivable are also usually considered tangible assets for accounting purposes. Opposite of intangible asset. tenor: Instructions appearing on the face of a negotiable instrument such as date, amount, name of payee and so on. terminal value: It is the value of an asset at some point in time in future. It is a notional value assigned, while estimating the future cash flows of a business but is essential nevertheless. third party: Someone other than the principals directly involved in a transaction or agreement. time deposit: money kept as deposit in a financial institution, usually a bank, for a fixed term or with the understanding that the customer can withdraw only by giving advanced notice. transfer: A movement of funds from one account to another.

incial institution which functions as cash but is protected against loss or theft. Traveller ‘ s checks are useful when travelling, especially in case of overseas travel when not all credit and debit cards carried by a person will be accepted. A charge or a commission, is usually incurred when a person exchanges cash for traveller ‘ s checks, though some issuers provide them flee of charge.

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treasury Bill: A negotiable debt obligation issued by the government and backed by its full faith and credit, having a short maturity. Also called the ” T – Bill “. These instruments, liquid in nature, are a source for meeting the central bank ‘ s ( RBI ) reserve ratios. trust: A legal arrangement in which an individual gives fiduciary control of property to a person or institution ( the trustee ) for the benefit of beneficiaries. underwrite: To assume risk, as when offering a policy or bringing a corporation ‘ s new securities issue to the public; in the latter case, the term originally applied only to firm commitment offerings, but is now used for all offerings. To put it simply if the IPO is undersubscribed the underwriter subscribes to the extent of his commitment for a fee / commission which is payable in all situations. usance: The length of time allowed for the payment of a bill of exchange. variable rate: Any interest rate or dividend that changes on a periodic basis. Variable rates, are often used for convertibles, mortgages, and certain other kinds of loans. The change, is usually tied to movement of an outside indicator, such as the prime interest rate. Movement above or below certain levels is often prevented by a predetermined floor and ceiling for a given rate. Also called the adjustable rate. vicarious liability: Liability that arises out of the responsibility of a superior for the acts of his subordinate. As in case of a bank which is liable to the acts of its employees in the natural discharge of duties. waiver: The act of voluntarily giving up a right or covenant. Covenants are certain clauses in an agreement. warrant: A certificate, usually issued by a corporation along with a bond or debenture, entitling the holder to buy a specific amount of securities of that corporation at a specific price, usually above the prevailing market price at the time of issuance. In case the price of the security rises to above that of the warrant ‘ s exercise ( entitled ) price, then the investor can buy the security at the warrant ‘ s exercise price and resell it for a profit. Otherwise, the warrant may simply expire or remain unused. wholesale banking: Banking services for institutions. wire transfer: An electronic transfer of funds. withdraw al: A removal of funds from an account. working capital: Is current assets minus current liabilities. Working capital measures how much liquid assets a company has to build its business. The number can be positive or negative, depending on how much debt the company is carrying. In general, companies that have a lot of working capital will be more successful since they can expand and improve their operations. Companies with negative working capital may lack the funds necessary for growth. working capital loan: A short – term loan which provides money to buy earning assets. write – off: To charge an asset amount to expense or loss, in order to reduce the value of that asset and one ‘ s earnings. An example is of receivables not being recoverable charged to the profit and loss account in order to offset the income that has already accrued to the account. written down value method: It is a method of calculation by which depreciation is charged as a percentage of the net asset value ( written down value in the books year after year.