Vocabulary used in Banking and Finance

Here are some Vocabulary words used by those who work in Banking and Finance:

 Accrued Interest 
Interest earned but not yet received 


 Advising Bank 
A Bank usually located in the country of residence of an Exporter, used by an Importer’s bank to authenticate a Letter of Credit before it is passed on to the Exporter. 


 Affidavit 
A written statement, sworn to be true by the person signing it, before someone authorized by court of law 


 Agent Bank 
A participating bank in a syndicated loan that handles all the operations and deals with the borrower on behalf of the members of the syndicate. 


 Amortization 
Process of full payment of debt in installments of principal and earned interest over a definite time 


Arbitrage 
Simultaneous purchase and sale of identical or equivalent financial instruments or commodity futures so as to benefit from difference in their price relationship 


Asset/Liability Risk: 
A risk that current obligations/ liabilities cannot be met with current assets. A fundamental risk in all organizations, which should manage the risk and maintain liquidity or become insolvent 





Assets 
Things that one owns which have value in financial terms. 


Automated Teller Machines (ATMs) 
A computerized machine used for banking transactions, e.g. depositing or withdrawing money, making balance/ transaction inquiries and transfers; operated through magnetic plastic cards with the held of personal identification numbers (PINs). 


Available Balance 
The portion of a customer’s account balance having no restrictions from the bank and available for immediate withdrawals. 


Average life 
Weighted average of the maturities of various loans or bonds after taking into account agreed amortization’s. 


Back-end value 
Amount paid to the remaining shareholders in the second stage of a two-tier or partial tender offer. 


Balance Sheet 
Statement of assets and liabilities of a company at any particular time. The assets on a balance sheet will always equal the liabilities plus the owner’s equity 


Balloon Payment 
A large payment that may be charged at the end of a loan or lease. 


Bank Credit 
Includes Term Loans, Cash Credit, Overdrafts, Bills purchased & discounted, Bank Guarantees, Letters of Guarantee, Letters of credit 





Bank Debits 
The sum of the value of all cheques and other instruments charged against the deposited funds of a bank’s customer. 


Bid/Bond Guarantee 
A guarantee issued by a bank on behalf of a seller to a buyer to support the sellers’ bid or tender for a contract. If the sellers’ bid is accepted, the buyer can claim compensation under the guarantee 


Bill of Lading 
A document which represents ownership of goods in transit. 


Bond 
A negotiable instrument evidencing debt, under which the issuer promises to pay the holder its face value plus interest as agreed. 


Bridge Loan 
Temporary finance provided to a project until long-term arrangements are made 


Bull Market 
A market in which prices keep rising. 


Buy-back 
A public company, which buys its own shares, by tender offer, in open market, or in a negotiated buy-back from a large block holder. 


Call Option 
An option that gives its holder the right to buy an asset at a fixed price during a certain period 


Capital 
Funds invested in a firm by the owners for use in conducting the business. 






Capital Gain and Loss 
The difference between the price that is originally paid for a security and cash proceeds at the time of maturity (face value of bond) or at the time of sale (selling price of a bond or stock). When the difference is positive, it is a gain, but when it is negative, it is a loss. 


Certificate of Deposit (CD) 
A negotiable instrument issued by a bank evidencing time deposit 


Collateral 
Property (real, personal or otherwise) pledged as security for a loan. Also, any supplementary promise of payment, such as a guarantee. 


Commercial Paper (CP) 
Issue of short-term notes, without any underwriting, representing a promise to repay the amount at a specified future date. 


Compound Interest 
Interest payable (receivable) on interest. 


Consumer Price Index (CPI) 
An index that measure movements in the average price of products and services 


Convertible Bond 
A bond that is convertible into common stock. 


Convertible Security 
Bond or preferred stock which is convertible into equity shares generally at the option of the holder 








Debt/equity ratio 
A comparative ratio of debt and equity used to measure the gearing/ health of a business. 


Dividends 
Company earnings that may be paid out to shareholders according to the number of shares or stocks they hold. Dividends can be earned on stocks as also units of mutual funds 

Earning Yield

The ratio of earning per share to market price of the share. 

Equity 
The value of a business after all debts and other claims are settled. Also, the amount of cash a business owner invests in a business and/ or the difference between the price for which a property could be sold and the total debts registered against it. 


Exchange Rate 
The rate at which one currency may be exchanged for another. 


Fixed Rate 
A predetermined rate of interest applied to the principal of a loan or credit agreement. 


Futures 
Contracts to buy something in the future at a price agreed upon in advance. First developed in the agriculture commodity markets but often involve foreign exchange, and Government bonds 


Goodwill 
The excess of the purchase price paid for a firm over the book value received. Recorded on the acquirers’ balance sheet. 







Gross Domestic Product (GDP) 
The total of market value of the finished goods and services produced in a country in a given year. Comprising three sectors viz. Agriculture, Industry & Services. 


Gross National Product (GNP) 
The total market value of finished goods and services produced in the country in a given year, plus the income of domestic residents from investments made abroad, minus the income earned by foreigners abroad from the domestic market 


Haircut 
The difference between the market value of a security and its value when used as collateral. The haircut is intended to protect a collateral taker from losses due to declines in collateral values 



Hedge 
One investment purchased against another investment in order to counter any loss made by either. 


Holding company 
A company which controls another company, usually by owing more than half of its shares.