Banking and
Financial Terms for Bank Exams
American
Deposit Receipt (ADR) – It
is a negotiable certificate issued by a U.S. bank representing a specified
number of shares in a foreign stock traded on U.S exchange. ADRs are
denominated in U.S. dollars.
Anti Dated
Cheque - If
date mentioned on the cheque is earlier than the date it is presented to bank;
it is called anti dated cheque. Anti Dated Cheque is valid up to 3 months.
Earlier it was 6 months but now it reduced to 3 months.
Arbitrage - Arbitrage is a process in which
simultaneous purchase and sale of securities is done in order to earn profits
with the difference in prices.
Balance of
Trade - Balance of Trade is a difference
between country’s export and import for a given time period. It is the largest
component of balance of payments.
Balance of
Payments - A
statement that summarizes an economy’s transactions with the rest of world for
a specified period of time is known as balance of payments.
Bancassurance
- It is the term used to describe the
partnership or relationship between a bank and an insurance company whereby the
insurance company uses the bank sales channel in order to sell insurance
products.
Bank
Account - The account which is maintained by a
financial institution for the customer is known as bank account.
Bank Drafts
- It is a negotiable instrument
governed by the Negotiable Instrument Act 1881. It is a facility offered by the
bank to its account holders only. A bank draft is a payment made by bank on the
behalf of bank
Bank Rate - It is a rate of interest which a
central bank charges on loans and advances to commercial banks without any
collateral. It is a long term rate of interest. It implies penalty over banks
not complying with RBI rules such as not maintaining CRR and SLR.
Banking
Ombudsman - It is
an authority to solve any complaints of the customer against the banks. If the
customer is not satisfied with the compliant they can forward their complaint
to governor of RBI.
Basel Norms
- Basel Norms
are the set of recommendations for regulating banking industry in world. Basel
Committee on Banking Supervision issued Basel Accords
Bearer
Cheque - A
cheque which is payable to any person who present it for payment at the bank
counter. Such cheques are risky as in case it lost, the finder may collect the
payment from the bank.
Bonds
- A bond is a
debt investment in which an investor loans money to an entity which borrows a
fund for a defined period of time at a variable or fixed rate interest. It
is similar to debentures but the key difference is that it is issued by a
government institute
Broker- Broker is a registered member of a
Stock Exchange who buys or sells securities on behalf of his client and charges
a commission such brokers are also known as commission brokers.
Bull Market
- Bull Market is a market situation
where a buyer buys shares in a hope that prices will increase in near future
and he will resale in order to earn profits.
Call Money
- The Call
Money Market deals in short term finance repayable on demand. In this funds are
lent and borrowed without collateral and maturity period of call loans varies
from one day to fortnight.
Call Option
- It is an
agreement that gives the right to investor to buy bonds or shares at a
specified price and within a specified period.
Capital Adequacy
- It refers to the amount of capital
the financial institution has to hold as required by its financial regulator.
This ensures the protection of depositors and investors and financial soundness
of the bank.
Capital
Market - The
segment of financial market of an economy from long term capital is raised via
instruments such as securities, shares, bonds, debentures, mutual funds is
known as securities market or capital market.
Capital
Reserves-
Capital Reserves are
undistributed reserves which is the part of company’s profit which is not paid
out as dividends to the shareholders.
Cash
Reserve Ratio - It
refers to certain percentage of total deposits the commercial banks are
required to maintain in form of cash reserve with reserve bank in form of cash
only.
Cheque - A cheque is a negotiable instrument
that is used for payments and settlements in India. It is an agreement between
two organizations to make payments
Cheque
Truncation - Cheque
Truncation is a system in which physical cheque is converted into electronic
form in order to reduce physical movement of cheques.
Certificate
of Deposit - Certificate
Deposit are used by banks and issued to the depositors for a specified period
less than one year.They are tradable and negotiable in the market
Commercial
Paper- It is used by corporate houses of
India which should be a listed company. These companies need to obtain a
specified credit rating from an agency approved by the RBI such as CRISIL
Commercial
Bills - Commercial Bills are issued by the
All India Financial Institutions (AIFI), Non Banking Finance Companies (NBFCs),
Scheduled Commercial Banks, Merchant Banks, Co-operative Banks and Mutual
Funds. Maturity of these bills is 30 days, 60 days and 90 days.
Commercial
Banks- It is a type of institution that
provides services such as accepting deposits, making business loans and
offering basic investment product.
Core
Banking Solutions- Core Banking Solution is a system where banks and their branches
interconnected for the fast communication.
Credit
Rating- Credit rating is the process in which
debtor is given a rate on the basis of paying back of debt in time. This
service is basically provided to the large scale borrowers such as companies.
Current
Account- Current
Accounts are the accounts opened for the business transaction, on the name of
firm or company. These are never used for the purpose of saving and investment.
Debentures- A debenture is an acknowledgement of
a debt. It is a document under company’s seal which provide for the payment of
principal sum and interest thereon.
Demat
Account - Dematerialized Account is an account
where shares and other securities are held in electronic form rather than
physical form.
Derivative
– A derivative
is a security with a price that is dependent upon or derived from one or more
underlying assets. Derivative is itself a contract between two parties based
upon the asset or assets.
Dishonor of
Cheque- No payment of cheque by the paying
banker with a return memo giving reasons for the nonpayment.
Double
Financial Repression- It is the phenomenon when the bank faces financial repression on the both
sides of the balance sheet. Repression on the asset side is a byproduct of SLR
and on the liability side, continuing increase in inflation.
Drawer- the person who holds an account in a
certain bank and draws a cheque to make payment.
Drawee- the person to whom the cheque has
been drawn.
Escheat- When government acquires the property
of a person having no nominee is termed as Escheat.
Escrow
Account - Escrow Account is held by the third
party on the behalf of the other two parties that are in the process of
completing transaction.
Equity
Shares- Equity shares represent the owner’s
capital in the company. The holders are the real owners of the company.
Factoring- A factor is a financial institution
which offers services relating to management and financing of debts arising out
of credit sales.
Foreign
Banks –A foreign
branch bank is type of that is obliged to follow the regulations of both the
home and host countries.
Fixed
Deposit Account- In
this account a fixed amount of money is paid for a specific period of time on
which bank pays high rate of interest. It is also known as Term Deposit.
Green
Bonds- Green Bonds are the bonds which are
exempted from the tax and issued by qualified organizations for the development
of Brownfield sites. Brownfield sites are the areas which are underutilized or
underdeveloped.
Global
Depository Receipt- Global
Depository Receipt is a certificate issued by more than one country for shares
in a foreign country. The shares are held by the international branch of
foreign bank.
Hedge- Hedge is an investment to reduce the
risk of adverse price movement in an asset.
Indigenous
Bankers- Indigenous
Bankers are the individuals and partnership firms performing banking functions.
They are local bankers. They can be distinguished as professional money lenders
whose primary business is not banking but money lending.
Interest
Rate Swaps- It is
the transfer of contractually agreed between two counterparties of their respective
interest rate obligation.
Investment
Institutions- It
includes the institutions which mobilize savings of public at large through
various schemes and invest these into corporate and government securities.
Internet
Banking- Internet banking is also known as
online banking, Virtual Bankingand web banking. Internet Banking allows its
user to execute transactions with the help of internet.
Junk Bonds- Junk Bonds are kind of bonds which
gives high yield at the very high rate of risk. These kinds of bonds are rated
lower by credit rating agencies.
Leverage- it is a technique in which debt is
used to finance firm’s assets in order to increase profitability of the
company. The firm which has more debts than equity is highly leveraged firm and
vice versa.
LIBOR
(London Interbank Offered Rate) - It is a benchmark rate which some of the international banks
charge for the short term loans.
Liquidity
Adjustment Facility- It
allows banks to borrow money through repurchase agreements.LAF is used to aid
banks in adjusting the day to day mismatches in liquidity.
Masala
Bonds- Masala Bonds are rupee denominated
bonds i.e. bonds can be borrowed in Indian currency not in any foreign
currency. These bonds can be issued by the Indian entities from overseas
market.
Merchant
Banking- In
this service bank provides consultancy services to its clients for financial,
marketing, managerial and legal matters.
MIBOR
(Mumbai Interbank Offered Rate)- It is the rate at which bank can borrow funds from the other
banks in Indian Interbank market. It is calculated everyday by the National
Stock exchange
Monetary
Policy- MonetaryPolicy is a process by which
central bank of the country manage the supply of money which in turn effects on
interest rates, inflation and growth of economy.
Money
Lenders- A money lender is a person or a group
who typically offers personal loans at a high rate of interest.
Money
Market- The short term money market is known
as Money Market.
Mobile
Banking- Mobile Banking is a system that
allows customers to perform a number of financial transactions through a mobile
device
Multinational
Banking- Multinational
banks are those banks that physically operated in more than one country. It is
also known as international bank. Narrow Banking involves mobilizing the larger
part of the deposits in risk free assets such as government securities. In
India narrow banking is implemented partially.
NPA (Non
Performing Assets)- Non Performing Assets refers to the classification of loans in the books
of financial institutions that are in arrears. The debt is considered non-
performing when it is not paid for the period of 90 days.
Open Market
Operations - It
refers to buying and selling of government securities in open market in order
to expand or contract the amount of money in banking system.
Open/
Uncrossed Cheque- The
cheque which is not crossed is known as Open Cheque or Uncrossed Cheque. The
payment of such cheques can be obtained on the counter of the bank.
Overdraft – With this facility a customer can
withdraws more money from the bank account that has been deposited.
Preference
Shares – Preference Shares are shares of
company’s stock with dividends that are paid out to shareholders before common
stock dividends are issued
Post Dated
Cheque- If the cheque bears the any future
date in the cheque that is known as Post Dated Cheque. Post dated cheque can be
presented only on the future date which is written on the cheque.
POS (Point
of Sale)- The place where sales are made. On a
macro level, a point of sale may be a mall, market or city. On a micro level,
retailers consider a point of sale to be area surrounding the counter where
customers pay which is also known as “point of Purchase”
Primary
Market- The
market in which the instruments of security market are traded directly between
the capital raiser and instrument purchaser is known as primary market.
Put Option- It is an agreement where investor has
given a right to sell shares and bonds at a specified price and within a
specified period.
Regional
Rural Banks- Regional
Rural Banks are local level banking organizations operating in different states
of India. RRBs were established in 1975 on the recommendations of Narsimham
Committee. It is followed by Regional Rural Banks Act 1976. RRBs are regulated
by NABARD (National Bank for Agriculture and Rural Development) act 1981.
Retail
Banking- Retail Banking refers to banking in
which banking institutions execute transactions directly with consumers rather
than corporate or other banks.
Recurring
Deposit Account- This
account is opened by those who want to save small amount of money for a certain
period of time and earn higher rate of interest.
Scheduled
banks- The banks which are included in
Second Schedule of Reserve Bank of India Act 1934 are schedule banks.RBI
includes only those banks under this schedule which fulfill the criteria laid
down under section 42(6)(a) of RBI Act 1934.
Saving
Account- Saving Accounts are the individual
accounts for the personal purpose of saving. Most of the individuals save their
investments with this account.
Secondary
Market- The market where the instruments of
security market are traded among the primary instrument holders is known as
secondary market.
Self Help
Group- It is a homogeneous group of micro
entrepreneurs with affinity among themselves, voluntarily formed to save
whatever amount they can convenientlysave out of their earnings and mutually
agree to contribute to a common fund of the group from which small loans are
given to the members of their meeting their productive and emergent credit needs
at such rate of interest, period of loan and the other terms as the group may
decide.
Stock
Broking- Stock
Broking is a function in which broker buys or sells securities on behalf of its
client and charge commission on this transaction.
Statutory
Liquidity Ratio - It refers to proportion of deposits the commercial bank is required to
maintain with them in form of liquid assets such as gold or RBI approved
securities.
Stale
Cheque- If the
cheque is presented after the 3 months of the date which is mentioned on the
cheque is known as stale cheque. After the expiry of validity payment cannot be
made.
Stressed
Assets- Assets of banking company comprises
of loans given and investments made by the bank. Quality of the assets
indicates how much of the loans taken by the borrowers are repaid in the form
of interest and principle. Hence stressed assets = NPA + Restructured
Advances + Loan Write off
SWIFT Code- It is a standard format of the bank
identifier code. This code is used particularly in international transfer of
money between banks.
Treasury
Bills- It is a
short term debt instrument issued by government of India and is presently
issued in three tenures i.e. 91 days, 182days and 364 days. Universal
Banking is a combination of commercial banking, investment banking, development
banking, insurance and many other financial activities. It is a place where all
products are available.
Venture
Capital - The term venture capital represents
financial investment in highly risky project with the objective of earning a
high rate of return.
Wholesale
Banking- Wholesale Banking refers to
conducting banking business with industrial and business entities. This
includes corporate, trading houses, multinational companies and domestic
companies.
Window
Dressing- It is a strategy used by the mutual
fund and other portfolio manager near the year or quarter end to improve the
appearance of funds performance before presenting to clients.
