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Clerk & PO : Important Quiz for Bank Part-01

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.

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