First Edition

Commercial Banking Students of 2009-11, Group –I

www.ifimbschool.com
 WHAT THIS BOOK WILL DO FOR YOU

The IFIM Business School Dictionary of Finance is written for professional students
engaged in the fields of studying international finance, global trade, foreign investments, and
banking. It may be used for day-to-day practice and for technical research. The IFIM Business
School Dictionary is a practical reference of proven techniques, strategies, and approaches that
are successfully used by professionals to diagnose multinational finance and banking problems.

The IFIM Business School Dictionary of Finance will enlighten the practitioner by
presenting the most current information, offering important directives, and explaining the
technical procedures involved in the aforementioned dynamic business disciplines. This
reference book will help you diagnose and evaluate financial situations face daily. This library of
international finance and banking will answer nearly every question you may have.

The IFIM Business School Dictionary of Finance is a handy reference for today’s busy
financial executive. It is a working guide to help you quickly pinpoint
• What to look for
• How to do it
• What to watch out for
• How to apply it in the complex world of business
• What to do
 Acknowledgment

First we would extend our honest thank to our faculty Prof. Revathy Iyer (Associate
Professor, Finance) for giving us the opportunity to prepare this Dictionary

We also thank one and all who have helped in making this dictionary.
Last but not least our families for extending their support.

While the dictionary was taking its form, we realized how true the below quote is
“Coming together is a beginning.
Keeping together is progress. Working together is success.”
: Henry Ford
This project is not the endeavor of individual only, but is the result of valuable
time, effort and co-operation of one and all of us. So, we would like to acknowledge each other
for a great teamwork, Thank You.
 List of the Students who contributing their work:

COMMERCIAL BANKIG
CLASS I
SL NO. NAMES Alphabets
1 Harish Kumar Jain K A
2 Ranjan Shetty B
3 Chithra K & Monika Gosh C
4 Deepa Joshi & Anindita Dhar D
5 Bhujanga Rao Sandeep B & Bala Kishore Swamy E
6 Gourav Khandelwal F
7 Ashvani Kumari & Sandeep Dutta G
8 Abhishek L H
9 Jins Varghese I
10 Jose John J
11 K. Anish K
12 Anindita Banerjee & Ranjan Shetty L
13 Mini Dhingra M
14 Nabanita Chakraborty N
15 Krishna Kant O
16 Neha Yadav & Fahim Ahmed P
17 Bornali Dey Q
18 Anshu Teria R
19 Anjana Das S
20 Kush T
21 Adarsh Gautam U
22 Harkeerat Singh Mavi V
23 Arun Aggarwal W
24 Ashlesa Dash X
25 Jitendra Singh Y
26 Narasimhabala S Z
27 Nithya Sridhar Typing
28 Aparupa Chakraborty Proof reading
29 Amith L Re-Proof reading
30 Atmakuri Ram Mohan Coordinating
Coordinating
31 Ranjan Shetty
& Final Draft
 A
ABA Transit Number

A unique identifying number, assigned by the American Bankers Association under the
National Numerical System, to facilitate the sorting and processing of checks. It has two
parts, separated by a hyphen. The first part identifies the city, state, or territory in which
the bank is located; the second part identifies the bank itself. The transit number appears in
the upper right-hand corner of checks as the numerator (upper portion) of a fraction.

Account

A relationship involving a credit established under a particular name, usually by deposit,

against which withdrawals may be made.

Account Analysis

The process of determining the profit or loss to a bank in handling an account for a given
period. It shows the activity involved, the cost of that activity as determined by multiplying
unit costs by transaction volume, and the estimated earnings on average investable
balances maintained during the period after all expenses have been listed.

Account Reconciliation (Reconcilement)

A bookkeeping service offered to bank customers who use a large volume of checks. The
service is designed to assist them in balancing their accounts and includes numerically
sorting checks, itemizing outstanding checks, and actually balancing the account.

Accounts Payable

Those amounts due to vendors or suppliers that must be paid within one year.

Account Receivable

Short-term assets, representing amounts due to a vendor or suppliers of goods or services

that were sold on credit terms.

Accrual Accounting.

The accounting system that records all income when it is earned and all expenses when
they are incurred.

Adjustable Rate Loan.

See variable rate loan.

Administrator.

A party appointed by a court to settle an estate when the decedent has left no valid will, no
executor is named in the will, the named executor cannot or will not serve.

Advice.

A written acknowledgment by a bank of a transaction affecting an account; for example, a

debit or credit advice.

Advising Bank.

A bank that has received notification from another financial institution of the opening of a
letter of credit. The advising bank then contracts the beneficiary, reaffirming the terms and
conditions of the letter of credit. Affidavit. A voluntary sworn statement of facts signed
before a notary public, court officer, or other authority.

Agency.

The relationship between a party who acts on behalf of another, and the principal on whose
behalf the agent acts. In agency relationships, the principal retains legal title to property or
other assets.

Agent.

A party who acts on behalf of another by the latter’s authority. The agent does not have
legal title to the property of the principal.

Alaska Unclaimed Property Act.

Alaska Statute 34.45 requires that financial institutions we make available to the state all
bank deposits for which no claim of ownership has been made for seven years. An account
is presumed abandoned if seven years have elapsed since you have made a deposit or
withdrawal or corresponded with the bank concerning the account.

Altered check.

A check on which a material change, such as in the dollar amount, has been made. Banks
are expected to detect alterations and are responsible for paying checks only as originally
drawn.

American Bankers Association (ABA).

An organization of commercial banks, founded in 1875 to keep members aware of

developments affecting the industry, to develop educated and competent bank personnel,
and to seek improvements in bank management and service.
American Institute of Banking (AIB).

A section of the American Bankers Association founded in 1900 to provide bank-oriented

education for bank employees. AIB’s activities are conducted through chapters and study
groups throughout the county. In addition to its regular classes, the Institute conducts
correspondence courses. Membership and enrollment are open to employees and officers
of ABA member institutions.

Amortization.

The gradual reduction of a loan or other obligation by making periodic payments of

principal and interest.

Annual Cap.

The maximum amount by which the interest rate on an adjustable rate mortgage may be
raised in any one year.

Annual Percentage Rate (APR).

The true cost of credit on a yearly basis. Expressed as a percentage, the APR results from an
equation that considers the amount financed, the finance charge, and the term of the loan.
The APR is usually expressed in terms of the effective annual simple interest rate.

Annual Percentage Yield (APY).

A percentage rate reflecting the total amount of interest paid on an account, based on the
interest rate and the frequency of compounding for a 365 day period. Appraisal. A
professional evaluation of the market value of some assets by an independent expert.

Asset.

Anything owned that has commercial or exchange value. Assets may consist of specific
property or of claims against others, as opposed to obligations due to others (liabilities).

Attachment.

A court or a state or federal agency may order a financial institution to withhold funds from
your account to satisfy a levy or order. Generally after deducting service charges and fees,
financial institutions will comply with orders that are properly executed and served and
will produce funds from your account without regard to whether the account is held in one
name, held jointly, or held jointly and requiring more than one signature for withdrawal.
Also referred to as Writ of Attachment or Levy.

Audit.

A formal or official examination of and verification of accounts.

Authorized Signature.

The signature(s) affixed to a negotiable instrument by the party or parties who have the
legal right to issue instructions regarding its handling.

Automated Clearing House (ACH).

A computerized facility that electronically processes interbank credits and debits among
member financial institutions, avoiding the use of paper documents.

Automatic Transfer.

You pre-authorize transfer of funds from one account to another.

Availability Schedule.

A list indicating the number of days, subject to the terms of Regulation CC, that must elapse
before deposited checks can be considered converted into usable funds.

Available Balance.

The portion of a customer’s account balance on which the bank has placed no restrictions,
making it available for immediate withdrawal.

Average Daily Float.

The portion of a customer’s account balance that consists of deposited checks in the
process of collection.
 B
BACK-TO-BACK FINANCING
An intercompany loan arranged through a bank.

BACK-TO-BACK LETTER OF CREDIT

Back-to-back letter of credit is one type of letter of credit (L/C). It is a form of Pretrade
financing in which the exporter employs the importer’s L/C as a means for securing credit
from a bank, which in turn supports its L/C to the exporter with the good chance of ability
to repay that the importer’s L/C represents.

BACK-TO-BACK LOANS
Also called link financing, parallel loan or fronting loan, a back-to-back loan is a type of
swaps used to raise or transfer capital. It may take several forms:
1. A loan made by two parent companies, each to the subsidiary of the other. As is shown in
Exhibit 14, each loan is made and repaid in one currency, thus avoiding foreign exchange
risk. Each loan should have the right to offset, which means that if either subsidiary
defaults on its payment, the other subsidiary can withhold its repayment. This eliminates
the need for parent company guarantees.
2. A loan in which two multinational companies in separate countries borrow each other’s
currency for a specific period of time and repay the other’s currency at an agreed maturity.
The loan is conducted outside the foreign exchange market and often channeled through a
bank as an intermediary.

BACS
a company set up to organize the payment of direct debits, standing orders, salary cheques
and other payments generated by computers.
It operates for all the British clearing banks and several building societies; it forms part of
APACS. Full form Bankers’ Automated Clearing Services

Bad debt
A debt which will not be paid, usually because the debtor has gone out of business, and
which has to be written off in the accounts

Bailment
A transfer of goods by someone (the bailor) to someone (the bailee) who then holds them
until they have to be returned to the bailor (NOTE: Putting jewels in a bank’s safe deposit
box is an example of bailment.)

Bail out
To rescue a company which is in financial difficulties?
BAHT
Thailand’s currency

Balance
The amount which has to be put in one of the columns of an account to make the total
debits and credits equal balance in hand cash held to pay small debts balance brought
down or forward the closing balance of the previous period used as the opening balance of
the current period balance carried down or forward the closing balance of the current
period balance due to us the amount owed to us which is due to be paid to balance off the
accounts to make the two sides of an account balance at the end of an accounting period, by
entering a debit balance in the credit side or a credit balance in the debit side, and carrying
the balance forward into the next period to calculate the amount needed to make the two
sides of an account equal.

BALANCE OF PAYMENTS (BOP)

The balance of payments (BOP) is a systematic record of a country’s receipts from, or
payments to, other countries. In a way, it is like the balance sheets for businesses, only on a
national level. The reference you see in the media to the balance of trade usually refer to
goods within the goods and services category of the current account. It is also known as
merchandise or “visible” trade because it consists of tangibles such as foodstuffs,
manufactured goods, and raw materials. “Services,” the other part of the category, is known
as “invisible” trade and consists of intangibles such as interest or dividends, technology
transfers, and others (e.g., insurance, transportation, financial). When the net result of both
the current account and the capital account yields more credits than debits, the country is
said to have a surplus in its balance of payments. When there are more debits than credits,
the country has a deficit in the balance of payments. Exhibit 16 presents the components of
each and their interrelationships. Data is collected by the U.S. Customs Service. Figures are
reported in seasonally adjusted volumes and dollar amounts. It is the only non-survey,
nonjudgmental report produced by the Department of Commerce.

BALANCE OF PAYMENTS ACCOUNTING

The balance of payments (BOP) statement is based on a double-entry bookkeeping system
that is used to record transactions. Every transaction is recorded as if it consisted of an
exchange of something for something else—that is, as a debit and a credit. As a general rule,
currency inflows are recorded as credits, and outflows are recorded as Debits . Exports of
goods and services are recorded as credits. In the case of imports, goods and services are
normally acquired for money or debt. Hence, they are recorded as debits. Where items are
given rather than exchanged, special types of counterpart entries are made in order to
furnish the required offsets. Just as in counting, the words Debits and credit shave no value-
laden meaning—either good or bad. They are merely rules or conventions; they are not
economic truths. Under the conventions of double-entry bookkeeping, an increase in the
assets of an entity is always recorded as a debit and an increase in liabilities as a credit.
Thus a debit records (1) the import of goods and services, (2) increase in assets, or (3)
reductions in liabilities. A credit records (1) the export of goods and services, (2) a
decrease in assets, or(3) increases in liabilities. The balance of payments statement is
traditionally divided into three major groups of accounts: (1) current accounts, (2) capital
accounts, and (3) official reserves accounts. We will define these accounts and illustrate
them with some transactions. The double-entry system used in the preparation of' the
balance of' payments allows us to see how each transaction is financed and how
international transactions usually affect more than one type of account in the balance of
payments.

Current Accounts
The current accounts record the trade in goods and services and the exchange of gifts
among countries. The trade in goods is composed of exports and imports. A country
increases its exports when it sells merchandise to foreigners. This is a source of funds and a
decrease in real assets. A country increases its imports when it buys merchandise from
foreigners. This is a use of funds and an acquisition of real assets.

B. Capital Accounts
The capital accounts record the changes in the levels of international financial assets and
liabilities. The various classifications within the capital account are based on the original
term to maturity of the financial instrument and on the extent of the involvement of the
owner of the financial asset in the activities of the security's issuer. Accordingly, the capital
accounts are subdivided into direct investment, portfolio investment, and private short-term
capital flows. Direct investment and portfolio investment involve financial instruments that
had a maturity of more than 1 year when issued initially. The distinction between direct
investment and portfolio investment is made on the basis of the degree of management
involvement. Considerable management involvement is presumed to exist in the case of
direct investment (usually a minimum of 10% ownership in a firm), but not of portfolio
investment. are financial assets denominated in such currencies as the U.S. dollar, which
are freely and easily convertible into other currencies, but not in such currencies as the
Indian rupee, because the Indian government does not guarantee the free conversion of its
currency into others and not much of an exchange market exists. An increase in any of
these financial assets constitutes a use of funds, while a decrease in reserve assets implies a
source of funds. In some situations, this fact seems to run against intuitive interpretations,
as when we say that an increase in gold holdings is a use of funds (signified by a minus sign
or debit in the U.S. balance of payments). However, an increase in gold holdings is a use of
funds in the sense that the U.S. might have chosen to purchase an alternative asset such as a
bond issued by a foreign government. In order to be considered part of official reserves, the
financial asset must be owned by the monetary authorities. The same asset in private
hands is not considered part of official reserves. In addition, the country’s own currency
cannot be considered part of its reserve assets; a country’s currency is a liability of its
monetary authorities. Changes in these liabilities are reported in the short-term capital
account.

BALANCE OF PAYMENTS ADJUSTMENT

Balance of payments adjustment is the automatic response of an economy to a country’s
payments imbalances (payments deficits or surpluses). An adjustment is often necessary to
correct an imbalance disequilibrium) of payments. Theoretically, if foreign exchange rates
are freely floating, the market will automatically adjust for deficits through foreign
exchange values and for surpluses through higher values. With fixed exchange rates,
central banks must finance deficits, allow devaluation, or use trade restrictions to restore
equilibrium. Adjustment measures that can be taken to correct the imbalances include: (1)
the use of fiscal and monetary policies to vary the prices of domestically produced goods
and services vis-à-vis those made by other countries so as to make exports relatively
cheaper (or more expensive) and imports more expensive (or cheaper) in foreign currency
terms; and (2) the use of tariffs, quotas, controls, and the like to affect the price and
availability of goods and services.

BALANCE OF TRADE
Also called merchandise trade balance or visible trade, the balance of trade is merchandise
exports minus imports. Thus, if exports of goods exceed imports the trade balance is said to
be “favorable” or to have a trade surplus, while an excess of imports over exports yields an
“unfavorable” trade balance or a trade deficit. The balance of trade is an important item in
calculating balance of payments. See also BALANCE OF PAYMENTS.

Balance sheet
Statement of the financial position of a company at a particular time, such as the end of the
financial year or the end of a quarter, showing the company’s assets and liabilities

BALANCE SHEET HEDGING

Balance sheet hedging is the MNC strategy of using hedges (such as forward contracts) to
avoid currency risk (i.e., translation exposure, transaction exposure, and/or economic
exposure) that would potentially adversely affect the company’s balance sheet. This
strategy involves bringing exposed assets equal to exposed liabilities. If the goal is
protection against translation exposure, the procedure is to have monetary assets in a
specific currency equal
monetary liabilities in that currency. If the goal is to reduce transaction or economic
exposure, the strategy is to denominate debt in a currency whose change in value will offset
the change in value of future cash receipts.

Band
A range of figures with an upper and a lower limit, to which something, e.g. the amount of
someone’s salary or the exchange value
of a currency, is restricted but within which it can move

Bank
A business which holds money for its clients, lends money at interest, and trades generally
in money

BANKER’S ACCEPTANCE
Banker’s acceptance (BA) is a time draft drawn on by a business firm and accepted by a
bank to be paid at maturity. A bank creates a BA by approving a line of credit for a
customer. It is an important source of financing in international trade, when the exporter of
goods can be certain that the importer’s draft will actually have funds behind it. Banker’s
acceptances are short-term, money-market instruments actively traded in the secondary
market. Depending on the bank’s creditworthiness, the acceptance becomes a financial
instrument which can be discounted. In addition to the discount, an acceptance fee (usually
1.5% of the value of the draft) is charged to customers seeking acceptances.

Bank account
An account which a customer has with a bank, where the customer can deposit and
withdraw money.

Bank base rate

A basic rate of interest, on which the actual rate a bank charges on loans to its customers is
calculated.

Bank book
A book, given by a bank, which shows money which you deposit or withdraw from your
savings account (also called a ‘passbook’)

Bank card
a credit card or debit card issued to a customer by a bank for use instead of cash when
buying goods or services (NOTE: There are internationally recognized rules that govern the
authorization of the use of bank cards and the clearing and settlement of transactions in
which they are used.)

Bank charges
Charges which a bank makes for carrying out work for a customer

Bank discount rate

a rate charged by a bank for a loan where the interest charges are deducted when the loan
is made

Bank draft
An order by one bank telling another bank, usually in another country, to pay money to
someone

BANK FOR INTERNATIONAL SETTLEMENTS (BIS)

Bank for International Settlements (http://www.bis.org), established in 1930, promotes
cooperation among central banks in international financial settlements. Members include:
Australia, Austria, Belgium, Bulgaria, Canada, Czechoslovakia, Denmark, Finland, France,
Germany, Greece, Hungary, Iceland, and Ireland.

Bank reconciliation
The act of making sure that the bank statements agree with the company’s ledgers

Bank reserves
Cash and securities held by a bank to cover deposits
Bankrupt
Who has been declared by a court not to be capable of paying his or her debts and whose
affairs are put into the hands of a receiver?

Bankruptcy
The state of being bankrupt

Bank statement
A written statement from a bank showing the balance of an account at a specific date.

BANK SWAPS
1. A swap between banks (commercial or central) of two or more countries for the purpose
of acquiring temporarily needed foreign exchange.
2. A swap in which a bank in a soft-currency country will lend to an MNC subsidiary there,
to avoid currency exchange problems. The MNC or its bank will make currency available to
the lending bank outside the soft-currency country.

Bank wire
To pass information among member banks

Bar code
A system of lines printed on a product which, when read by a computer, give a reference
number or price

BARTER
Barter is international trade conducted by the direct exchange of goods or services
between two parties without a cash transaction.

BASIC BALANCE
The basic balance is a balance of payments that measures all of the current account items
and the net exports of long-term capital during a specified time period. It stresses the long-
term trends in the balance of payments.

BASIS POINT
A basis point is a unit of measure for the change in interest rates for fixed income securities
such as bonds and notes. One basis point is equal to 1/100th of a percent, that is, 0.01%.
Thus, 100 basis points equal 1%. For example, an increase in a bond’s yield from 6.0% to
6.5% is a rise of 50 basis points. A basis point should not be confused with a “point,” which
represents one percent.

BEARER BOND
A bearer bond is a corporate or governmental bond that is not registered to any owner.
Custody of the bond implies ownership, and interest is obtained by clipping a coupon
attached to the bond. The benefit of the bearer form is easy transfer at the time of a sale,
easy use as collateral for a debt, and what some cynics call “taxpayer anonymity,” signifying
that governments find it hard to trace interest payments in order to collect income taxes.
Bearer bonds are common in Europe, but are seldom issued any more in the United States.
The alternate form to a bearer bond is a registered bond.

BETA
Also called beta coefficients, beta (β), the second letter of Greek alphabet, is used as a
statistical measure of risk in the Capital Asset Pricing Model (CAPM). It measures a
security’s (or mutual fund’s) volatility relative to an average security (or market portfolio).
Put another way, it is a measure of a security’s return over time to that of the overall
market. For example, if ABC’s beta is 1.5, it means that if the stock market goes up 10%,
ABC’s common stock goes up 15%; if the market goes down 10%, ABC goes down 15%.

BID
Also called a quotation or quote, bid is the price which a dealer is willing to pay for (i.e.,
buy) foreign exchange or a security.

BID–ASK SPREAD
The bid–ask spread is the spread between the bid (to buy) and the ask (to sell or offer)
price and represents a transaction cost. It is based on the breadth and depth of the market
for that currency as well as on the currency’s volatility.

BID PRICE
See BID RATE.

BID RATE
Also called the buying rate, bid rate is the rate at which a bank buys foreign currency from a
customer by paying in home currency.

BIG BANG
1. Advocating drastic changes in the policies of a country or an MNC.
2. The liberalization of the London capital markets that transpired in the month of October
1986.

BILATERAL EXCHANGES
Currencies participating in the European Economic and Monetary Union (EMU) are units of
the euro until January 1, 2002. To convert one currency to another, you must use the
triangulation method: Convert the first currency to the euro and then convert that amount
in euros to the second currency, using the fixed conversion rates adopted on January 1,
1999

BILL OF EXCHANGE
Also called a draft, a bill of exchange (B/E) is an unconditional written agreement between
two parties, written by an exporter instructing an importer or an importer’s agent such as a
bank to pay a specified amount of money at a specified time. Examples are acceptances or
the commercial bank check. The business initiating the bill of exchange is called the maker,
while the party to whom the bill is presented is called the drawee.
BILL OF LADING
The bill of lading (B/L) is a receipt issued to the exporter by a common carrier that
acknowledges possession of the goods described on the face of the bill. It serves as a
contract between the exporter and the shipping company. If it is properly prepared, a bill of
lading is also a document of title that follows the merchandise throughout the transport
process. As a document of title, it can be used by the exporter either as collateral for loans
prior to payment or
as a means of obtaining payment (or acceptance of a time draft) before the goods are
released to the importer. There are different types of B/L:

1. A negotiable or shipper’s order B/L can be bought, sold, or traded while goods are in
transit.
2. A straight B/L is nether neither negotiable nor transferable.
3. An order B/L is cosigned to the exporter who keeps title to the merchandise until the
B/L is endorsed.
4. An on-board B/L certifies that the goods have been actually placed on board the ship.
5. A received-for-shipment B/L simply acknowledges that the goods have been received for
shipment.

BILL OF SALE
A bill of sale is a written document which transfers goods, title, or other interests from a
seller to a buyer and specifies the terms and conditions of the transaction.

BIS
BANK FOR INTERNATIONAL SETTLEMENTS

B/L
BILL OF LADING.

BLACK MARKETS
Black markets are illegal markets in foreign exchange. Developing nations generally do not
permit free markets in foreign exchange and impose many restrictions on foreign currency
transactions. These restrictions take many forms, such as limiting the amounts of foreign
currency that may be purchased or having government licensing requirements. As a result,
illegal markets in foreign exchange develop to satisfy trader demand. In many countries
such illegal markets exist openly, with little government intervention.

BLOCKED FUNDS
Blocked funds are funds in one nation’s currency that may not be exchanged freely due to
exchange controls or other reasons.

BOLIVAR
Venezuela’s currency.

BOLIVIANO
Bolivia’s currency.
BRADY BONDS
Brady bonds are bonds issued by emerging countries under a debt-reduction plan and are
named after a former U.S. Secretary of the Treasury. They are traded on the international
bond market.

BREAK-EVEN ANALYSIS
Break-even analysis is used to determine the amount of currency change that will equate
the cost of local currency financing with the cost of home currency (INR) financing.

Brokerage
Payment to a broker for a deal carried out

Brokerage rebates
The percentage of the commission paid to a broker which is returned to the customer as an
incentive to do more business

Broker’s commission
The payment to a broker for a deal which he or she has carried out (NOTE: Formerly, the
commission charged by brokers on the London Stock Exchange was fixed, but since 1986,
commissions have been variable.)

BROKERS’ MARKET
The brokers’ market is the market for exchange of financial instruments between any two
parties using a broker as an intermediary or agent. Along with the interbank market, the
broker’s market provides another area of large-scale foreign exchange dealing in the
United States. A good number of foreign exchange brokerage firms make markets for
foreign currencies in New York (as well as in London and elsewhere), creating trading in
many currencies similar to that in the interbank market. The key differences are that the
brokers (1) seek to match buyers and sellers on any given transaction, without taking a
position themselves; (2) deal simultaneously with many banks (and other firms); and (3)
offer both buy and sell positions to clients (where a bank may wish to operate on only one
side of the market at any particular time). Also, the brokers deal “blind,” offering rate
quotations without naming the potential seller/buyer until a deal has been negotiated.

Broking
The business of dealing in stocks and shares

BSE Index
An index of prices on the Indian Stock Exchange. Full form Bombay Stock Exchange Index

Budget
A plan of expected spending and income for a period of time _ to draw up a budget for
salaries for the coming year
Buffer stocks
Stocks of a commodity bought by an international body when prices are low and held for
resale at a time when prices have risen, with the intention of reducing sharp fluctuations in
world prices of the commodity

BULLDOGS
Bulldogs are sterling-denominated bonds issued within the United Kingdom by a foreign
borrower. They are foreign bonds sold in the United Kingdom.

Bullion
A gold or silver bar the price of bullion is fixed daily

Bull market
A period when share prices rise because people are optimistic and buy shares (NOTE: The
opposite is a bear market.)

Buoyant
Referring to a market where share prices are rising continuously

BURN RATE
Also called cash burn rate, burn rate is how quickly a company uses up its capital to finance
operations before generating positive cash flow from operations. This rate is a critical key
to survival in the case of small, fast growing companies that need constant access to capital.
Many technology and Internet companies are examples. It is not uncommon for enterprises
to lose money in their early goings, but it is important for financial analysts and investors
to assess how much money those firms are taking in and using up. The number to examine
is free cash flow, which is the company’s operating cash flows (before interest) minus cash
outlays for capital spending. It is the amount available to finance planned expansion of
operating capacity. Burn rate is generally used in terms of cash spent per month. A burn
rate of 1 million would mean the company is spending 1 million per month. When the burn
rate begins to exceed plan or revenue fails to meet expectations, the usual recourse is to
reduce the burn rate. In order to stay afloat, the business will have to reduce the staff, cut
spending (possibly resulting in slower growth), or raise new capital, probably by taking on
debt (resulting in interest expense) or by selling additional equity stock (diluting existing
shareholders’ ownership stake).

Buy back
A type of loan agreement to repurchase bonds or securities at a later date for the same
price as they are being sold

Buy down
The action of paying extra money to a mortgage in order to get a better rate in the future
 C
CAGR
(Abbreviation) compound Annual Growth Rate – compounding rate of return over a period.

Calendar month
A whole month as on a calendar, from the 1st to the 30th or 31st

Calendar year
A year from the 1st January to 31st December

Call
1. A demand for repayment of a loan by a lender
2. FIN a demand to pay for new shares which then become paid up
3. FIN a price established during a trading session.

Callable bond
A bond which can be redeemed before it matures

Call in
To ask for a debt to be paid

Call loan
A bank loan repayable at call

Cancel
1. To stop something this has been agreed or planned
2. To cancel a cheque to stop payment of a cheque which has been signed?

Cap
An upper limit placed on something, such as an interest rate (the opposite, i.e. a lower limit,
is a ‘floor’)

Cap and collar

An agreement giving both an upper and a lower limit to a loan Capital the money, property
and assets used in a business. Money owned by individuals or companies, which they use
for investment

Capital account
An account of dealings such as money invested in or taken out of the company by the
owners of a company
Capital adequacy / capital adequacy ratio
The amount of money which a bank has to have in the form of shareholders’ capital, shown
as a percentage of its assets. Also called capital-to-asset ratio

CAPM abbreviation capital asset pricing model

Capped floating rate note

A floating rate note which has an agreed maximum rate

Capped rate
A mortgage rate which is guaranteed not to go above a certain level for a set period of time,
although it can move downwards

Cardholder
A person who holds a credit card or bank cash card

Carry forward
To take an account balance at the end of the current period or page as the starting point for
the next period or page

Carryover day
The first day of trading on a new account on the London Stock Exchange

Cash
Money in the form of coins or notes to cash a cheque to exchange a cheque for cash

Cashable
Which can be cashed, a crossed cheque is not cashable at any bank.

Cash account
An account which records the money which is received and spent

Cash advance
A loan in cash against a future payment

Cash box metal box for keeping cash

Cashier
1. A person who takes money from customers in a shop or who deals with the money that
has been paid
2. A person who deals with customers in a bank and takes or gives cash at the counter

Cashier’s check
US a bank’s own cheque, drawn on itself and signed by a cashier or other bank official
Cash in
To sell shares or other property for cash

Cash in transit
Cash being moved from one bank or business to another _ Cash-in-transit services are an
easy target for robbers.

Cashless society
A society where no one uses cash, all purchases being made by credit cards, charge cards,
cheques or direct transfer from one account to another

Cash limit
1. A fixed amount of money which can be spent during a certain period
2. A maximum amount someone can withdraw from an ATM using a cash card

Cash wire
US a system operated by a group of banks to clear payments between member banks

Catastrophe bond
A bond with very high interest rate but, which may be worth less, or give a lower rate of
interest, if a disaster such as an earthquake occurs

CD abbreviation certificate of deposit

Ceiling
The highest point that something can reach, e.g. the highest rate of a pay increase _ to fix a
ceiling for a budget _ there is a ceiling of $100,000 on deposits. _ Output reached its ceiling in
June and has since fallen back. _ What ceiling has the government put on wage increases this
year?

Central bank
The main government-controlled bank in a country, which controls that country’s financial
affairs by fixing main interest rates, issuing currency, supervising the commercial banks
and trying to control the foreign exchange rate

Central bank discount rate

The rate at which a central bank discounts bills, such as treasury bills

Central bank intervention

An action by a central bank to change base interest rates, to impose exchange controls or to
buy or sell the country’s own currency in an attempt to influence international money
markets

Certificated bankrupt
A bankrupt who has been discharged from bankruptcy with a certificate to show that he or
she was not at fault
Certificate of deposit
A document from a bank showing that money has been deposited at a certain guaranteed
interest rate for a certain period of time.

Certified cheque
A cheque which a bank says is good and will be paid out of money put aside from the
payer’s bank account

CFO abbreviation chief financial officer

CFP abbreviation Communauté Française du Pacifique

CFP franc
A franc with a fixed exchange rate against the euro, used in French territories in the Pacific
CGT abbreviation capital gains tax

CHAPS
A computerised system for clearing cheques organised by the banks. Compare BACS. Full
form Clearing House Automated Payments System

Chartered bank
A bank which has been set up by government charter (formerly used in England, but now
only done in the USA and Canada)

Chartered Institute of Bankers

A professional association of bankers, providing training, professional examinations and
qualifications which are recognised worldwide.

Checkable
US referring to a deposit account on which checks can be drawn

Check card
US a card issued by a bank to use in ATMs, but also used in some retail outlets

Checking account US same as current account 1

Cheque
A note to a bank asking them to pay money from your account to the account of the person
whose name is written on the note _ a cheque for £10 or a £10 cheque (NOTE: The US
spelling is check.) _ to cash a cheque to exchange a cheque for cash _ to endorse a cheque
to sign a cheque on the back to show that you accept it to make out a cheque to someone
to write someone’s name on a cheque Who shall I make the cheque out to? _ to pay by
cheque to pay by writing a chattel mortgage 60 cheque, and not using cash or a credit
card _ to pay a cheque into your account to deposit a cheque _ the bank referred the
cheque to the drawer the bank returned the cheque to the person who wrote it because
there was not enough money in the account to pay it _ to sign a cheque to sign on the front
of a cheque to show that you authorise the bank to pay the money from your account _ to
stop a cheque to ask a bank not to pay a cheque which has been signed and sent

Cheque account
Same as current account

Cheque book
A booklet with new blank cheques (NOTE: The usual US term is check book.)

Cheque card, cheque guarantee card

A plastic card from a bank which guarantees payment of a cheque up to a certain amount,
even if the user has no money in his account

Cheque stub
A piece of paper left in a cheque book after a cheque has been written and taken out

Cheque to bearer
A cheque with no name written on it, so that the person who holds it can cash it

Chief cashier
A main cashier in a bank

Chip card
Same as smart card

CIB abbreviation Chartered Institute of Bankers

Circulation
Movement _ to put money into circulation to issue new notes to business and the public _
the amount of money in circulation increased more than was expected.

Clearing
1. Clearing of goods through customs passing of goods through customs
2. An act of passing of a cheque through the banking system, transferring money from one
account to another

Clearing bank
A bank which clears cheques, especially one of the major British High Street banks,
specialising in normal banking business for ordinary customers, such as loans, cheques,
overdrafts and interest- bearing deposits

Clearing house
A central office where clearing banks exchange cheques, or where stock exchange or
commodity exchange transactions are settled
Clearing House Automated Payments System
A computerised system which is organised by the banks and used for clearing cheques.

Clients’ account
An account with a bank for clients of a solicitor

Commercial bank
A bank which offers banking services to the public, as opposed to a merchant bank

Commercial bill
A bill of exchange issued by a company (a trade bill) or accepted by a bank (a bank bill) (as
opposed to Treasury bills which are issued by the government)

Commercial failure
A financial collapse or Bankruptcy

Commitment fee
A fee paid to a bank which has arranged a line of credit which has not been fully used

Compensating balance
The amount of money which a customer has to keep in a bank account in order to get free
services from the bank

Comptroller of the Currency

An official of the US government responsible for the regulation of US national banks (that
is, banks which are members of the Federal Reserve)

Consumer bank
Same as retail bank

Consumer credit
The credit given by shops, banks and other financial institutions to consumers so that they
can buy goods (NOTE: Lenders have to be licensed under the Consumer Credit Act, 1974.
The US term is instalment credit.)

Cooperative bank
A bank which is owned by its members, who deposit money or who borrow money as loans

Correspondent bank
A bank which acts as an agent for a foreign bank

Country bank
US a bank based in a town which has no office of the Federal Reserve

Credit bank
A bank which lends money
Creative financing
Finding methods of financing a commercial project that are different from the normal
methods of raising money

Credit freeze
A period when lending by banks is restricted by the government

Credit line
An overdraft, the amount by which a person can draw money from an account with no
funds, with the agreement of the bank _ to open a credit line or line of credit to make
credit available to someone

Credit-reference agency
A company credit 85 credit-reference agency used by businesses and banks to assess the
creditworthiness of people

Credit references
Details of persons, companies or banks who have given credit to a person or company in
the past, supplied as references when opening a credit account with a new supplier

Credit squeeze
A period when lending by the banks is restricted by the government

Cross - to cross a cheque

To write two lines across a cheque to show that it has to be paid into a bank

Crossed cheque
A cheque with two lines across it showing that it can only be deposited at a bank and not
exchanged for cash

Currency note
A bank note

Current account
An account in an bank from which the customer can withdraw money when he or she
wants. Current accounts do not always pay interest. _ to pay money into a current account
also called cheque account (NOTE: The US term is checking account.)

Customer identification file

US a computer record which a bank keeps on each customer, containing information about
the customer’s credit rating.
 D
Debt-equity ratio
It helps in calculating the financial leverage of any bank or organization. To measure this,
one needs to divide the total liabilities of the banks by stakeholders' equity. This in turn
gives an idea of the ratio of equity and the debt used by the bank in financing the assets.

Default
If a person wants to continue his/her credit account, he/she either needs to give equated
monthly installments (EMIS) or pay the due amount on credit account each month within a
fixed date. If the person fails to make payment before the specified date, it is considered as
default.

Down payment/margin money

When a bank asks the borrower to share a part of the credit risk and the payment that is
received from him/her on this account, is referred to as down payment/ margin money.

Direct debit
Also referred to as Electronic Clearing Facility (ECS), direct debit option proves beneficial
in case of servicing of various lines of credit. This is a facility whereby the person
empowers his/her bank to take off a particular amount from his/her account on a
particular date every month. This facility enables a person to make his payments without
visiting the lending institution or bank personally on a frequent basis. However, the person
has to be aware of the fund availability in his account, as the bank is not responsible for
intimating its customer when the amount is debited from his/her account.

Documentation charges
The banks or lending institutions require certain documents from the person, who has
applied for a loan, to look into his/ her creditworthiness. The lending institution levies
some charges for this purpose. These charges are known as documentation charges. The
documentation charges are separate from registration charge, stamp duty and lawyers fee.

Dormant/inoperative account
If an individual has not made any transactions from his/her account for more than 2 years,
a savings/current account is declared as inoperative or dormant.

Debit
In accounting, an entry on the left-hand side of an account recording which amounts is recorded
in a double entry system of bookkeeping. A charge to a customer’s access account or
deposit account.
Debit Card
A card that resembles a credit card but which debits a transaction account (checking
account) with the transfers occurring contemporaneously with the customers purchases. A
debit card may be machine readable, allowing for the activation of an automat

Debt
Money, services, goods or anything else of value that is owed by one person to another as
the result of a previous agreement.

Debt Management
The control of maturities, timing, quantum and composition of debt by a business.

Debt-to-Income Ratio
The ratio of the borrowers total monthly obligations - including housing expenses and
recurring debts - to monthly income. It’s used to determine your capacity to repay the
mortgage and all other debts.

Decile Rank
Decile rank refers to performance over time rated on a scale of 1-10. A ranking of 1
indicates that whatever is being ranked - usually a mutual fund - is in the top 10% of the
sample; a decile of 2 indicates that it is in the top 20%.

Deed
Written agreement in proper legal form that conveys title to, or an interest in, real
property.

Deed of Trust
A legal instrument used instead of a mortgage in certain states. This document allows legal
title to a real property to be vested in trustees to secure payment of a note

Delinquency
Failure to make monthly mortgage payments on time. This is serious for the borrower
since it can result in foreclosure on a property.

Delinquent Loan
A loan that is 30 to 60 days past due with no payments being made.

Delta
The delta of an option measures the change in the option price for any given change in the
price of the underlying and thus makes it possible to determine exposure to the underlying.
The delta is between 0 and +1 for calls and between 0 and -1

Demand Deposit
A deposit that may be withdrawn at any time without prior written notice to the depository
institution. A checking account is the most common form of demand deposit.
Demand Deposit Account (DDA)
An account from which a depositor may withdraw funds immediately without prior notice,
commonly known as a checking account. Since funds may be withdrawn on demand in
person or by presentation of a check, the account has many of the liquid characteristics

Deposit
The placement of funds into an account at an institution in order to increase the credit
balance of the account. That which is deposited. A sum of money given to assure the future
purchase of something. A portion of the purchase price given as earnest money

Deposit Ceiling Rates Of Interest

Maximum interest rates that can be paid on savings and time deposits at federally insured
commercial banks, mutual savings banks, savings and loan associations, and credit unions.
Ceilings on credit union deposits are established by the Depository Ins

Deposit Insurance
Deposit insurance is a system established to protect depositors against the loss of their
deposits in the event a insured institution of the deposit insurer is unable to meet its
obligations to depositors. Similar terms such as deposit guarantee or deposit protection are
used in some countries.

Deposit Payout
A resolution method for failed institutions that involves the reimbursement of deposits and
the transfer of the banks assets to a receiver for liquidation.

Depository Institution
A financial institution that obtains its funds mainly through deposits from the public. This
includes commercial banks, savings and loan associations, savings banks, and credit unions.

Depository Institutions Deregulation And Monetary Control Act Of 1980 (DIDMCA)

Among its major provisions, this Act applied uniform reserve requirements to all
depository institutions with certain types of accounts and required reports from these
depository institutions.

Depository Institutions Deregulation Committee (DIDC)

The Committee responsible for the orderly phase-out over a six-year period of interest rate
ceilings on time and savings accounts at depository institutions. Voting members of the
DIDC are the Secretary of the Treasury and the chairmen of the Federal

Deposits
Deposits (and their opposite, loans) are non-negotiable, cash money-market instruments in
which a sum of money (proceeds) is borrowed for an agreed period of time (term to
maturity) and on which the borrower pays the lender a pre-arranged amount of income
Differential Premium
A levy on a bank assessed on the basis of that banks risk profile (also called Risk-Adjusted
Differential Premium).

Dirty Float
A type of floating exchange rate that is not completely freely floating because central banks
intervene from time to time to alter the rate from its free-market level.
Discount Points
Payable to the lender by the borrower or seller to decrease the interest rate. One point is
equal to 1 percent of the loan amount.

Discount Rate
Interest rate at which an eligible depository institution may borrow funds, typically for a
short period, directly from a Federal Reserve Bank.

Discount Window
Figurative expression for Federal Reserve facility for extending credit directly to eligible
depository institutions (those with transaction accounts or non-personal time deposits).

Diversification
Reducing risk by spreading investments among different investments, sectors, markets and
instruments.

Diversity Score
A measure introduced by Moody’s to measure portfolio concentration. A high score means
that the portfolio is well diversified.

Domestic Bonds
Domestic bonds are bonds issued in the same currency as the currency of the place where
the bond issuer is domiciled. So, a company registered in the UK that issues bonds in
sterling issues a domestic bond.

Draft
A written order signed by one party (the drawer) requesting a second party (the drawee)
to pay a specified amount of money to a third party (the payee) at some future time. A
check is a draft.

Drawdowns
He drawing of funds against a line of credit.

Due Date
The date on which all or part of a debt is required to be paid; the maturity date.
 E
Early
The act of withdrawing money from a deposit account before the due date

Early withdrawal penalty-

A penalty which a depositor pays for withdrawing money early from an account

Earmark
1. To reserve for a special purpose
2. To link a tax to a particular service, such as earmarking road taxes for the upkeep of
roads

Earnings before interest, taxes, depreciation and amortization

Revenue received by a company in its usual business before various deductions are made.
Abbreviation EBITDA

Earnings cap
The upper limit on the amount of salary that can be taken into account when calculating
pensions

Earnings credit
An allowance which reduces bank charges on checking accounts

EASDAQ
An independent European stock market, based in Brussels and London, trading in
companies with European-wide interests

East Caribbean dollar

A unit of currency used in Antigua, Dominica, Grenada, Montserrat, St Lucia and St Vincent

Easy money
1. Money which can be earned with no difficulty
2. A loan available on easy repayment terms

Easy money policy

A government policy of expanding the economy by making money more easily available
(through lower interest rates and easy access to credit)

Easy terms
Financial terms which are not difficult to accept _ the shop is let on very easy terms.
EBA -Euro Banking Association

EBITDA
Earnings before interest, taxes, depreciation and amortization
EBRD - European Bank for Reconstruction and Development

E-business
A general term that refers to any type of business activity on the Internet, including
marketing, branding and research _

EC- European Community

(NOTE: now called the European Union)

E-cash
Same as digital cash

ECB -European Central Bank

ECGD- Export Credit Guarantee Department

Effective exchange rate

A rate of exchange for a currency calculated against a basket of currencies

Effective rate
A real interest rate on a loan or deposit (i.e. the APR)

Effective yield
An actual yield shown as a percentage of the price paid after adjustments have been made

EFT abbreviation electronic funds transfer

EFTA abbreviation European Free Trade Association

EFTPOS abbreviation electronic funds transfer at a point of sale

EGM abbreviation extraordinary general meeting

EIB abbreviation European Investment Bank

EIRIS abbreviation ethical investment research service

EIS abbreviation Enterprise Investment Scheme

Electric utility stocks

Shares in electricity companies
Electronic
Referring to computers and electronics

Electronic banking
The use of computers to carry out banking transactions, such as withdrawals through cash
dispensers or transfer of funds at point of sale

Electronic business
Same as e-business effective date 117 electronic business

Electronic cash
Same as digital cash

Electronic cheque
An electronic cheque, which a person writes and sends via a computer and the Internet

Electronic commerce
Same as e-commerce

Electronic data interchange

A standard format used when business documents such as invoices and purchase orders
are exchanged over electronic networks such as the Internet. Abbreviation EDI

Electronic funds transfer

A system for transferring money from one account to another electronically (as when using
a smart card). Abbreviation EFT

Electronic mail
Same as email

Electronic purse
Same as digital wallet eligible liabilities which go into the calculation of a bank’s reserves

Emergency credit
Credit given by the Fed electronic

Emerging growth fund

Growth fund that invests in emerging markets

Emoluments
Pay, salary or fees, or the earnings of directors who are not employees (NOTE: US English
uses the singular emolument.)

E-money
Same as digital money
EMS abbreviation European Monetary System

EMU abbreviation Economic Monetary Union

Encash
To cash a cheque, to exchange a cheque for cash emerging 119 encash

Encashable
Which can be cashed?

Encashment
An act of exchanging for cash

Encryption
A conversion of plain text to a secure coded form by means of a cipher system

Encumbrance
A liability, such as a mortgage or charge, which is attached usually to a property or land
end the final point or last _ at the end of six months after six months have passed _ to
finish _ The distribution agreement ends in July. _ the chairman ended the discussion by
getting up and walking out of the room.

Endorse
To say that a product is good _ to endorse a bill or a cheque to sign a bill or cheque on the
back to show that you accept it

Endorsee
A person whose name is written on a bill or cheque as having the right to cash it

Endorsement
1. The act of endorsing
2. A signature on a document which endorses it
3. A note on an insurance policy which adds conditions to the policy

Endorser
A person who endorses a bill or cheque which is then paid to him or her

Endowment
The act of giving money to provide a regular income

Endowment insurance
An insurance policy where a sum of money is paid to the insured person on a certain date
or to his heirs if he dies before that date

Endowment mortgage
A mortgage backed by an endowment policy COMMENT: The borrower pays interest on the
mortgage in the usual way, but does not repay the capital. Instead, he or she takes out an
endowment assurance (a life insurance) policy, which is intended to cover the total capital
sum borrowed. When the assurance matures, the capital is in theory paid off, though this
depends on the performance of the investments made by the company providing the
endowment assurance and the actual yield of the policy may be less or more than the sum
required. A mortgage where the borrower repays both interest and capital is called a
’repayment mortgage’.

Energy shares
Shares in companies which provide energy

Entail
A legal condition which passes ownership of a property only to certain persons _ to involve

Enterprise Investment Scheme

A scheme which provides income and CGT relief for people prepared to risk investing in a
single unquoted or AIM-listed trading company. Abbreviation

EPS abbreviation earnings per share

E-purse
Same as digital wallet

Equities
Ordinary shares

Equity
1. The ordinary shares in a company
2. The value of a company which is the property of its shareholders (the company’s assets
less its liabilities, not including the ordinary share capital)
3. The value of an asset, such as a house, less any mortgage on it

Equity accounting
A method of accounting which puts part of the profits of a subsidiary into the parent
company’s books

Equity capital
The nominal value of the shares owned by the ordinary shareholders of a company (NOTE:
Preference shares are not equity capital. If the company were wound up, none of the equity
capital would be distributed to preference shareholders.)

Equity earnings
Profits after tax, which are available for distribution to shareholders in the form of
dividends, or which can be retained in the company for future development

Equity finance
Finance for a company in the form of ordinary shares paid for by shareholders
Equity fund
A fund which is invested in equities, not in government securities or other funds
Equity gearing
The ratio between a company’s borrowings at interest and its ordinary share capital

Equity growth fund

A fund invested in equities, aiming to provide capital growth

Equity investment fund

Same as equity fund

Equity kicker
US an incentive given to people to lend a company money, in the form of a warrant to share
in future earnings (NOTE: The UK term is equity sweetener.)

Equity of redemption
A right of a mortgagor to redeem the estate by paying off the principal and interest

Equity REIT
A trust which invests in rented property.

Equity release
The act of remortgaging a property on which there is currently no mortgage, in order to use
it as security for new borrowing

Equity risk premium

An extra return on equities over the return on bonds, because of the risk involved in
investing in equities

Equity sweetener
An incentive to encourage people to lend a company money, in the form of a warrant giving
the right to buy shares at a later date and at a certain price

ERDF abbreviation European Regional Development Fund

ERM abbreviation exchange rate mechanism

Error rate
The number of mistakes per thousand entries or per page

Escalator bond
A fixed-rate bond where the rate rises each year

ESCB abbreviation European System of Central Banks

Escrow
An agreement between two parties that something should be held by a third party until
certain conditions are fulfilled _ in escrow held in safe keeping by a third party _
document held in escrow a document given to a third party to keep and to pass on to
someone when money has been paid

Escrow account
US an account where money is held in escrow until a contract is signed or until goods are
delivered

Escudo
A former unit of currency in Portugal

Estimate
A calculation of the probable cost, size or time of something

Ethical fund
A fund which invests in companies which follow certain moral standards, e.g. companies
which do not manufacture weapons, or which do not trade with certain countries or which
only use environmentally acceptable sources of raw materials

Ethical index
An index of shares in companies which follow certain moral standards

Ethical investment
An investment in companies which follow certain moral standards

Ethical Investment Research Service

An organization which does research into companies and recommends those which follow
certain standards. Abbreviation EIRIS

Ethical screening
Checking companies against certain moral standards, and removing those which do not
conform

EU abbreviation European Union _ EU ministers met today in Brussels. _ The USA is

increasing its trade with the EU.

Eurex
A European derivatives market developed by combining the German Terminbörse and the
Swiss Soffex

EURIBOR abbreviation European Interbank Offered Rate

Euro
A unit of currency adopted as legal tender in several European countries from January 1st,
1999

Euro- referring to Europe or the European Union

Euro account
A bank account in euros

Eurobond
A long-term bearer bond issued by an international corporation or government outside its
country of origin and sold to purchasers who pay in a Eurocurrency (sold on the Eurobond
market)

Eurocard
A cheque card used when writing Eurocheques

Eurocheque
A cheque which can be cashed in any European bank (the Eurocheque system is based in
Brussels)

Eurocommercial paper
A form of short-term borrowing in eurocurrencies. Abbreviation ECP

Eurocredit
A large bank loan in a eurocurrency (usually provided by a group of banks to a large
commercial undertaking)

Eurocurrency
Any currency used for trade within Europe but outside its country of origin, the eurodollar
being the most important _ a Eurocurrency loan _ the Eurocurrency market

Eurodeposit
A deposit of eurodollars in a bank outside the US

Euroland
The European countries which use the euro as a common currency, seen as a group

Euromarket
1. The European Union seen as a potential market for sales
2. The Eurocurrency market, the international market for lending or borrowing in Eurocurrencies

Euronote
A short-term eurocurrency bearer note

Euro-option
An option to buy European bonds at a later date

European Bank for Reconstruction and Development

Bank, based in London, which channels aid from the EU to Eastern European countries.
Abbreviation EBRD
European Central Bank
central bank for most of the countries in the European Union, those which have accepted
European Monetary Union and have the euro as their common currency. Abbreviation ECB

European Interbank Offered Rate

Rate at which European banks offer to lend funds to other banks

European Investment Bank

International European bank set up to provide loans to European countries.
Abbreviation EIB

Euroyen
A Japanese yen deposited in a European bank and used for trade within Europe

Eurozone
The European countries which use the euro as a common currency, seen as a group
EVA abbreviation economic value added

Exact interest
An annual interest calculated on the basis of 365 days (as opposed to ordinary interest,
calculated on 360 days)

Excess liquidity
Cash held by a bank above the normal requirement for that bank

Exchange
1. The act of giving one thing for another
2. A market for shares, commodities, futures, etc. to exchange something (for something
else) to give one thing in place of something else _ He exchanged his motorcycle for a car. _
Goods can be exchanged only on production of the sales slip.
3. To change money of one country for money of another _ to exchange euros for pounds

Exchange cross rates

Rates of exchange for two currencies, shown against each other, but in terms of a third
currency, often the US dollar. Also called cross rates

Exchange Equalisation Account

An account with the Bank of England used by the government when buying or selling
foreign currency to influence the sterling exchange rate

Exchange premium
An extra cost above the normal rate for buying a foreign currency

Exchanger
A person who buys and sells foreign currency

Exchange rate
1. A rate at which one currency is exchanged for another. Also called rate of exchange
2. A figure that expresses how much a unit of one country’s currency is worth in terms of
the currency of another country

Exchange rate mechanism

A method of stabilising exchange rates within the European Monetary System, where
currencies could only move up or down within a narrow band (usually 2.25% either way,
but for certain currencies widened to 6%) without involving a realignment of all the
currencies in the system. Abbreviation ERM

Expense account 131 exposure

Investments collapse (his or her exposure in the stock market).

Express money transfer

A foreign currency payment to an individual or organization delivered electronically to a
bank

Extend
1. To offer something _ to extend credit to a customer
2. To make something longer her contract of employment was extended for two years. We
have extended the deadline for making the appointment by two weeks.

Extended credit
1. credit allowing the borrower a very long time to pay
2. Sell to Australia on extended credit.
3. US an extra-long credit used by commercial banks borrowing from the Federal Reserve

Extension
1. A longer time allowed for something than was originally agreed _ to get an extension of
credit to get more time to pay back _ extension of a contract the continuing of a contract
for a further period
2. (In an office) an individual telephone linked to the main switchboard the sales manager is
on extension 53. _ Can you get me extension 21?

External account
An account in a British bank belonging to someone who is living in another country

External debt
Money which a company has borrowed from outside sources (such as a bank) as opposed
to money raised from shareholders

External funds
Same as external debt
 F
Facility fee
Lender’s charge for making a line of credit or other credit facility available to a borrower,
for example, a commitment fee

Fail
1. Banking. The inability of a bank to meet its credit obligations to other banks in private wire
transfer systems, possibly causing settlement failures at other banks. This is known as systemic
risk.
2. Securities. A trade in which delivery does not take place on the settlement date. If
it is the fault of the seller, that is, the seller fails to present the securities, the trade
is noted as a fail to deliver. If buyer fails to pay because securities have not been
delivered by the seller's broker, it is a fail to receive. Fails normally occur when the
buyer and seller disagree on whether the securities delivered meet the
specifications of the purchase order

Fee
A charge for services performed.

1. Banking. A lender's charge for making credit available, for example, a commitment fee or credit
card annual fee. Also, charges for noncredit services, such as a trust department's allowance or
commission.
2. Estates. An inheritable estate in land usually referred to as a fee simple estate or freehold estate. A
fee simple absolute is an estate to which the holder has unquestioned ownership, whereas a fee tail
is inheritable only by a limited group of heirs.

Fiat money
Paper money that is backed only by the issuing government's decree that it is acceptable
as legal tender currency. Its value stems from public confidence, rather than convertible
into gold or other hard currency.

Fidelity bond
Insurance coverage against specified losses that occur from the dishonest acts or
defalcations of employees. This bond may be applied to persons or positions

Fiduciary
Individual or institution responsible for holding or administering property owned by
another. An executor, guardian, trustee, and administrator are examples of a fiduciary. The
Prudent Man Rule is one way states ensure that fiduciaries invest responsibly
Finality of payment
Guaranty of payment to the party receiving an electronic funds transfer. Interbank
payments over the Federal Reserve Wire Network (federal wire (fed wire) are final and
irrevocable when transmitted, and are credited to the receiving bank's reserve account at
the time of the transaction

Finance bill
Bill of exchange that, when accepted by a bank, becomes a source of short-term credit for
working capital rather than import or export finance. Finance bills, which usually have
maturities longer than 60 days, are sometimes issued in tight money periods. They are
subject to reserve requirements, unlike ordinary bankers' acceptances, and cannot be
rediscounted at the Federal Reserve window. Also called a bankers' bill or working capital
acceptance

Finance charge
Cost of credit, including interest, paid by a customer for a consumer loan. Under the Truth
in Lending Act, the finance charge must be disclosed to the customer in advance.

Financial Accounting Standards Board (FASB)

www.fasb.org) nongovernmental body with the authority to promulgate Generally
Accepted Accounting Principles (GAAP) and reporting practices. These are published in the
form of FASB Statements. Practicing CPAs are required to follow the FASB procements in
their accounting and financial reporting functions. The FASB is independent of other
companies and professional organizations. The American institute of certified public
accountants (AICPA) and the Securities and Exchange Commission (SEC) officially
recognize the Statements issued by he Financial Accounting Standards Board. The FASB
was established in 1973 to succeed the Accounting Principles Board (APB)

Financial counseling

1. Banking. Capital budgeting and profit planning carried out by a bank's senior
management committee, with the aim of managing asset growth, net income, and
expenses to meet specific objectives in future time periods. Financial planning is
broader in scope than Asset-Liability Management, which is largely concerned with
pricing interest sensitive deposits and bank loans and managing interest rate risk and
liquidity risk. In a larger sense, bank financial planning is synonymous with strategic
planning and market planning, both of which are concerned with setting specific
targets for deposit growth, net income, and expected payback or return from new
branch offices, automated teller machines, and other facilities. Through financial
planning, a bank's senior management committee formulates plans for meeting
competition from other financial services companies and sets objectives for
profitability, growth in market share, types of customers to be served, and so on, all of
which determine the future direction of the bank.
2. Investments. Financial counseling designed to help individuals make the best use of
their financial assets and achieve specific economic objectives, such as adequate
funding of a child's college education expenses, or post-retirement needs. Financial
planning entails writing objectives, setting up budgets, and periodically reviewing a
plan. Many banks and bank trust departments offer financial planning services to help
private banking or retail customers select customized financial services suiting their
individual needs, charging an hourly rate or a flat fee for writing a financial plan.
Professional financial planners are certified by the College for Financial Planning,
Denver, Colorado.

Financial guarantee
Non-cancellable indemnity bond guaranteeing the timely payment of principal and interest
due on securities by the maturity date. If the issuer defaults, the insurer will pay a fixed
sum of money to holders of the securities. Financial guarantees are similar to a standby
letter of credit, but are issued by an insurance company.

Financial innovation
Payment system advances altering or modifying the role of banks, and financial institutions
in general, as intermediaries between suppliers and users of funds. Technological
innovations, such as Electronic Funds Transfer (EFT) payments, replace checks with
electronic debits and credits. Risk transferring innovations, such as adjustable-rate
mortgage (ARM) , transfer credit risk from one party to another. Credit generating
innovations, for example, home equity credit lines, give borrowers new ways to use
financial assets, increasing the supply of available credit. Equity generating innovations,
such as trust preferred stock, give banks a less costly way to raise equity capital than
issuing new shares of common stock.

Financial institution
Institution that collects funds from the public to place in financial assets such as stocks,
bonds, money market instruments, bank deposits, or loans. Depository institutions (banks,
savings and loans, savings banks, credit unions) pay interest on deposits and invest the
deposit money mostly in loans. Non-depository institutions (insurance companies, pension
plans) collect money by selling insurance policies or receiving employer contributions and
pay it out for legitimate claims or for retirement benefits. Increasingly, many institutions
are performing both depository and non-depository functions. For instance, brokerage
firms now place customers' money in certificates of deposit and money market funds and
sell insurance.

Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)

Federal legislation of 1989 providing government funds to insolvent savings and loan
associations, and mandating sweeping changes in the examination and supervision of
savings and loans. The act required savings and loans to adopt new capital standards,
transferred the regulatory powers of the Federal Home Loan Bank Board to a new agency,
the office of thrift supervision , a bureau within the U.S. Treasury Department; and placed
the 12 district Federal Home Loan Banks under control of an oversight board, the Federal
Housing Finance Board , The act also abolished the defunct Federal Savings and Loan
Insurance Corporation (FSLIC)

Financial Institutions Regulatory Act

Federal law enacted in 1978 that made several important changes in regulation and
supervision of depository financial institutions. The act: (1) created the federal financial
institutions examination council to coordinate the supervisory activities of federal
supervisory agencies; (2) authorized banking regulators to issue cease and desist
order orders against officers and directors of financial institutions; (3) required banks to
make loans to directors, officers, and major stockholders on the same terms as other
borrowers; (4) created a credit union Central Liquidity Facility to meet short-term liquidity
needs of insured credit unions; and (5) placed Electronic Funds Transfer between financial
institutions and consumers under federal regulation.

Financial intermediary
Commercial bank, savings and loan, mutual savings bank, credit union, or other
"middleman" that smooth’s the flow of funds between "savings surplus units" and "savings
deficit units." In an economy viewed as three sectors-households, businesses, and
government-a savings surplus unit is one where income exceeds consumption; a savings
deficit unit is one where current expenditures exceed current income and external sources
must be called upon to make up the difference. As a whole, households are savings surplus
units, whereas businesses and governments are savings deficit units. Financial
intermediaries redistribute savings into productive uses and, in the process, serve two
other important functions: By making savers infinitesimally small "shareholders" in huge
pools of capital, which in turn are loaned out to a wide number and variety of borrowers,
the intermediaries provide both diversification of risk and liquidity to the individual saver.

Lending
Term used by lenders to refer to an agreement to make a loan to a specific borrower within
a specific period of time and, if applicable, on a specific property. See also commitment fee.

First day notice

First date on which a seller in the futures market notifies a clearing house of his intention to
deliver a financial instrument, in fulfillment of a futures contract. Also, the date on which a
clearing house notifies a buyer.

First mortgage
Real estate loan that gives the mortgagee (lender) a primary lien against a specified piece of
property. A primary lien has precedence over all other mortgages in case of default.
Fiscal agent

1. Usually a bank or trust company acting for a corporation under a corporate trust
agreement. The fiscal agent handles such matters as disbursing funds for dividend
payments, redeeming bonds and coupons, handling taxes related to the issue of bonds,
and paying rents.
2. Agent of the national government or its agencies or of a state or municipal government
that performs functions relating to the issue and payment of bonds. For example, the
Federal Reserve is the U.S. government's fiscal agent.

Fiscal year
Any 12-month period or period of 52 weeks, designated by a corporation, government
agency, or any other organization as the time period for filing financial reports, balance
sheets, and income statements. This period may differ from the calendar year.

Fives of credit
Judgmental method of evaluating a potential borrower's creditworthiness, based on five
criteria: character, capital, collateral, and conditions. The first four deal with a
borrower's ability to pay, whereas the last point refers to general business conditions in the
borrower's industry.

Fixed asset
Item that has physical substance and a life in excess of one year. It is bought for use in the
operation of the business and not intended for resale to customers. Examples are building,
machinery, auto, and land. Fixed assets with the exception of land are subject
to depreciation. Fixed assets are usually referred to as property, plant, and equipment.

Fixed exchange rates

Foreign exchange rate system that existed under the Bretton woods system , in which the
value of national currencies is set vis-à-vis the value of other currencies. Also called pegged
exchange rates. Each country is required to maintain its currency at or near this fixed rate.
Fixed exchange rates, established at the Bretton Woods International Monetary Conference
of 1944, were used until the early 1970s, when the United States abandoned the gold
standard and a system of floating exchange rate was adopted. A modified form of fixed
exchange currency rates continues today in the European Monetary System snake , a
monetary system adopted in the 1970s to hold currency fluctuations to a band of exchange
rates with upper and lower limits

Fixed rate loan

Loan with an interest rate that does not vary over the term of the loan, as opposed to a
variable rate loan or adjustable-rate mortgage. Fixed rate loans generally are constant
payment, fully-amortizing loans, for example, a 30-year fixed rate mortgage repayable
through equal monthly payments of principal and interest. Many consumer installment
loans, such as auto loans, boat loans, and home improvement loans, are made at fixed rates.
Fixed rate loans often have a higher initial cost than adjustable rate loans because the
lender isn't protected against increases in money costs-the lender's cost of funds-but the
borrower has the comfort of knowing the rate and payment will not vary over the life of the
loan.

Flat

1. In bond trading, without accrued interest. This means that accrued interest will be
received by the buyer if and when paid but that no accrued interest is payable to the
seller. Issues in default and income bonds are normally quoted and traded flat. The
opposite of a flat bond is an interest bond. See also loaned flat.
2. Inventory of a market maker with a net zero position-i.e., neither long nor short.
3. Position of an underwriter whose account is completely sold.

Flat bed imprinter

Manual device that copies the embossed characters of a bank card or charge card on all
copies of a sales draft. These are used most often by smaller merchants with low sales
volume.

Flexible rate mortgage

Residential mortgage in which the interest rate floats up or down according to changes in an
index rate. Adjustable-rate mortgages usually have lower initial interest rates than fixed-rate
mortgages, so there is an opportunity for substantial interest savings over the life of the loan if
rates remain steady or decline.

Float
1. Amount of funds represented by checks that have been issued but not yet collected.
2. Time between the deposit of checks in a bank and payment. Due to the time difference, many
firms are able to "play the float," that is, to write checks against money not presently in the
firm's bank account.
3. To issue new securities, usually through an underwriter

Floater Bonds
Debt instrument with a variable interest rate tied to another interest rate, e.g., the rate paid
by Treasury bills. A floating rate note, for instance, provides a holder with additional
interest if the applicable interest rate rises and less interest if the rate falls. It is generally
best to buy floaters if it appears that interest rates will rise. If the outlook is for falling rates,
investors typically favor fixed rate instruments. Floaters spread risk between issuers and
debt holders.
Insurance
Endorsement to a homeowner's or renter's insurance policy, a form of property insurance
for items that are moved from location to location. Typically, a floater is bought to cover
jewelry, furs, and other items whose full value is not covered in standard homeowner's or
renter's policies. A standard homeowner's policy typically covers $1,000 to $2,000 for
jewelry, furs, and watches. Also called a rider.

Floating debt
Continuously renewed or refinanced short-term debt of companies or governments used to
finance ongoing operating needs

Floating exchange rate

Movement of a foreign currency exchange rate in response to changes in the market forces
of supply and demand; also known as flexible exchange rate. Currencies strengthen or
weaken based on a nation's reserves of hard currency and gold, its international trade
balance, its rate of inflation and interest rates, and the general strength of its economy.
Nations generally do not want their currency to be too strong, because this makes the
country's goods too expensive for foreigners to buy. A weak currency, on the other hand,
may signify economic instability if it has been caused by high inflation or a weak economy.
The opposite of the floating exchange rate is the fixed exchange rate system.

Floating interest rate

Loan interest rate that changes whenever an index rate, or base rate, such as the
bank prime rate, the London Interbank Offered Rate (LIBOR) , or Federal Home Loan Bank
index rate changes. There are numerous examples: (1) consumer loan rate, for example, the
rate charged on adjustable rate mortgages or variable rate auto loans, that is indexed to
another rate, such as the commercial bank prime rate, a Cost Of Funds Index, or a lender's
internal cost of funds; (2) key lending rate, such as the prime rate that moves upward or
downward, depending on market demand for funds, available reserves in the banking
system, and other factors. Contrast with fixed rate loan

Floating lien
Loan or credit facility secured by inventory or receivables. This type of security agreement
gives the lender an interest in assets acquired by the borrower after the agreement, as well
as those owned when the agreement was made. When the agreement covers proceeds from
sales, the lender also has recourse against receivables.

Floating rate certificate of deposit

Large dollar certificate of deposit (CD) paying a rate tied to a money market rate.
Commonly used in the Euro market to finance interbank lending, floating rate CDs or
floaters are usually denominated in units of $250,000 with a coupon rate tied to the six-
month London Interbank Offered Rate (LIBOR).
Floor
Minimum rate that a bank can impose on a floating rate or variable rate loan. A floor rate is
often negotiated together with a rate ceiling, called an interest rate cap ; the two financial
guarantees are collectively referred to as an interest rate collar . The floor protects the
lender from a sharp drop-off in rates; the cap assures the borrower that financing costs will
not rise excessively.

Floor limit
Largest credit card a retail merchant may accept without obtaining authorization by the
card issuer. Contrast with zero-floor limit.

Floor loan
Initial funding of a construction mortgage that a lender agrees to advance without regard
for tenant leasing, or requiring the builder to substantially complete the project and have a
certificate of occupancy. For example, the lender may fund 80% of the total cost of a
project, with the remainder, called a holdback, held aside until the builder has leased the
majority of units or has the building ready for occupancy. A floor to ceiling loan, in contrast,
has two separate fundings: one at satisfactory completion of the project, and a second
funding when the building is fully occupied or meets cash flow requirements set by the
lender.

Floor planning
Bank loan made to finance a dealer's inventory. The dealer issues a trust receipt to the
bank, and the bank is repaid when the inventory is sold. Floor planning has a lower profit
margin and is less desirable than other forms of commercial lending. In addition to bearing
the financing risk, the bank stands to lose money if the dealer makes a sale without
notifying the lender, known as selling out of trust. Dealer financing is usually done only on
goods for which broad consumer demand exists

Flow of funds

1. Quarterly Federal Reserve survey showing the movement of funds between different
sectors of the economy-households, businesses, governments, and financial
institutions. The survey, the "Flow of Funds Accounts," is reported monthly in
the Federal Reserve Bulletin and is a useful indicator of buying preferences of
institutional investors.
2. statement in the bond resolution of a municipal bond issuer stating how municipal
revenues are to be applied, generally giving priority to maintenance and operations,
and bond debt service

Footings
Expression for the bottom line figure on a bank's balance sheet: the sum of assets or
liabilities, plus equity capital.
Forbearance

1. Lender’s decision not to exercise a legally enforceable right against a borrower in

default, in exchange for a promise to make regular payments in the future. For
example, a mortgage lender will agree not to initiate foreclosure proceedings against a
mortgagor whose loan is in arrears.
2. Temporary relief granted a bank by a regulatory agency from compliance with
minimum capital requirements or other banking regulations, extended to financial
institutions in economically depressed areas. Banks given capital forbearance must file
a plan to restore their capital base within a specified period

Forecasting

1. In Asset-Liability Management, an estimate of future expectations based on historical

information, current and projected market conditions, and management assumptions
about interest rates and market demand for credit. As used in an asset-liability model,
forecasting is a planning tool that estimates the amount of interest earning assets and
interest sensitive liabilities to try to determine whether the balance sheet will be asset
sensitive or liability sensitive during specific time periods in the future. The forecast is
normally revised periodically as market conditions or management assumptions
change.
2. In corporate cash management, an estimate of future cash receipts from conversion of
assets into cash. Forecasting tries to anticipate changes in cash flow for purposes of
funds management and debt management.
3. Projecting corporate earnings, financial institutions, sales, and so on in future time
periods.

Foreign branches
Branches of U.S. banks in foreign countries or branches of foreign banks in the United
States. By reciprocal agreement among central banks, foreign branches are subject to the
banking laws and regulations in their host country. The International Banking Act of 1978,
for example, requires U.S. offices of foreign banks to maintain reserve accounts with a
Federal Reserve Bank, choose a home state as their U.S. base of operations, and meet
federal regulations covering bank holding companies.

Foreign Corporation
Legal term for a corporation chartered in a state other than the one where it does business.
A bank chartered in New York, but owning a loan production office in California, is a
foreign corporation in California. The less confusing designation, out-of State Corporation, is
preferred in general usage.

Foreign Credit Insurance Association (FCIA)

Voluntary association of some 50 U.S. insurance companies formed in 1961 under the
sponsorship of the export-import bank. Acting as agent for the Exim Bank and its member
companies, it provides insurance coverage for credits extended by U.S. exporters to foreign
purchasers. FCIA provides some degree of insurance for commercial risk, whereas Exim
Bank assumes coverage for political risk

Foreign deposits
Deposits at branch offices of domestic banks outside the United States or its overseas
territories. Such deposits are not subject to deposit insurance premiums or reserve
requirements, and are not included in computing the net demand deposits of domestic
banks. This freedom from bank regulation was one reason the International Banking
Facility was authorized by state governments -mostly in New York and California-to create
a domestic environment competitive with the relatively unrestricted Bahama and Cayman
Islands Offshore Banking Centers

Foreign draft
Check denominated in a specific foreign currency, usually drawn to the seller on a bank
account in the country of the currency's origin

Foreign exchange
Currency-literally foreign money-used in settlement of international trade between
countries. Trading in foreign exchange is the means by which values are established for
commodities and manufactured goods imported or exported between countries. Creditors
and borrowers settle the resulting international trade obligations, such as bank drafts, bills
of exchange, bankers' acceptances, and letters of credit, by exchanging different currencies
at agreed upon rates. The result of all this international trade is that financial institutions
accumulate surpluses of different currencies from loan repayments by foreign borrowers,
and also from import-export trade financing on behalf of bank customers.
The interbank foreign exchange market is an over-the-counter market, a network of
commercial banks, central banks, brokers, and customers who communicate with each
other by telex and telephone throughout the world's major financial centers. Foreign
exchange traders also make markets or speculate in different currencies, usually
anticipating future appreciation of stronger currencies against weaker ones, through the
foreign exchange forward market and the currency futures market.

Fractional reserves
Proportion of bank deposits that must be kept as legal reserves . Bank reserves are a tool of
central bank monetary policy; an increase in the ratio of required reserves to deposits
indicates a tightening in credit policy by the Federal Reserve. Large banks are required to
keep up to 12% of checking account deposits in a noninterest earning account at the Fed.
Smaller banks have lower reserve requirements. The multiplier effect of money allows a
bank to re-lend most (88 ¢ of $1 in deposits, at a 12% reserve requirement) of the funds in
new deposits, in effect, creating new deposits. Because only a portion of deposits are
backed by reserves, banks can suffer losses, or even fail, due to a sudden runoff of deposits,
as in a bank run . This risk is known as liquidity risk .
Fraud
1. Deliberate action by individual or entity to cheat another, causing damage. There is typically
a misrepresentation to deceive, or purposeful withholding of material data needed for a proper
decision. An example of fraud is when a bookkeeper falsifies records in order to steal money.
See also negligence.
2. Falsification of a tax return by an individual. Examples of tax fraud are intentionally not
reporting taxable income or overstating expenses. Tax fraud is a criminal act.

Freddie mac
Investor-owned Corporation chartered by Congress in 1970 to create a secondary market for
conventional mortgage loans- loans not backed or guaranteed by a government agency-and
promote affordable home ownership. Freddie Mac purchases single-family and multifamily
mortgage loans (called conforming loans) that have an original principal amount not
greater than the conforming loan ceiling. An early pioneer in mortgage securitization,
Freddie Mac issued the first conventional mortgage pass-through certificate (a type of
mortgage security that pays monthly principal and interest payments from the underlying
mortgage loan pool) in 1971 and the first Collateralized Mortgage Obligation in 1983.

Free period
In credit cards, the time interval in which interest is charged for current purchases. This
period usually runs anywhere from 10 to 25 days after the billing date. Also called grace
period or days of grace.

Free reserves
Funds available to banks for lending or investment, widely regarded as an indicator of
available bank credit . Excess reserves are the amount remaining after required reserves
are subtracted from reserve balances deposited with a Federal Reserve Bank. The total of
free reserves is computed by subtracting from a bank's excess reserves (or reserve account
balances above its reserve requirements) any borrowings from the Federal Reserve.

Freehold
Legal estate in land, giving the owner the right to hold the property for life, passing it down
to his or her legal heirs. There are three types of freehold estates: life estate , an estate
limited to the life of the holder; fee simple, an estate without any restrictions; and fee tail,
an estate inherited by the donor's direct descendants. Contrast with leasehold

Front-end load

1. Sales charge when mutual fund shares are purchased, payable to the broker handling
the sale. The sales load is added to the Net Asset Value (NAV) per share when
computing the offering price. Annuities, life insurance policies, and limited
 partnerships also may have a front-end sales charge. Contrast with back-end load ; no-
load fund ; 12b-1 mutual fund .
2. Loan disbursement schedule that is higher in early years of a loan and lower in
subsequent years. This is a fairly common arrangement in construction lending.
3. Loan structured with above normal usage fees in the early years of a loan.

Frozen account
Account barred by a judicial ruling or legal process from further withdrawals. An account
owned by a deceased person is frozen until the lawful heirs of the person's estate can be
found. An account that is subject to a legal dispute is frozen until the legal ownership has
been determined by a court of law. In the securities industry, the term refers to a
customer's account blocked from further trading because of trading violations

Full recourse
Type of indirect lending in which a merchant or dealer sells loan contracts to a bank or
finance company with an unconditional guarantee. The dealer assumes full responsibility
for repayment and agrees to indemnify the bank if the borrower defaults

Full service bank

Bank offering the public most, if not all, of the services traditionally expected of banking
institutions. Services typically found in full service banks include consumer credit,
mortgage financing, commercial lending, trust services, and corporate agency services,
such as funds transfer and securities registration.

Full service broker

Bank or brokerage firm offering investors a full line of brokerage, asset management
services, and investment advice. Full-service firms generally have a research department
that furnishes reports to institutional clients and retail clients, and a buy or recommended
list for all clients. Discount brokerage firms, in contrast, only execute orders to buy or sell
securities.

Fully amortizing loan

Loan in which regular payments of principal are sufficient to fully pay off the loan by the
maturity date, without additional payments. A typical example is a 30-year fixed rate or
adjustable rate conventional mortgage loan.

Functional cost analysis

Annual survey by the Federal Reserve Board of the costs of banking services, and open to
banking institutions on a voluntary basis. The functional cost analysis, comparing various
asset, income, and cost ratios, is the only widely available measurement of the cost of
providing banking products, such as deposits, withdrawals, and transit items. Functional
costing measures the cost of providing each item, and can be readily compared to prior
years. Although useful, functional cost analysis has a number of flaws. The number of
participants is generally small and costs are based on ledger balances, which ignore
balance sheet entries such as cash items (checks) in the process of collection. As of 1999
the functional cost analysis includes assets and liabilities of state, federal and local
governments in the United States.

Functional regulation
Notion that bank supervision should be divided by business activity. Thus, banks involved
in selling or underwriting securities would have these activities reviewed by the Securities
and Exchange Commission, and not by the Federal Reserve or other banking supervisor.
The SEC is involved as a banking regulator by reviewing financial reporting and
investments of many companies, including bank holding companies.
Enactment of the gramm-leach-Bliley act of 1999 signaled a significant shift in the
supervision of bank holding companies, financial holding companies, and their subsidiaries
and affiliates. The act provides that, where, specialized functional regulators already
oversee permissible activities, these same regulatory agencies will continue to have
primary supervisory responsibility. Thus, the Securities and Exchange Commission will
review a broker -dealer operating subsidiary, and state insurance commissioners will bear
responsibility for supervising insurance marketing activities.

Fundamental analysis
Study of interest rate trends, unemployment, gross domestic product and other factors to
predict growth patterns for the economy as a whole. In securities analysis, fundamental
analysis is the study of stocks and bonds through examination of historical ratios and
trends and comparisons with other companies. Contrast with technical analysis.

Funds
Cash or its equivalents, drafts and money orders. The term generally applies to short-term
money market instruments and securities that are readily convertible into cash.
 G
Gap
Amount by which interest sensitive assets differ from interest sensitive liabilities for a
designated time period, for example, the net difference between loans and deposits
maturing in one year or less.

Gap financing
Short-term loan that is made in expectation of intermediate- or long-term loans; also called
a swing loan.

Gapping
Acquiring assets with anticipated maturities, or durations, longer or shorter than the
liabilities used to fund those assets. This is the conventional circumstances of bank lending.

Garn-st Germain Depository Institutions Act

Federal law enacted by Congress in 1982 authorizing banks and savings institutions to
offer a new account, the Money Market Deposit Account -a transaction account with no
interest rate ceiling to compete more effectively with money market mutual funds; gave
savings and loan associations the authority to make commercial loans; and gave federal
regulatory agencies the authority to approve, for the first time, interstate acquisitions of
failed banks and savings institutions.

Gen-saki
Short-term money market in Japan, used as a secondary market for repurchase and resale
of medium-term and long-term corporate and government bonds.

General account
Federal Reserve Board term for brokerage customer margin accounts subject to Regulation
T , which covers extensions of credit by brokers for the purchase and short sale of
securities

General Agreements to Borrow (GAB)

Arrangements, whereby members of the group of ten countries make loans to the International
Monetary Fund (IMF) in their own currencies to finance drawings by a member of the G-10
group.
General endorsement
Endorser’s writing on a check, promissory note, or bill of exchange without indicating the
party to whom it is payable.

General examination
Detailed examination of a bank by its primary financial regulator.

General lien
Lien against an individual that excludes real property

General mortgage bond

Bond secured by a blanket mortgage on all mortgage able property of the issuing
corporation.

General obligation bond

Security whose payment is unconditionally promised by a governmental unit that has the
power to levy taxes.

Generally Accepted Accounting Principles (GAAP)

Standards, conventions, and rules accountants follow in recording and summarizing
transactions, and in the preparation of financial statements

Generic securities
Securities backed by newly issued mortgages or other loans.

Gi loan
Popular name for a Department of Veterans Affairs guaranteed mortgage, authorized under
the Serviceman's Readjustment Act of 1944.

Gift card
Prepaid Visa card, MasterCard, or American Express card that enables the user to purchase
goods or services up to the value of the card.

Gilt-edged
British pound sterling bonds (gilts), issued by the Bank of England, and known as gilts in
the market, as these securities have little risk of default.
Ginnie mae
Nickname for the government national mortgage association and the securities guaranteed
by that agency.

Ginnie Mae pass-through

Security backed by a pool of mortgages and guaranteed by the government national
mortgage association (Ginnie Mae), which passes through to investors the interest and
principal payments of homeowners.

Giro
Electronic payment system widely used in Europe and Japan for consumer bill payments.

Glass-steagall act
Federal law enacted by Congress in 1933 forcing a separation between commercial banking
and investment banking.

Gnomes
Gnomes are pass-through securities collateralized by mortgage payments from 15-year
mortgages.

Gold card
Visa or MasterCard credit card with a minimum credit line of $5,000, and frequently higher.

Good delivery
Securities industry term for a certificate bearing the proper endorsement and signature
guarantee, and meeting other requirements of National Association of Securities Dealer's
Uniform Practice Code, making it transferable by delivery to the buyer, who is obligated to
accept it.

Good Faith Estimate (GFE)

Document disclosing the approximate closing costs a mortgage applicant will pay at or
before the mortgage settlement date, based on prevailing practices in the applicants' region

Good money
Immediately available funds, or federal funds

Goodwill
Goodwill is a non-tax-deductible asset.
Gourde
Monetary unit of Haiti.

Government bond
The term refers to Treasury bonds, which have original maturities of 10 to 30 years, and
Series EE and Series HH Savings Bonds.

Government depository
Bank eligible to accept government deposits. Banks so designated are Federal Reserve
Banks, national banks, and state chartered member banks in the Federal Reserve System.

Grace period
Time period allowed to making loan.

Graduated Payment Mortgage (GPM)

Fixed rate mortgage with low payments in the early years, and higher payments later on,
designed to meet the financing needs of young home owners with growing incomes.

Grandfathered activities
Nonbanking activities prohibited by law, regulation or agreement, but approved for
organizations that were already engaged in those activities as of a specific date.

Grantor
Person who execute the deed conveying property to other , or who creates a trust
instrument .

Gross coupon
The interest rate earned on mortgages underlying a mortgage backed security, for example,
the rate earned by mortgages underlying a pass-through security as opposed to the coupon
rate on the bonds

Gross settlement
Funds transfer system providing immediately available transfers of funds.

Group of 10
Organization of central banks of the major industrial countries. Member banks coordinate
banking industry supervision through the Bank For International Settlements and
monetary policy through the International Monetary Fund (IMF) .
Group of 30
International organization of major banks and investment firms whose mission is improving
back-office procedures and book-entry processing of securities.

Group banking
Form of holding company in which a management group has control of several existing
banks.

Growing Equity Mortgage (GEM)

Mortgage with a fixed interest rate but varying monthly payments.

Guarani
National currency of Paraguay

Guaranteed loan
Loan guaranteed as to repayment of principal and interest by a federal agency, such as the
Department of Veterans Affairs or the Small Business Administration.

Guaranteed Mortgage Certificate (GMC)

Mortgage backed bond, backed by a pool of mortgages, issued by the Federal Home Loan
Mortgage Corporation (Freddie Mac) since 1975. The bonds, representing an undivided
interest in a pool of residential mortgages, have a guaranteed average life, and pay
principal and interest semiannually.

Guarantor
Person or corporation who guarantees payment by another.

Guardian
Person who has legal responsibility for care of a minor, or a person incapable of managing
his affairs.
Guaranty
Three-party agreement, involving a promise by one party (the guarantor) to fulfill the
obligation of a person owing a debt if that person fails to perform.
Guaranty fund
Mutual savings bank reserve fund required by some states as cushion against short-term
losses.

Gulf riyal
Monetary unit of Dubai and Qatar.
 H
Haircut
The difference between the market value of a security and the amount lent to the Owner
using the security as collateral 2. an estimate of possible loss in investments half one of two
equal parts into which something is divided _ The first half of the agreement is acceptable._
we share the profits half and half we share the profits equally _ divided into two parts _ half
a percentage point 0.5% _ his commission on the deal is twelve and a half per cent his
commission on the deal is 12.5% _ to sell goods off at half price at 50% of the price for
which they were sold before ‘…economists believe the economy is picking up this quarter
and will do better in the second half of the year’

Hidden asset
An asset which is valued much less in the company’s accounts than it’s true market value

Hidden reserves
1. Reserves which are not easy to identify in the company’s balance sheet (reserves which
are illegally kept hidden are called ‘secret reserves’)
2. Illegal reserves which are not declared in the company’s balance sheet

High-grade bond
A bond which has the highest rating (i.e. AAA)

High-income
Which gives a large income _high-income shares _ a high-income portfolio

High-income bond
Bond which aims to produce a high income. Abbreviation HiB

High-risk
Which involves more risk than normal?

High-risk investment
An investment which carries a higher risk than other investments

High Street banks

The main British banks which accept deposits from individual customers

Home banking
A system of banking using a personal computer in your own home to carry out various
financial transactions (such as paying invoices or checking your bank account)
Home equity credit
A loan made to a homeowner against the security of the equity in his or her property (i.e.
the value of the property now less the amount outstanding on any mortgage)

Home improvement loan

A loan made to a homeowner to pay for improvements to his or her home
Home income plan
A method of releasing equity from a un mortgaged property so that a homeowner has
income or cash without actually leaving the property

Home loan
A loan by a bank or building society to help someone buy a house

Home market
The market in the country where the selling company is based _ Sales in the home market
rose by 22%.

Honour
To pay something because it is owed and is correct _ to honour a bill, the bank refused to
honour his cheque. (NOTE: The US spelling is honor.) To honour a signature to pay
something because the signature is correct

Hot card
A stolen credit card

Hot money
Money which is moved from country to country to get the best returns

House starts
The number of new private houses or flats of which the construction has begun during a
year

House telephone
A telephone for calling from one room to another in an office or hotel

Housing authority bond

A bond issued by a US municipal housing authority to raise money to build dwellings

HP abbreviation hire purchase

Hryvnia
A unit of currency used in the Ukraine
Human resources department
The section of the company which deals with its staff

Human resources officer

A person who deals with the staff in a company, especially interviewing candidates for new
posts

Hurdle rate
1. The rate of growth in a portfolio required to repay the final fixed redemption price of
zero dividend preference shares
2. A minimum rate of return needed by a bank to fund a loan, the rate below which a loan is
not profitable for the bank

Hyper
Very large

Hyperinflation
Inflation which is at such a high percentage rate that it is almost impossible to reduce

Hypothecation
1. An arrangement in which property such as securities is used as collateral for a loan, but
without transferring legal ownership to the lender (as opposed to a mortgage, where the
lender holds the title to the property) 2. an action of earmarking money derived from
certain sources for certain related expenditure, as when investing taxes from private cars
or petrol sales solely on public transport.

HAIRCUT
Securities industry term referring to the formulas used in the valuation of securities for the
purpose of calculating a broker-dealer's net capital. The haircut varies according to the
class of a security, its market risk, and the time to maturity. For example, cash equivalent
governments could have a 0% haircut, equities could have an average 30% haircut, and fail
positions (securities with past due delivery) with little prospect of settlement could have a
100% haircut.

HALFLIFE
Number of years needed for half of the loan principal in a mortgage backed security to be
repaid. Half-lives are determined by interest rate volatility, borrower prepayments, and to
some extent by geographic region. The half-life of a pool of mortgages backing a ginnie Mae
pass-through security was presumed to be 12 years. The half-life of a so-called current
coupon mortgage is closer to 10 years, but heavy prepayments can shorten half-lives to as
little as 4 to 5 years. In general, when interest rates fall, borrowers refinance at substantial
savings in interest costs, causing half-lives to drop. Rising rates have the opposite effect.
Borrowers hold on to their loans for a longer period and half-lives lengthen.
HANDLE
Trader’s shorthand where the whole number is eliminated from a trade quote and
understood by the parties to the trade. Quotes are in fractions: 1/16 bid, 3/16 offered.

HARD CURRENCY
Currency expected to remain stable, if not appreciate in value, in relation to other currencies;
also a currency that is readily convertible, or exchanged for the currency of another country. A
sizable portion of international trade and bank lending is denominated in hard currencies;
central banks keep a portion of their reserves in these currencies. Also called strong currency,
HAZARD INSURANCE
Property insurance carrying protection against losses from fire, certain natural causes,
vandalism, and malicious mischief. Home owners generally maintain hazard insurance coverage
through regular mortgage payments, a portion of which goes into an escrow account for
insurance and property taxes. Mortgage lenders require hazard insurance coverage before a
loan is made.

HYPOTHECATION
Banking: pledging property to secure a loan. Hypothecation does not transfer title, but it
does transfer the right to sell the hypothecated property in the event of default.
Securities: pledging of securities to brokers as collateral for loans made to purchase
securities or to cover short sales, called margin loans. When the same collateral is pledged
by the broker to a bank to collateralize a broker's loan, the process is called
rehypothecation

HYBRID ARM
Variation of an adjustable-rate mortgage (ARM) loan that has a fixed rate of interest in the
early years of the loan. The initial fixed-rate period in a hybrid ARM can be set for 3 years, 5
years, 7 years or 10 years, after which the loan converts to an adjustable-rate mortgage and
the interest rate is adjusted once a year according to changes in market conditions for the
remaining term of the loan. Hybrid ARMs are ideal for borrowers who plan to live in their
homes for a relatively short period, want a lower monthly payment, or would like to qualify
for a larger mortgage. The 5/1 hybrid ARM, a popular choice, has a fixed rate of interest for
the first five years; in subsequent years the rate is adjusted annually.

HURDLE RATE
Term used in capital budgeting. Hurdle rate is the required rate of return on a long-term
investment opportunity. A proposal would be accepted when the expected rate of return
exceeds the hurdle rate. The hurdle rate should equal the incremental cost of capital.

HOUSING AUTHORITY BOND

Short-term note or long-term bond issued by a public housing authority and guaranteed as to
repayment of principal and interest by the U.S. Department of Housing and Urban
Development. The bonds finance construction of low- and moderate income housing, paying
competitive rates.
HOT MONEY
Investment funds capriciously seeking high, short-term yields. Borrowers attracting hot money,
such as banks issuing high yielding Certificates of Deposit , should be prepared to lose it as soon
as another borrower offers a higher rate.

HIGH LOAN TO VALUE MORTGAGE

Second mortgage loan that, when combined with a related first-lien mortgage, substantially
exceeds the value of the mortgaged property. High loan-to-value mortgages are used most
often in consolidating consumer obligations, such as credit card debt, in one second
mortgage. This mortgage loan is known as a 125 percent mortgage loan because the
combined loan-to-value ratio of the two loans may be as high as 125% of the property
value.

HERFINDAHL INDEX
Condition of a bank's loan portfolio measured by the number of loans extended to a
particular industry. Excessive lending to a single industry (agriculture, oil and gas
exploration, and real estate) indicates a lack of diversification condition of a bank's loan
portfolio measured by the number of loans extended to a particular industry.
 I
Impound Account or Escrow Account
An account in which a portion of the monthly payment is held by the lender on the
borrowers behalf for the payment of future taxes, mortgage and hazard insurance, special
assessments insurance, and other ongoing payments as they occur. Impound/escrow acc
period in the past (historic volatility).

Inactive Account
A savings account on which no transaction has occurred (except the crediting of earnings)
for a specific number of years. Also called a dormant account.

Indemnification
In general, a collateral contract or assurance under which one person agrees to secure
another person against either anticipated financial losses or potential adverse legal
consequences.

Index
A published interest rate - such as the Prime Rate, LIBOR, T-Bill rate, or the 11th District
COF - against which lenders compare other investments.

Index Cover of Portfolio

The percentage of a portfolio that overlaps with its benchmark. A high index cover can be
an indication of a relatively low tracking error.

Individual Retirement Account (IRA)

An interest-earning retirement savings account in which the allowable contributions and
earnings are not taxed until the funds are withdrawn, after age 59.

Initial Margin
A deposit required by an exchange as a good faith guarantee against a loss from adverse
market movements.

Installment Credit
The practice of paying for goods or services after receiving them by making two or more
payments within a specified period of time.

Installment Debt
Borrowed money that is repaid in successive payments, usually at regular intervals; the
monthly debt service is sometimes excluded for debt-to-income calculator purposes if 10
or fewer payments remain to be made.
Insured Deposits
Types of deposits that are covered by a deposit insurance system

Interbank Market
The interbank market is where banks make day-to-day adjustments in their operational
reserves, offering a fine return on liquid funds.
International Monetary Fund (IMF)
An international organization with 146 members, including the United States. The main
functions of the IMF are to lend funds to member nations to finance temporary balance of
payments problems, to facilitate the expansion and balanced growth of intern

Investment-Grade Bond
An investment-grade bond is a bond that has a credit rating within one of the top four
ratings categories of a commercial credit-rating agency - the best known of which are
Standard & Poor’s and Moody’s.

Islamic Banking Business

Banking business in line with the principles of the Shariah , the law of Islam based upon the
Quran, Sunnah (sayings and deeds of the Prophet Muhammad), s.a.w. Ijma (consensus of
Muslim scholars) and Qiyas (analogy)

Issuer
The issuer of a security is the legal entity that issues the security.

Issuer Type
The sector to which a (debt) issuer belongs, such as government, government agency,
supranational, corporation or bank.
 J
Joint float
An arrangement by which a group of currencies maintain a fixed relationship relative to
each other, but move jointly relative to another currency in response to supply and demand
conditions in the exchange market.

Joint tax return

Tax return filed by two people, usually spouses.

Joint venture
An agreement between two or more firms to undertake the same business strategy and
plan of action.

Jumbo loan
Loans of $1 billion or more. Or, loans that exceed the statutory size limit eligible for
purchase or securitization by the federal agencies.

Jump ball
Used in the context of general equities. (1) Deal in which no trading house has exclusivity
(each firm is in direct competition for a piece of business); (2) no preference in picking a
particular side (buy/sell) of a stock as profile.

Junior debt (subordinate debt)

Debts whose holders have a claim on the firms’ assets only after senior debt holders’ claims
have been satisfied.

Junior Issue
A debt or equity issue from one corporation over which the issue of another firm takes
precedence with respect to dividends, interest, principal, or security in the event of
liquidation.

Junior Lien
Any lien that is subordinate or subsequent to the claims of a prior lien. A second mortgage
is a junior lien.

Junior Mortgage
A mortgage that will be satisfied only after more senior mortgages have been satisfied. e.g.,
a first mortgage will be satisfied prior to a second or a third mortgage.

Junior Refunding
Issuing of new securities to refinance government debt that matures in one to five years.
Junior Security
A security that has a lower-priority claim on companies’ assets and income than a senior
security. For example common stock is junior to preferred stock.

Junk Bond
A bond with a speculative credit rating of BB (S&P) or Ba (Moody’s) or lower. Junk or high-
yield bonds offer investors higher yields than bonds of financially sound companies. Two
agencies, Standard & Poor’s and Moody’s Investor Services, provide the ratio.

Junk Bonds
Junk bonds (now usually referred to as high-yield bonds) are non-investment grade
securities; that is to say, they are debt instruments issued by corporations without a credit
rating usually considered appropriate for debt issuance.

Jury of Executive Opinion

A method of forecasting using a composite forecast prepared by a number of individual
experts. The experts form their own opinions initially from the data given, and revise their
opinions according to the others opinions. Finally, the individuals final.

Just Me Asking
Used in the context of general equities. Not a customer request for information.

Just-in-time Inventory Systems

Systems that schedule materials to arrive exactly when they are needed in the production
process.
 K
Key Rate
The interest rate that controls, either directly or indirectly, bank lending rates and the cost
of credit paid by borrowers.

Keynesian Economics
An economic theory originated by the British economist John Maynard Keynes and his
followers. Keynes maintained that governments should use the power of the budget to
maintain economic growth and stability and overcome the recessionary cycles common.

Kiting
Used in of banking to refer to the practice of depositing and drawing checks at two or more
banks and taking advantage of the time it takes for the second bank to collect funds from
the first bank.

Knock-In Option
A knock-in option is an option activated only when the price of the options underlying
instrument or index reaches a certain level above or below an agreed upon range.

Knock-Out Option
A knock-out option is an option that becomes worthless when the price of the options
underlying instrument or index reaches a previously agreed upon point.

Knock-out Option
An option that- is worthless at expiration if the underlying commodity or currency price
reaches a specific price level.

Know Your Customer

An ethical foundation of securities brokers that an adviser who recommends the purchase
or sale of any security to a customer, must believe that the recommendation is suitable for
the customer, given the customers financial situation.

Kurtosis
Referred to as the volatility of volatility, kurtosis measures the fatness of the tails of a
probability distribution. A fat-tailed distribution has a higher-than-normal chance of a large
positive (or negative) realization. Kurtosis is different.

Key
A set of instructions governing the encryption and decryption of electronic messages. Each
financial institution participating in a wire transfer system or electronic funds transfer
network, such as an ATM network, has a unique identification key, called an issuer's key.
Key Currency
A currency used in international trade settlement, or as a reference currency in setting
exchange rates. Key currencies are the U.S. dollar, or, more broadly, any currency issued by
one of the group of seven countries. Central banks hold a portion of their reserves in a key
currency.
Key Man Insurance
An insurance policy protecting a small business or partnership against business losses
from the death or disability of a principal owner. Lenders sometimes require partnerships
or closely held corporations to take out such insurance naming the lender as loss payee
before extending credit if they believe the loss of a key employee will hinder a firm's ability
to repay a bank loan.

Key Rate
An interest rate that controls, either directly or indirectly, bank lending rates and the cost
of credit paid by borrowers. In the United States, the discount rate and the federal
funds (Fed Funds) rate are key rates regulated by the Federal Reserve System's monetary
policy.

Key Ratio
A ratio used by financial analysts in evaluation of a bank's statement of financial condition
and income. Ratios examined include: the capital to assets ratio; ratio of loan loss reserves
to total loans; liquidity ratios; and performance ratios, such as return on assets (ROA),
return on equity (ROE), and the earnings per share ratio. Key ratios give a general
indication of bank performance and can be compared to prior year figures.

Kicker
An extra feature in a loan, beyond ordinary payments of interest, demanded by a lender as
a condition for extending credit. The effect is to increase the yield over the term of the
financing. From a legal viewpoint, kickers have to be disclosed in consumer loans as part of
the finance charges, and in some instances may violate state usury laws. In real estate
finance, a kicker is an equity participation in the gross receipts from rental property, or an
ownership stake in the property itself. In an equity kicker , the lender gets a given interest
rate, plus a percentage of the rent over a certain dollar amount. Other forms of kickers are
stock warrants exercisable at a future date, and rights to purchase securities.
 L
Labour costs
The cost of the workers employed to make a product (not including materials or
overheads)

Labour-intensive industry
An industry which needs large numbers of workers and where labour costs are high in
relation to turnover

Lack
The fact of not having enough _ lacks of funds not enough money.

Ladder
An investment portfolio consisting of bonds with a series of maturity dates from very
short-dated to long-dated

Laddering
The action of making a series of investments which mature at different times, cashing each
one at maturity and then reinvesting the proceeds.

Lagging indicator
Which shows a change in economic trends later than other indicators (NOTE: The opposite
is leading indicator.)

Laissez-faire economy
An economy where the government does not interfere because it believes it is right to let
the economy run itself.

Landed costs
The costs of goods which have been delivered to a port, unloaded and passed through
customs.

Last quarter
A period of three months at the end of the financial year

Last trading day

The last day when Stock lag 198 last trading day Exchange trading takes place in an
account, or the last day when futures trading takes place relating to a certain delivery
month

Lay out
To spend money
LBO abbreviation leveraged buyout

L/C abbreviation letter of credit

LCE abbreviation London Commodity Exchange

LDC abbreviation 1. Least developed country 2. Less developed country

Lead bank
The main bank in a loan syndicate.

Lead manager
A person who organizes a syndicate of underwriters for a new issue of securities.

Lead time
The time between deciding to place an order and receiving the product.

Lead underwriter
An underwriting firm which organizes the underwriting of a share issue (NOTE: The US
term is managing underwriter.)

Lease
A written contract for letting or renting a building, a piece of land or a piece of equipment
for a period against payment of a fee.

Lease back
To sell a property or machinery to a company and then take it back on a lease

Leasehold
Possessing property on a lease, for a fixed time

Leasing
Which leases or which is using equipment under a lease

Ledger
A book in which accounts are written

Ledger balance
Same as current balance

Legal currency
Money which is legally used in a country

Lek
A unit of currency used in Albania
Lempira
A unit of currency used in Honduras

Lend
To allow someone to use something for a period

Lender
A person who lends money

Lender of the last resort

A central bank which lends money to commercial banks

Lending
An act of letting someone use money for a time

Lending limit
A restriction on the amount of money a bank can lend

Lending margin
An agreed spread (based on the LIBOR) for lending

Lessee
A person who has a lease or who pays money for a property he leases

Lessor
A person who grants a lease on a property

Letter of credit
A document issued by a bank on behalf of a customer authorising payment to a supplier
when the conditions specified in the document are met. Abbreviation L/C

Leu
A unit of currency used in Romania and Moldova

Leverage
1. A ratio of capital borrowed by a company at a fixed rate of interest to the company’s total
capital
2. The act of borrowing money at fixed interest which is then used to produce more money
than the interest paid

Leveraged
Using borrowings for finance
Leveraged takeover
An act of buying all the shares in a company by borrowing money against the security of
the shares to be bought. Abbreviation LBO

Leveraged stock
Stock bought with borrowed money

Levy
Money which is demanded and collected by the government

Liabilities
The debts of a business, including dividends owed to shareholders _ The balance sheet
shows the company’s assets and liabilities.

Liability
A legal responsibility for damage, loss or harm

Liable
Liable for legally responsible for

LIBID abbreviation London Interbank Bid Rate

LIBOR abbreviation London Interbank Offered Rate

Licensed deposit-taker
A deposit- taking institution, such as a building society, bank or friendly society, which is
licensed to receive money on deposit from private individuals and to pay interest on it.
Abbreviation LDT

Lien
The legal right to hold someone’s goods and keep them until a debt has been paid

Lieu
In lieu of instead of _ she was given two months’ salary in lieu of notice she was given
two months’ salary and asked to leave immediately

Life
The period of time for which something or someone exists _ life of a contract the
remaining period of a futures contract before it expires

Life assurance
Insurance which pays a sum of money when someone dies, or at a certain date if they are
still alive
Life assurance Company
A company providing life assurance, but usually also providing other services such as
investment advice

Life assured
The person whose life has been covered by a life assurance policy

Lifeboat operation
Actions taken to rescue of a company (especially of a bank) which is in difficulties

Life expectancy
The number of years a person is likely to live

Life insurance
Same as life assurance

Life insured
Same as life assurance

Life interest
A situation where someone benefits from a property as long as he or she is alive

Lifetime Individual Savings Account

A British scheme by which individuals can invest for their retirement by putting a limited
amount of money each year in a tax-free unit trust account. Abbreviation LISA

LIFFE abbreviation London International Financial Futures and Options Exchange

LIFO - abbreviation last in first out

Lilangeni
A unit of currency used in Swaziland

Limit
The point at which something ends or the point where you can go no further
Limited company
A company where each shareholder is responsible for repaying the company’s debts only
to the face value of the shares he or she owns. Abbreviation Ltd. Also called Limited
Liability Company

Limit order
An order to a broker to sell if a security falls to a certain price

Line of credit
The amount of money made available to a customer by a bank as an overdraft
Line of shares
A large block of shares sold as one deal on the stock exchange

Liquid
Easily converted to cash, or containing a large amount of cash

Liquid assets
Cash or investments which can be quickly converted into cash

Liquidate
To liquidate a company to close a company and sell its assets _ to liquidate a debt to pay
a debt in full _ to liquidate stock to sell stock to raise cash

Liquidation
Liquidation of a debt payment of a debt

Liquidator
A person named to supervise the closing of a company which is in liquidation

Liquidity
Cash or the fact of having cash or assets which can be changed into cash

Liquidity ratio
A ratio of liquid assets (that is, current assets less stocks, but including debtors) to current
liabilities, giving an indication of a company’s solvency. Also called acid test ratio, quick
ratio

Liquid market
A market in a security where there are enough shares available to allow sales to take place
without distorting the price (the opposite is a ‘thin’ market)

Listed company
A company whose shares can be bought or sold on the Stock Exchange

Listed securities
Shares which can be bought or sold on the Stock Exchange, shares which appear on the
official Stock Exchange list

Listing Agreement
A document which a company signs when being listed on the Stock Exchange, in which it
promises to abide by stock exchange regulations

Listing requirements
The conditions which must be met by a corporation before its stock can be listed on the
BSE
LME abbreviation London Metal Exchange

Load fund
A fund sold through a broker, with a high initial management charge or commission

Loan
Money which has been lent

Loan portfolio
All the loans which a financial institution has made and which are still outstanding

Lock into
To be fixed to a certain interest rate or exchange rate

Long bond
A bond which will mature in more than ten years’ time

Long credit
Credit terms which allow the borrower a long time to pay

Long-term borrowings
Borrowings which do not have to be repaid for some years

Loyalty
The state of being faithful to someone or something

Luxury tax
An extra tax levied on luxury goods
 M
M1
Narrowest measure of the money supply. M1 includes currency held by the public, plus
travelers' checks, demand deposits, other checkable deposits (including negotiable order of
withdrawal (NOW) accounts, Automatic Transfer Service (ATS) accounts, and credit union
share draft accounts).

M2
Money supply measure that includes M1 plus savings and small denomination time
deposits, Money Market Demand Accounts, shares in Money Market Mutual Funds held by
individual investors.

M3
Money supply measure that includes M2 plus large time deposits, large denomination
repurchase agreements, shares in Money Market Mutual Funds held by institutional
investors, and certain Eurodollar deposits in foreign branches of U.S. banks.

Machine Readable
Capable of being read by a mechanical device without additional processing. Machine
readable characters on preprinted checks-the Magnetic Ink Character Recognition (MICR)
line-permit high-speed check sorting and remittance processing. Other examples are the
bank card magnetic stripe, magnetic computer tape, the retail industry Universal Price
Code (UPC), and Optical Character Recognition (OCR).

Macroeconomics
Analysis of a nation's economy as a whole, using such aggregate data as price levels,
unemployment, inflation, and industrial production.

Magnetic Ink Character Recognition (MICR)

Digital characters on the bottom edge of a paper check containing the issuing bank's ABA
transit number (bank identifier) and check routing symbol (denoting funds availability).
When checks are cleared through the banking system, the dollar amount of the check is
added to the machine readable MICR line. Development of MICR in the 1950s greatly
facilitated check clearing, enabling banks to virtually automate the handling of billions of
checks every year.

Magnetic Stripe
Strip of magnetic tape, affixed to bank credit and debit cards, encoded with cardholder
identifying information, such as the Primary Account Number and card expiration date,
permitting automated handling of transactions. The bank card industry standard for
magnetic stripes allows three separate tracks of encoded data:
Track 1: developed by the International Air Transportation Association for automation of
airline ticketing;
Track 2: developed by the American Bankers Association for the automation of financial
transactions.
Track 3: developed by the thrift industry for financial terminals operating in an off-line
mode (not connected to a host processor) for transaction authorization.

Mail Float
Clearing delays that slow the presentment of out of-town checks to the paying bank. Mail
float is the time lag attributed to checks and cash letters arriving from distant points.

Mail teller
Teller of a bank that is responsible for receiving, sorting, and proving deposits arriving by
mail. In larger banks, deposits from customers and correspondents are as heavy as volume
of deposits taken at the teller line.

Maintenance Fee
Periodic charge to maintain an account, such as a credit card annual fee or a monthly
checking account service charge, to cover the cost of servicing the account and statement
preparation. Checking account fees may be waived if the customer keeps a certain
minimum balance.

Maintenance Margin
In futures, money that a customer must keep in a margin account when a position is
outstanding. It is usually lower than the initial margin posted. The values of positions are
posted to market daily. If position losses exceed the maintenance margin, the dealer issues
a margin call requiring the customer to post additional margin.

Major Industry Identifier

The first digit in the Primary Account Number that is printed on the front of a bank card or
travel & entertainment card. Cards issued by banks and other financial institutions
generally have account numbers beginning with the number 4 or 5; those issued by
nonbank companies, such as travel & entertainment companies, have account numbers
beginning with 3.

Maker
The person who writes a check, signs a promissory note or other negotiable instrument,
and assumes primary liability for payment. The maker of a check is also known as the
drawer.
Malfeasance
The wrongdoing or criminal act, as when a bank officer accepts cash gifts from a loan
customer. Contrast with misfeasance, the improper performance of a legally permissible
act, and non-feasance, the failure to carry out a contractual obligation.
Managed Currency
Any currency whose exchange rate is influenced by central bank intervention in the
exchange markets, as opposed to interaction of supply and demand in the free market.
Most major currencies are managed to one degree or another when central banks buy and
sell their own currency to maintain market stability and carry out monetary policy.

Managing Underwriter
The leading and originating-investment banking firm of an underwriting group organized
for the purchase and distribution of a new issue of securities. The agreement among
underwriters authorizes the managing underwriter, or syndicate manager, to act as agent
for the group in purchasing, carrying, and distributing the issue as well as complying with
all federal and state requirements; to form the selling group; to determine the allocation of
securities to each member; to make sales to the selling group at a specified discount-or
concession -from the public offering price; to engage in open market transactions during
the underwriting period to stabilize the market price of the security; and to borrow for the
syndicate account to cover costs.

Mandatory Convertible
The type of bond with a redemption requirement. Banks issue mandatory convertible
bonds, also called equity linked securities, to meet regulatory capital requirements without
issuing common stock until some future date. The bonds often pay higher yields than
comparable bonds to compensate for the mandatory conversion feature.

Manufactured Housing
A factory-built housing shipped in sections to a building site. Manufactured housing is
constructed according to federal standards (the HUD code) for home design and safety
from the Department of Housing and Urban Development (HUD). Manufactured homes are
popular with low-to-moderate income home buyers because of their low cost.
Manufactured housing loans are often sold to investors in the asset-backed securities
market.

Margin
Net Interest Margin, or the percentage difference between a bank's yield on earning assets
(mostly loans) and interest paid to depositors. Proportion of the asset pledged as security,
for example, inventory or accounts receivable, that a bank will lend against. The difference
between the market value and loan value is also called a haircut. If the collateral declines in
value, additional margin will be required. Premium a mortgage lender adds to an index rate
in determining the loan interest rate in an adjustable-rate mortgage. This premium is
typically two to three percentage points.
Margin Call
Demand by a securities broker-dealer or a futures clearinghouse to a clearing member for
additional funds or collateral to offset position losses in a margin account. If a bank loan is
secured by marginable securities the lender may call the loan if the customer fails to post
additional collateral or pay down the loan. If the margin call is on securities, the customer is
asked to post more cash or eligible securities by a certain time the following day, or the
collateral is sold to satisfy the outstanding loan.

Marginal Cost of Funds

The incremental cost or differential cost of each additional dollar borrowed. It is the cost of
funding one more loan, assuming that the cost of funds remains unchanged. Under
conventional cost accounting theory, the marginal cost of acquiring new funds decreases as
scale economies are achieved. Put another way, the marginal cost of funds varies inversely
to the capital base of financial intermediaries because the larger banks, which as a rule
have larger loan portfolios, can tap into the capital markets and money markets with
greater ease than smaller ones.

Marital Deduction
A portion of an estate that may pass to the surviving spouse exempt from federal estate
taxes. There are numerous types of marital deductions: the federal income tax deduction
for a nonworking spouse, the deduction under the federal gift tax for lifetime (inter vivos)
transfers, and the federal estate tax for testamentary transfers provided by a will.

Mark to Market
A daily adjustment of an account or investment to reflect actual market value, as opposed
to historic accounting value or book value . Securities and futures are revalued on a daily
basis, but bank loans and investment other than securities are evaluated and marked down
only when there is a change in the credit relationship. The Financial Accounting Standards
Board Statement 115 (FAS 115) requires banks and other financial institutions to report
debt securities and equities eligible for sale at current market value. Only bonds to be held
to maturity may be listed at their original purchase price.

Market
Aggregate of supply and demand that brings together informed buyers and sellers, and sets
the public price for products or services. For example, the credit market, the foreign
exchange market, the money market, the mortgage market, and the secondary market.
Public place, such as a stock exchange, or futures exchange, where trading takes place. It
implies the presence of market makers who are willing to buy or sell for their own account,
or for customers, at quoted prices. Futures exchanges are open outcry markets, where
prices are set by direct interaction (hand signals) by traders on the trading floor. Securities
exchanges, where listed securities are sold, involve trading by brokers or dealers acting on
behalf of buyers or sellers, who maintain contact with the trading floor by telephone. To
sell anything of value to a willing buyer at a mutually agreeable price.
Market Capitalization
An organization's current share price multiplied by the number of shares outstanding.
When expressed as a ratio to earnings, the resulting number is the firm's price/earnings
ratio or (P/E) multiple.

Market Discipline
Public disclosure of a bank's financial condition to depositors and other interested parties.
Regular disclosure of a bank's equity capital and its major liabilities are promoted by
banking regulatory agencies as an incentive for banks to maintain adequate capital to
cushion against potential losses. According to the theory, depositors, creditors and others
will want to do business with financial institutions that meet, or surpass, the recommended
risk-based capital standard, a base guideline for banks doing business internationally.

Market Index Cd
Certificate of Deposit that pays a rate of interest tied to a commodity or a market index.
Also known as an indexed deposit account or indexed CD. These CDs pay stock market-like
returns but offer the safety of a CD protected by deposit insurance. Interest is calculated
based on the return of the S&P equity index. This type of CD carries added protection for
depositors; even in a bear market (falling stock prices) no principal can be lost. In a bull
market (rising prices), the CD pays 100% of the investment return of the index.

Market Maker
A person who stands ready to execute buy and sell orders on behalf of customers or his
own account, or book. A market maker is someone who assumes trading risk by taking
possession of the asset traded, and who executes transactions at publicly quoted prices. A
market maker's bid and asked spreads are not so large as to preclude transactions at the
prices quoted. In organized exchanges, such as the stock market or futures market, market
makers are licensed by a regulating body or by the exchange itself.

Market Order
An order to buy or sell securities at the best available price-at the market-the most
common way of executing trades.

Market Rate Of Interest:

a) Interest rate determined by demand and supply of funds in the money market, such as the Fed
Funds rate. Market rates move up or down, depending on demand for funds, economic
conditions, and Federal Reserve monetary policy.
b) Rate a bank offers to attract deposits, which may match or exceed rates offered by competitors.

Market Research
The systematic collection and analysis of data relating to sale and distribution of financial
products and services. Market research is an early step in the marketing process, and
includes an analysis of market demand for a new product, or for existing products, as well
as appropriate methods of distributing those products. Techniques in market research
include telephone polling and focus group interviews to determine customer attitudes,
pricing sensitivity, and willingness to use delivery alternatives. Most large banks have their
own market research departments that evaluate not only products, but their bricks and
mortar branch banking networks through which most banking products are sold.

Market Risk
The probability that an investment will vary in price as market conditions change. Volatile
or speculative securities have greater potential for price gains (and profits) or losses than
investments that have stable prices.

Market Segmentation Theory

Theory of interest rates that says short-term and long-term markets act independently of
each other and that investors have fixed maturity preferences. Also called segmented markets
theory. Supporters of this theory maintain that short-term and long-term rates are distinct
markets, each with its own buyers and sellers, and are not easily substituted for each other.

Market Value
The highest price that a marketable asset will bring in an open and competitive market,
assuming that both buyer and seller are informed and acting independently. Also called fair
market value . In theory, this is the highest price a seller is willing to accept and the lowest
price a buyer is willing to pay. It may differ from the appraisal value.

Marketing
Business activities relating to delivery of goods and services from sellers to purchasers, and
also from businesses to consumers to meet demands of the market. Bank marketing or
selling in the past relied heavily on retail branch networks to distribute financial services,
but in recent years banking institutions have employed a variety of marketing approaches,
including direct mail and telemarketing. Competition from nonbank financial
intermediaries since the mid-1970s has led depository financial institutions to experiment
with employee sales incentives and other tactics in an attempt to instill more of a sales
culture in bank marketing.

Master Mortgage
The standard mortgage documentation filed by mortgage originators in public land
records. The master mortgage simplifies the recording of liens, as mortgages have become
increasingly complex in recent years, and also facilitates sales of loans in the secondary
mortgage market.

Master Note
In commercial banking, the contractual agreement between a bank and its customer,
usually a company, whereby the bank agrees to make loans up to a specified maximum for
a specified period, usually a year or more. As the borrower repays a portion of the loan, an
amount equal to the repayment can be borrowed again under the terms of the agreement.
In addition to interest borne by notes, the bank charges a fee for the commitment to hold
the funds available. A compensating balance may be required in addition. In consumer
banking, loan account requiring monthly payments of less than the full amount due, and the
balance carried forward is subject to a financial charge. Also, an arrangement whereby
borrowings are permitted up to a specified limit and for a specified period, usually a year,
with a fee charged for the commitment.

Master Trust
A custody arrangement whereby a bank or trust company manages pension fund assets for
a group of related companies under a single trustee account. A master trust agreement
facilitates the administration of defined benefit pension plan assets, including purchase and
sale of securities, reporting to corporate plan sponsors, as required by the Employee
Retirement Income Security Act and distribution of retirement benefits to individuals
covered by the plan. A master trust arrangement facilitates plan accounting when multiple
investment managers are used.

MasterCard International
A member-owned nonprofit corporation that licenses financial institutions to issue
MasterCard bank cards and market related products and services. Its principal assets are
the MasterCard trademarks; a global communications network, BankNet, for authorization
and settlement of bank card transactions for member banks; and a nationwide Automated
Teller Machine network, Cirrus System Inc. Member banks issue MasterCard credit cards
and Master Money debit cards.

Matched Book
A portfolio of assets and portfolio of liabilities having equal maturities. The term is used
most often in reference to money market instruments and money market liabilities. In
contrast, an unmatched book is referred to as a short book or long book.

Matched Maturities
In bank Asset-Liability Management, the funding of loans with deposits of approximately
equal durations to minimize interest rate risk. This is the contractual gap approach to funds
management, carried out by matching maturities on opposite sides of the balance sheet in a
given reporting period. For example, all 90-day loans are matched against liabilities
expected to mature or reprise in 90 days. The difference between maturing assets and
maturing liabilities is the contractual gap, which will be different for each calendar period.
Matched funding gets more difficult as maturities lengthen. A bank could, for example, try
to fund its five-year car loans with five-year Certificates of Deposit, but this is often difficult
to achieve. A bank cannot prevent its depositors from withdrawing their money before the
CD maturity date. Also, a bank may find it advantageous to deliberately mismatch
maturities when it believes interest rates are about to change. Maturity matching is more
common in the Eurocurrency market where Eurodollar deposits, for instance, have fixed
maturities, and can be matched easily against fixed term liabilities.

Matched Sale-Purchase Agreement

An action by the Federal Reserve to restrict the supply of funds (reserves) banks has
available to lend. The Fed does this by selling securities to dealers and simultaneously
agreeing to buy back those securities at a future date. Selling securities drains reserves
from the banking system because dealers have to take out bank loans to finance their
purchases. Matched sale-purchase transactions usually have maturities of seven days or
less, and are executed by the System Desk at the Federal Reserve Bank of New York, which
carries out the monetary policy directives of the Federal Open Market Committee. The
System Desk accepts dealer bids to buy securities, usually Treasury bills, until sufficient
reserves have been absorbed. A matched sale-purchase agreement is the opposite of a
repurchase agreement, which adds reserves.

Maturity Date
A date on which the principal balance of a loan, debt instrument or other financial security
is due and payable to the holder. Also, the date on which a time draft is payable.

Maturity Gap
Acquiring assets with anticipated maturities, or durations, longer or shorter than the
liabilities used to fund those assets. This is the conventional circumstances of bank lending,
in other words, borrowing short and lending long, creating interest rate risk that is
managed through Asset-Liability Management.

Maturity Tickler
A journal in which time loans are recorded in chronological order, and consecutively
numbered. Also called a loan register. Shortly before the maturity date, the borrower is
notified by mail, or by a personal visit from a loan officer, that the loan is about to come
due.

Mcfadden Act
A law enacted by Congress in 1927 giving states the power to regulate bank branching,
including branching by national banks. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 modified the McFadden Act, allowing banks to open deposit-taking
branches across state lines by merging with other banks.

Mechanic's Lien
An enforceable claim, permitted by law in most states, securing payment to contractors,
subcontractors and suppliers of materials for work performed in constructing or repairing
a building. The lien, which attaches to real property, plus buildings and improvements
situated on the land, remains in effect until the workmen have been paid in full, or in event
of liquidation, gives the contractor priority of lien ahead of other creditors.

Medium of Exchange
Any monetary instrument or money accepted as payment for goods and services and
settlement of debts, such as checks, bank drafts, or notes. A medium of exchange eliminates
the need for direct exchange or barter, and is the basis for a modern banking system.

Member Bank
A depository financial institution that is a member of the Federal Reserve System. National
banks are required to be members of the Federal Reserve; state chartered commercial
banks and mutual savings banks have the option of becoming members. Member banks
purchase stock in their district Federal Reserve Bank equal to 6% of their paid-in capital
and surplus; keep a portion of their demand deposits and time deposits in legal reserves at
a Federal Reserve Bank; honor checks drawn on the bank and presented by another bank
for collection; and comply with federal banking regulations, and if a state chartered bank,
accept supervision and examination by the Federal Reserve System.

Memo Entry
A debit or credit to a customer's account that is recorded to the bank's transaction journals
at a different time than when the transaction actually occurred. Journal entries are entered
to the general ledger usually at the end of the day. Many banks that operate electronic
banking services, such as automated teller machines, do not record Electronic Funds
Transfer (EFT) transactions in an on-line fashion, but record them to a memo file,
sometimes called a strip file, which is used to update customer accounts.

Memorandum of Understanding
A voluntary agreement by a bank or savings institution, negotiated with a supervisory
agency, to refrain from a particular activity deemed by the regulatory agency to be an
unsound banking practice. A memorandum of understanding is not necessarily an
admission of wrongdoing, but indicates a willingness to take corrective action in the future.

Mercantile Agency
An organization that supplies credit information to businesses and to financial institutions
in response to a request for a credit history on an individual or business organization.

Merchant
A person, firm, or corporation that has a contractual relationship with a card issuing bank
to accept bank cards for payment of goods and services.

Merchant Agreement
A written agreement between a retail merchant and a card processing bank. The merchant
agreement spells out the merchant's rights and warranties with respect to accepting bank
cards, the merchant discount rate, and procedures to follow in handling chargebacks and
other disputed transactions.

Merchant Bank
A credit card processing bank that purchases bank card sales drafts from a retail merchant.
The merchant processor converts the merchant's sales drafts to deposits, and collects a
processing fee called a merchant discount. If the transaction was initiated by a customer at
another bank, the merchant bank submits the sales draft information through the bank
card interchange system, collecting the amount of the draft, less the interchange fee, from
the card issuing bank.

Merger
A combination of two or more organizations through stock purchase, cash payment, or a
combination. Managements in both banks generally consent to mergers in the banking
industry, or in the case of a bank acquiring a failed institution, the approval of bank
regulatory agencies is necessary. A merger is called an acquisition when one of the parties
to the transaction, usually but not always the larger one, takes over a smaller company and
consolidates the two organizations into a single entity.

Message Authentication Code (MAC)

Unique security code, created by an algorithm and used in Electronic Funds Transfer (EFT)
to ensure that the information has not been tampered with, and that the sender of a
message is in fact the originating bank.

Messenger
Bank employee whose job is collection, by direct presentment, of checks, notes, and drafts
that are not drawn on clearinghouse banks and thus are not collectible through a
clearinghouse. Messengers also collect special items from brokerages and corporations,
such as drafts with stocks or bonds attached. Collection by messenger is frequently known
as collections by hand.

Metropolitan Statistical Area (MSA)

Federally designated geographical unit consisting of an urbanized area with a central city
of at least 50,000 residents and a regional population of 100,000. Federal banking
regulations permit financial institutions doing business within an MSA to use a single
master account in dealing with the Federal Reserve for computing reserve requirements,
processing checks, and sending electronic fund transfers. Information about Community
Reinvestment Act -related lending to local communities, compiled for each MSA, is
available from federal banking regulators.

Mezzanine Bracket
Popular name for the underwriters in an underwriting syndicate who subscribe to the
second largest portion, following the lead manager, and are listed below the lead manager
in tombstone advertising announcing the transaction in newspapers. Other underwriters,
including co-managers, participating in the deal are listed in alphabetical order beneath the
major underwriters.

Mezzanine Financing:

a) In corporate finance, a leveraged buyout (LBO) or restructuring financed through

subordinated debt, such as preferred stock or convertible debentures. This type of financing
is very popular in merger & acquisitions, as the transaction is financed by expanding equity,
as opposed to debt. Holders of the securities are also assured of having a greater role in
managing the resulting company.
b) Second or third level financing of companies financed by venture capital. The mezzanine
financing is senior to the venture capital financing, but junior to bank financing, and adds
creditworthiness to the firm. It generally is used as an intermediate stage financing,
 preceding the company's initial public offering (IPO), and is considered less risky than start-
up financing.

Microfilm
Photographic process that copies checks and other documents for record keeping and
storage. Microfilming of bank records is being replaced gradually by document image
processing, in which physical documents are converted into computer readable digital
images that are stored on optical laser disks for rapid retrieval.

Microloan
Development loan to a small business arranged by a bank-funded community development
bank. Such loans provide startup capital in economically disadvantaged communities, and
are often made for amounts as small as $1,000. Microloan programs assisted by the World
Bank provide needed funding in developing countries. They are becoming more common in
the United States. Also called microcredit.

Middle Rate
Median average of bid and offer prices quoted by foreign exchange dealers.

Mini-Branch
Specialized branch office that offers a limited number of banking services, less than what is
available at a full-service branch. A mini-branch, generally smaller than a conventional
branch, may have only an Automated Teller Machine for taking deposits and dispensing
cash, and may refer loan applications to another branch. Also called convenience branch.

Mini-Statement
Financial report covering only a portion of a fiscal year. Public corporations supplement
the annual report with quarterly statements informing shareholders of changes in the
balance sheet and income statement, as well as other newsworthy developments.

Minimum Balance
Amount required in an account to earn interest, qualify for special services, or waives
service charges. Accounts that fall below the minimum balance may be subject to service
charges if the average balance is below that threshold, or if the account falls below that
balance at any time. To get a free checking account, for instance, a customer may have to
keep a certain amount in the account at all times or maintain an equivalent amount in other
accounts. Cost accounting systems may give customers an earnings credit for funds kept on
deposit. Others, instead, work with a flat charge per check or account.

Minimum Payment
Smallest payment a credit cardholder can make toward reducing the outstanding balance
owed, while meeting the terms and conditions of the cardholder agreement. In most bank
credit card plans, the minimum acceptable payment generally is 1/36 of the outstanding
balance.
Minor
Person under legal age, the age when he or she attains full civil rights. The legal age is 18 in
most states, but may be 21 in some states.

Misencoded
Payment incorrectly entered encoded in a bank's proof and transit department with an
incorrect dollar amount. A misencoded check will become a reject and will have to be
processed manually as an exception item.

Misfeasance
Performing official duties irresponsibly, or improperly carrying out a lawful act. Contrast
with malfeasance, committing an unlawful act in an official capacity; or nonfeasance, failing
to do something a person is obliged to do by contract or agreement.

Mismatch
Situation in Asset-Liability Management when interest-earning assets and interest expense
liabilities do not balance. An example is when an asset is funded by a liability of a different
maturity. The conventional circumstances in banking are that banks and savings
institutions borrow short and lend long. This means funding 30-year mortgages with short-
term deposits, expecting that short-term deposits can be rolled over at maturity dates. Also
known as a mismatched book.

Missing Payment
Loan payment made within the allowed grace period, but, for one reason or another, not
posted to the proper account. If not corrected in time, the error may result in the posting of
a late charge against the account.

Mixed Deposit
Deposit at a teller window, night depository, or at an automated teller machine, containing
both cash and checks.

Model
Mathematical characterization of a process, market condition, or set of variables that is
used to determine how each would behave under different scenarios. Such models are
widely used in Asset-Liability Management , credit scoring, loan pricing, interest rate
futures, and financial swaps.

Monetarist
Economist who believes that control of the money supply is the key to managing the boom
and bust cycles in the economy.

Monetary Accord Of 1951

Agreement between the U.S. Treasury Department and the Federal Reserve Board of
Governors that enabled the Fed to pursue an active monetary policy , independent of the
Treasury and the federal government. Before 1951, the Fed had to assure low cost
Treasury financing by purchasing Treasury securities at a set price. Afterward, the Federal
Reserve Open Market Committee was able to purchase as much, or as little, of Treasury
securities offered for sale by the Treasury Department as it wanted, instead of having to
buy whatever the Treasury issued at the prevailing rate. Also known as the Treasury-Fed
Accord.

Monetary Aggregates
Total stock of money in the economy, consisting primarily of (1) currency in circulation and
(2) deposits in savings and checking accounts. Too much money in relation to the output of
goods tends to push interest rates down and push prices and inflation up; too little money
tends to push interest rates up, lower prices and output, and cause unemployment and idle
plant capacity. The bulk of money is in demand deposits with commercial banks, which are
regulated by the Federal Reserve Board. It manages the money supply by raising or
lowering the reserves that banks are required to maintain and the discount rate at which
they can borrow from the Fed, as well as by its open-market operations-trading
government securities to take money out of the system or put it in.

Monetary Base
Sum of reserve accounts of financial institutions at Federal Reserve Banks, currency in
circulation (currency held by the public and in the vaults of depository institutions). The
major source of the adjusted monetary base is federal reserve credit. The monetary base, as
the ultimate source of the nation's money supply, is controllable, at least to some degree, by
Federal Reserve monetary policy. The adjusted monetary base data is compiled weekly by
the Federal Reserve Board and the Federal Reserve Bank of St. Louis, and is adjusted
seasonally.

Monetary Control Act

Federal legislation of 1980 providing for deregulation of the banking system. The act
established the Depository Institutions Deregulation Committee, composed of five voting
members, the Secretary of the Treasury and the chair of the Federal Reserve Board, the
Federal Home Loan Bank Board, the Federal Deposit Insurance Corporation, and the
National Credit Union Administration, and one nonvoting member, the Comptroller of the
Currency. The committee was charged with phasing out regulation of interest rates of
banks and savings institutions over a six-year period (passbook accounts were de-
regulated effective April, 1986, under a different federal law). The act authorized interest-
bearing negotiable order of withdrawal (NOW) accounts to be offered anywhere in the
country. The act also overruled state usury laws on home mortgages over $25,000 and
otherwise modernized mortgages by eliminating dollar limits, permitting second
mortgages, and ending territorial restrictions in mortgage lending. Another part of the law
permitted stock brokerages to offer checking accounts.

Monetary Policy
Actions by the federal reserve system to influence the cost and availability of credit, with
the goals of promoting economic growth, full employment, price stability, and balanced
trade with other countries. Through its monetary policy decisions, the Fed tries to regulate
both interest rates and the nation's money supply . Monetary policy is carried out by the
Federal Reserve Board (FRB) and the Federal Open Market Committee (FOMC) , the 12-
member committee (including all 7 governors of the Federal Reserve Board), which directs
the open market purchase and sale of government securities for the 12 Federal Reserve
Banks. The Federal Reserve Board chairman appears before Congressional committees
twice a year, in February and July, to report on Federal Reserve monetary policy objectives,
as required by the 1978 Humphrey-Hawkins Act. These addresses are watched closely for
indications of a change in monetary policy.

Money
Anything commonly accepted as a legal tender currency for payment of debts. Money has
been defined any number of ways, but it generally serves three distinct purposes,
depending on how it is used: (1) as a medium of exchange for payments between
consumers, businesses, and government; (2) as a unit of account for measuring purchasing
power, or the prices paid for goods and services; and (3) as a store of value for measuring
the economic worth of current income deferred for spending in future years.

Money Center Bank

Bank located in a major financial center that participates in both national and international
money markets. Money center banks offer regional banks and community banks access to
master trust, foreign exchange, and depository services, as well as check clearings, through
correspondent banking networks. Money center banks are found mainly in New York,
Chicago, and San Francisco, and also in London and other world financial centers.

Money Market
Market where short-term debt securities are issued and traded. The money market is an
informal network of dealers and institutional investors, rather than an organized market
like the New York Stock Exchange. A bank selling certificates of deposit, for instance, is
engaged in money market activities. Money market securities are generally short-term,
typically less than 90 days, and are highly liquid investments issued by firms with good
credit ratings. Participants include government securities dealers, banks and other
financial institutions, and managers of money market funds. An important part of the global
money market is the Euromarket, a largely unregulated market where financial
instruments in various currencies are actively traded outside the country of origin.

Money Market Certificate (MMC)

Non-negotiable certificate of deposit with a minimum denomination of $2,500 and an
original maturity of at least seven days. Prior to January 1983, when the MMC was
deregulated, the account was a six-month CD requiring an initial deposit of $10,000 to open
an account, and paying a rate tied to the yield on six-month U.S. Treasury bills. With
deregulation, maturities and rates paid depositors are set by management policy in
individual financial institutions, not by government regulation.

Money Market Fund (MMF)

Mutual fund that invests in short-term debt instruments, such as acceptances, Treasury
bills, commercial paper, and negotiable certificates of deposit. Most funds invest in high-
quality paper, although some funds have purchased noninvestment grade securities to
offer a better yield. Money market funds, managed by investment companies registered
with the Securities and Exchange Commission, typically buy paper with maturities of 60
days or less. A fund sells shares to investors, who receive regular interest payments. The
amount of interest earned by an investor depends on several factors, including the general
level of interest rates, the management fee or commissions charged by the fund's manager,
and whether there are redemption fees present. The fee structure in a money market
mutual fund and investment characteristics of the portfolio are spelled out in the fund
prospectus.

Money Market Instruments

Debt instruments issued by private organizations, governments, and government agencies,
generally with maturities of one year or less. Such instruments are highly liquid
investments, and include Treasury bills, bankers' acceptances, commercial paper and
short-term tax-exempt municipal securities, and negotiable bank CDs. Money market
instruments are actively traded in the money center financial markets in New York,
London, and Tokyo. Futures contracts on U.S. Treasury bills and certain other money
market instruments are traded in the financial futures markets.

Money Market Preferred Stock

Class of preferred stock with a floating dividend rate. The dividend is reset every 49 days-
the minimum time interval that holders own the stock, while claiming the 70% dividend
tax exclusion-by investors who tender bids for the stock at a specific dividend rate. Money
market preferred issues are meant to insure that preferred stock issues trade at, or close to
par value, but have been known to fail if an offering fails to attract enough bids at the
dividend rate desired by the issuer. Under the financial regulators' risk-based capital rules,
money market preferred stock does not count toward a bank's primary capital or Tier 1
capital.

Money Multiplier
Relationship between the monetary base and the money supply. The multiplier explains
why the money supply as excess reserves are added to the banking system. When a bank
makes a loan, it creates money, because part of the loan becomes a new deposit.

Money Order
Instrument of exchange issued for a fee, often used by persons who do not have checking
accounts to pay bills or send money to someone in a distant city. Money orders are issued
by post offices and financial institutions, usually in amounts under $500, and carry both the
payee's name and the payer. Those issued by a bank are drawn on the issuing bank or a
correspondent.

Money Supply
Total amount of money available for transactions and investment in the economy. The
Federal Reserve Board uses various statistical measures to measure the various forms of
money that make up the money supply. The monetary aggregates in the money supply are
updated weekly by the Federal Reserve Board. When the Fed is pursuing an expansive
monetary policy , the central bank adds reserves to the banking system and banks are able
to make more loans. This stimulates growth in the money supply, because business
borrowers keep part of their loans in the form of bank deposits.

Money Transfer
Order to pay funds electronically by wire or telephone instruction, usually involving a large
dollar payment. For example, the Federal Reserve Wire Network (federal wire), and the
Clearing House Interbank Payments System (CHIPS) are wire transfer payment systems.
The Federal Reserve Wire Network links Federal Reserve offices, depository institutions,
the U.S. Treasury, and other government agencies. It transfers funds, U.S. government
securities, and Federal Reserve administrative, supervisory, and monetary policy messages.

Money Market Rates

Interest paid depositors who invest in money market instruments or federally insured
deposits paying market rates of return. Money rates are reported in daily newspapers, and
include such key rates as broker call loans, the federal funds rate, rates on bankers'
acceptances, Eurodollar time deposits, the 3-month and 6-month Treasury bill rate, and the
London Interbank Offered Rate (LIBOR).

Monthly Compounding Of Interest

Rate that is applicable when interest in subsequent periods is earned not only on the
original principal but also on the accumulated interest of prior periods.

Monthly Statement
Account statement mailed or sent by electronic mail to a customer that lists debits, credits,
service charges, and account adjustments during the prior month. A checking account
statement includes a list of checks written, deposits, and electronic debits and credits at an
ATM, along with cancelled checks. A credit card statement is a descriptive billing statement
listing account charges and finance charges that apply to revolving balances if there is an
outstanding balance. A consolidated statement summarizes end of month balances in
several accounts as of the date the statement was prepared.

Moody's Investors Service

Investment advisory service that publishes financial manuals analyzing corporate
securities that are sold to the public. Moody's also rates the investment quality of
commercial paper, and bonds and short-term tax-exempt notes issued by states and
municipalities. Moody's Investment Grade ratings assigned to municipal notes range from
MIG1 (best quality) to MIG4 (adequate quality); all four are considered investment quality
securities for banks. Moody's ratings on corporate bonds and preferred stocks, plus certain
common stocks, are graded from Aaa (highest quality) to Caa (lowest quality). Securities
rated Baa or better are considered investment quality.

Moral Obligation Bond

Tax-exempt bond issued by a municipality or state financing authority, secured by
revenues from the project financed, plus a nonbinding pledge by the state legislature. In the
event that project revenues are insufficient to meet debt service payments, the legislature
is authorized to step in and appropriate funds in the future to cover principal and interest
payments to bondholders. The state's commitment to service the bonds is moral, rather
than contractual, as legislatures have no legal obligation to do so if the original obligor
defaults.

Moral Suasion
Persuasion by oral or informal pressure, carried out by central bankers and heads of
government agencies to convince bankers to do something, or refrain from doing
something. Moral suasion, which stops short of legal remedies and formal rule making, can
at times be highly effective because of the announcement effect Federal Reserve policy has
on the markets.

Moratorium
The moratorium period can be called a repayment holiday for loan. If an individual wants
to secure disbursement of loan, but he doesn't have EMI or Pre-EMI provision, he is
provided with an option to dish out some amount, as stated in the bank policy. The
moratorium period is contained in the maximum repayment period. An individual has to
pay interest rates during this period.

Morris Plan Bank

State chartered finance company that makes consumer and commercial loans and accepts
time deposits and interest-paying Negotiable Order Of Withdrawal Account accounts.
Industrial banks, once found in sixteen states, are today chartered in just five states, mostly
in the western United States. The term has its roots in the early-20th-century finance
companies that originated loans to industrial workers; back then, most commercial banks
did not offer consumer loans. Also called industrial loan bank or industrial loan company.

Mortgage
Debt instrument giving conditional ownership of an asset, secured by the asset being
financed. The borrower gives the lender a mortgage in exchange for the right to use the
property while the mortgage is in effect, and agrees to make regular payments of principal
and interest. The mortgage lien is the lender's security interest and is recorded in title
documents in public land records. The lien is removed when the debt is paid in full. A
mortgage normally involves real estate and is a long-term debt, normally 25 to 30 years,
but can be written for much shorter periods.

Mortgage Banker
Organization that originates mortgages for resale to investors. Mortgage bankers derive
their income much like merchant bankers, from the origination fees and servicing income.
Loans are sold in one of two ways: by private placement of whole loans or pools of loans
with a single investor, typically an institutional investor, such as an insurance company; or
by issuing securities that are backed by mortgage loans. Mortgage bonds are traded in the
public markets, and are rated by the debt rating agencies. Also called mortgage company.

Mortgage Bankers Association Of America

Organization, usually a not-for-profit corporation, that is comprised of and supported by
members engaged in a particular type of business and thus having common interests.
Trade associations typically engage in advocacy activities, legislative and congressional
lobbying, public and membership information services, research and education, and other
functions promoting the interests of the particular industry group.

Mortgage Broker
Person who brings borrower and lender together, earning a commission. A mortgage
broker may also place loans with investors, but he does not collect the mortgage payments.

Mortgage Cash Flow Obligation

Multiclass pay through bond, similar to a Collateralized Mortgage Obligation (CMO) and is
an unsecured general obligation of the issuer. Payments received on a mortgage pool are
applied to paying principal and interest on the obligation. Mortgage cash flow obligations,
though, differ from CMOs; in contrast to a CMO, a mortgage cash flow obligation is not
secured by a lien on the mortgages in the pool. Investors rely on the issuer's contractual
obligation to use the cash flow from the mortgage principal and reinvestment income to
meet debt service payments on the bonds.

Mortgage Discount
Amount paid in advance by a mortgagor, computed as a percentage of the loan principal.
Also called discount point , points, or new loan fee. Points, usually paid at the mortgage
closing, increase the lender's yield from the mortgage loan.

Mortgage Insurance
Contract insuring a mortgage lender against default risk. Mortgage insurance allows a
borrower to purchase a home with a down payment as low as 3 to 5% of the purchase
price-even lessfor qualified borrowers-instead of the usual 20% down paymentlenders
normally require. Insurance premiums are paid by the borrower.The Federal Housing
Authority, an agency in the Department of Housing and Urban Development, insures
mortgages on one-to-fourfamily houses and condominiums, and it reimburses the
mortgage lender if default occurs. Mortgage insurance purchased from a commercial
insurance carrier is known as Private Mortgage Insurance.

Mortgage Interest Deduction

Loan interest qualifying as interest deductible from federal income taxes. Mortgage interest
payments on first and second homes are fully deductible, but mortgage interest on a third
home, if for personal use, is treated as nondeductible consumer interest. Interest on a home
equity loan-home equity credit-is tax deductible if used primarily for home improvements,
medical expenses, or education. Interest payments on credit cards, auto loans, and other
types of consumer interest is regarded as consumer interest; the tax deduction for such
interest ended in 1991.

Mortgage Note
Written promise to repay a mortgage loan plus interest. The mortgage gives the lender a
security interest in the mortgaged property. The mortgage note is the promissory note
stating the principal amount due, the rate of interest, and the terms for repayment of the
funds advanced. The borrower signing the note, and any cosigners, are personally liable for
repayment of the debt.

Mortgage Pool
Group of residential mortgage loans classified by original maturity date and type of
mortgage (i.e., fixed rate conventional, adjustable rate) for sale to investors in the
secondary mortgage market.

Mortgage Reith
Real Estate Investment Trust (REIT) that supplies funds to the residential housing market
by lending capital to real estate developers. Mortgage REITS borrow from banks and
institutional investors and relend to developers at a higher interest rate, and frequently
take equity participations in the cash flow income from the projects they finance.

Mortgage Revenue Bond

Tax-exempt bonds issued by state and local governments and by state housing finance
agencies to finance the sale or repair of single family homes. These bonds are payable from
revenues derived from repayments of interest and principal on mortgage loans financed
from the proceeds of the bonds. Since 1980 the issuance and structure of these bonds has
been controlled by federal law. These offer below market financing to income-qualified
borrowers. Also called mortgage subsidy bond.

Mortgage Servicing:

a) Servicer: Party that collects principal and interest payments when mortgages or other assets
are securitized and sold to investors. Among its administrative duties, the servicer forwards
payments to investors and transmits periodic activity reports to credit-rating agencies and
investors owning asset-backed or mortgage-backed securities. In banking there are several
distinct types of servicers: a primary servicer performs routine servicing and initiates
collection proceedings on past-due loans; a master servicer oversees servicing activities
when assets from multiple originators are pooled together in a single securitization; a sub-
servicer collects payments on behalf of a master servicer; a back-up servicer stands ready to
step in should the primary servicer fail in its duties; a special servicer handles collection and
foreclosure efforts on delinquent loans and other problem loans.
b) Collateral control in asset-based lending , by which a lender (or a factor in factoring )
monitors its collateral position. Collateral control, also known as policing, can be done by
the lender or by a third party. It (1) assures an account is in good standing; (2) confirms
shipments of goods; (3) protects against diversion of funds; and (4) provides a monthly aging
schedule of receivables.

Mortgage Swap
Exchange of mortgage loans for participation certificates or pass-through securities backed
by the same mortgages. Mortgage lenders, swap mortgages with fannie mae or freddie mac
acquiring securities guaranteed by the federal mortgage agencies to improve asset quality
in loan portfolios, obtain acceptable collateral for repurchase agreements and reverse
repurchase agreements , take low-rate assets off the balance sheet, or for other reasons.

Mortgage-Backed Bond
Bond collateralized by a pledge of mortgages and payable from the issuer's general funds.
Because the market value of the collateral must exceed the outstanding bond principal,
additional collateral may be required if the market value of the underlying mortgages
declines. Unlike mortgage pass-through securities, which convey an ownership interest in a
pool of mortgages, ownership of a mortgage-backed bond, and usually servicing rights, are
retained by the issuer, although mortgage servicing can be sold, at a price, to a third party.
Also, for tax purposes, mortgage-backed bonds are treated as issuer debt rather than as a
sale of assets. Mortgage backed bonds also have a more predictable maturity than pass-
through securities, thus giving the bondholder a kind of call protection against early
redemption.

Mortgage-Backed Certificate
Certificate backed by a pool of mortgage loans. A mortgage certificate, also known as a pass-
through certificate, conveys a proportional interest in a pool of mortgage loans. Mortgage
certificates are issued by (Fannie Mae), Freddie Mac and also by financial institutions or
private mortgage conduits issuing mortgage certificates in their own name. Mortgage
certificates are often pledged as security for Collateralized Mortgage Obligation (CMO)
bond.

Mortgage-Backed Securities
Investment grade securities backed by a pool of mortgages or trust deeds. Principal and
interest payments on the underlying mortgages are used to pay semiannual interest and
principal on the securities. Incomes from the principal and interest payments on the
underlying mortgages are used to pay off the bonds. Most mortgage-backed securities, such
as Collateralized Mortgage Obligation and Real Estate Mortgage Income Conduit, consist of
multiclass obligations that are divided into different classes of bonds to appeal to different
investor needs. Because some mortgage pools will pay off faster than others, mortgaged-
backed securities are typically issued as a series of several different bonds, each having a
different maturity date.

Mortgagee
Lender who arranges mortgage financing, collects the loan payments, and takes a security
interest in the property financed.

Mortgagor
Borrower in a mortgage contract who mortgages the property in exchange for a loan and
gives the title to the property to the mortgagee.

Multibank Holding Company

Company that owns or controls two or more banks or other bank holding companies. As
defined in the Bank Holding Company Act of 1956, such companies must register with the
board of governors of the Federal Reserve System and hence are called registered bank
holding companies. Amendments to the 1956 act set standards for acquisitions (1966) and
ended the exemption enjoyed by one-bank holding companies (1970), thus restricting bank
holding companies to activities related to banking. The financial services modernization act
of 1999 liberated Bank Holding Companies that qualify as financial holding companies to
acquire or create as subsidiaries securities firms and insurance companies.

Multicurrency Note Facility

Short-term or medium-term euro note financing denominated in several currencies. The
facility allows the borrower to choose the currencies to draw in successive rollover
periods, when the loan is refinanced. It is the riskiest credit facility for the borrower,
because the lender has the right to set the currency in which the loan will be paid off. The
loan will reprise periodically, say every six months, in different currencies, depending on
the lender's perception of currency risk in the transaction.

Multilateral Development Bank

International financial institutions organized to provide financial and technical assistance
to foster economic development in less developed countries. They are financed by member
contributions and borrowings in the world financial markets. In terms of scope they may be
global (the World Bank Group), regional (the Latin American Development Bank or Asian
Development Bank), or specialized institutions (the Caribbean Development Bank or the
East African Development Bank).

Multilateral Netting
Written contract to settle mutual obligations at the net value of the contracts, as opposed to
the gross dollar value. Thus, two banks owing each other $10 million and $12 million,
respectively, might agree to value their mutual obligation at $2 million (the net difference
between $10 million and $12 million) for accounting purposes. There are various forms of
netting in banking: bilateral netting. an agreement by two parties to settle contracts at net
value; multilateral netting, a netting arrangement with a third party acting as a central
clearinghouse; and netting by novation, in which a new agreement replaces an existing
contract.

Multinational Corporation
Corporation owning subsidiary companies operating in several countries. A generally
accepted definition is a corporation or enterprise that derives at least 25% of its annual
sales from facilities outside its country of origin. Developing countries, including the Newly
Industrialized Country, have also encouraged formation of multinational corporations on
their soil. Many multinationals are chartered in tax haven countries for trading and
investing on a global basis.

Multiple Options Funding Facility (MOFF)

Medium term Euro note financing allowing the borrower to choose from several funding
options, i.e., a medium-term project financing allowing the option of using different
guidelines for pricing, such as prime rate, banker's acceptance rate, and Eurodollar rate.
Such options, however, must be listed clearly in the original loan agreement.

Municipal Bond
Debt instrument that is an obligation of a state or municipality, and also political
subdivisions and agencies of these governments. There are several classifications of
municipal bonds, including a general obligation bond and a revenue bond. Special
assessment bonds are bonds payable from assessments from benefitted property owners,
covering such things as streets and sidewalks. A special tax bond is a bond issued for a
special purpose, for which proceeds of a special tax are pledged, but not the taxing
authority of the issuer. Water and other utility bonds are payable primarily from utility
revenues, but are also supported by taxing authority-so-called double barreled obligations.
Certain classes of municipal bonds issued after August 1986, called private purpose bonds
are fully taxable bonds if, for example, more than 10% of the proceeds from the bond issue
are used for private development (as opposed to public improvements, such as highway
development), and the debt service is paid by private business organizations.

Municipal Bond Insurance

Financial guarantee protecting a municipal bond issue against default risk. Coverage is
purchased from a number of private insurance companies, such as AMBAC Indemnity
Corporation, and the Municipal Bond Insurance Association. Bonds insured by these firms,
which offer to purchase the bonds at par in event default occurs, enjoy an AAArating,
enabling government agencies to issue bonds at a lower cost. Insured bonds ordinarily
have a lower yield than uninsured bonds as the cost of insurance typically is passed on to
the holder. When a bond defaults, it is paid off immediately so that even if principal is
recovered, interest from the date of default to maturity is not earned. financial guarantee.

Municipal Revenue Bond

Municipal bond or state bond issue paying principal and interest from the revenues of an
income generating project, such as a toll bridge, highway, hospital, or other public facility
that is built with the proceeds of the financing. Income generated by the facility goes first
toward meeting debt service on the bonds, i.e., paying interest to bondholders and retiring
the bonds at maturity. Unlike general obligation bonds, revenue bonds are not backed by
the full faith and credit, or taxing authority, of the bond issuer. As a rule, revenue bonds are
considered tax exempt to bondholders in the issuing state. Commercial banks are
authorized to underwrite, and trade in revenue bonds through separate securities
subsidiaries, as authorized by the Federal Reserve Board.

Municipal Securities Rulemaking Board (MSRB)

Self-regulatory organization established by the 1975 amendments to the securities act of
1934 . The board sets rules for trading of municipal bonds by broker-dealers and bank
dealers, and provides an arbitration service. Its rules are approved by the Securities and
Exchange Commission and enforced by the National Association of Securities Dealers and
bank regulatory agencies. Its 15-member board is comprised of securities firms, bank
dealers, and the public, each having equal representation.

Municipal note
Short-term debt instrument, generally with a maturity of less than one year, issued by state
or local government, and repayable from the general fund of the issuer or a defined
revenue source. Notes are issued for a variety of purposes: revenue anticipation notes and
tax anticipation notes help the issuer overcome a cash flow shortage.

Mutual Association
Non stock financial institutions, such as a savings and loan association, that is owned by
savers holding claim to funds on deposit, who are known as members. Members have no
claim to the earnings of the association, but elect directors to its board of trustees. Other
forms of mutual associations are credit unions, mutual savings banks, and cooperative
banks.

Mutual Company
Non stock savings bank, insurance company, or savings and loan. The term also has been
used in reference to open-end investment companies, which are also known as mutual
funds. In a mutual company, profits, after deduction of business expenses, are set aside for
the benefit of the depositors of a financial institution, and the policyholders of a mutual
insurance company, or are held as surplus reserves to maintain liquidity.

Mutual Fund
Investment Company that pools money from its shareholders in stocks, bonds, government
securities, and short-term money market instruments. Mutual funds can also invest in
other marketable assets, such as futures, options, and collectibles. A mutual fund is also
known as an open-end investment company, meaning that there is a continuous offering of
new shares and redemption of outstanding shares.When shares are sold, the fund's
capitalization increases; it decreases when shares are redeemed by investors. (Unlike a
closed-end fund , shares are not traded on organized exchanges.) The owners of a mutual
fund own proportional shares in the entire pool of securities in which the fund invests, and
pay taxes on distributions from the fund. Most mutual fund shares are redeemable at
current Net Asset Value, although some have a back-end load or redemption charge when
shares are liquidated. In any mutual fund, the value of shares owned depends on current
market value of the portfolio, which is generally reprised daily.

Mutual Savings Bank (MSB)

State chartered non stock savings institution that accepts deposits from individuals and
makes residential mortgage loans. Management is by a board of trustees. These savings
institutions offer checking and other transaction account services, and may also originate
consumer loans, commercial loans, and commercial mortgages, and invest in limited
amounts of corporate bonds and corporate stock. State banking departments are the
primary regulators of mutual savings institutions.
Mutual Wills
Separate wills by two people, with similar language, for example, by husband and wife,
each naming the other as beneficiary of his or her estate, or naming a common beneficiary.

Mutual Mortgage Insurance Fund

Government sponsored mortgage insurance administered by the Federal Housing
Administration which insures mortgage loans on one- to four-family residential housing.
The plan is designed to be self-funding; the FHA collects premiums from mortgagors and
pays lender claims on losses from mortgage defaults.
 N
National Stock exchange
Second-largest stock exchange based in India.

Naïve diversification
A strategy whereby an investor simply invests in a number of different assets in the hope
that the variance of the expected return on the portfolio is lowered. In contrast,
mathematical programming can be used to select the best possible investment weights.

Named perils Insurance

An insurance policy that names specific risks covered by the policy.

Narrow Market
An inactive market, which displays large fluctuations in prices due to a low volume of
trading.

Narrow Based
Generally referring to an index, it indicates that the index is composed of only a few stocks,
generally in a specific industry group.

Narrowing the Spread

Reducing the difference between the bid and ask prices of a security.

NASD
National association of security Dealers. Nonprofit organization formed under the joint
sponsorship of the investment bankers' conference and the SEC to comply with the
Maloney Act, which provides for the regulation of the OTC market.

Nasdaq
National Association of securities dealers automatic quotation System. An electronic
quotation system that provides price quotations to market participants about the more
actively traded common stock issues in the OTC market. About 4000 common stock issues
are included in the Nasdaq system.

National association of Investors Corporation

A Michigan-based association that helps groups establishes investment clubs.

Nasdaq Stock Market

The first electronic stock market listing over 5000 companies. The Nasdaq stock market
comprises two separate markets, namely the Nasdaq National Market, which trades large,
active securities and the Nasdaq Smallcap Market that trades emerging growth companies
National Bank
A commercial bank approved by the U.S. Comptroller of the Currency, which is required to
be a member of and purchase stocks in the Federal Reserve System.

Natural
Used in the context of general equities. Customer buyer or seller, versus a principal or
profile interest. Legitimate, real.

Nationalization
A government takeover of a private company.

National tax policy

The way a country chooses to allocate tax burdens.

Nogoya Stock Exchange

Established after World War II, one of the three major securities markets in Japan.

National Securities Clearing Corporation (NSCC)

A clearing corporation that facilitates the settlement of accounts among brokerage firms,
exchanges, and other clearing corporations.

National Quatation Bureau

A service that publishes bid and offer quotes from market makers in OTC transactions.

Net asset value arbitrage

For a number of assets, the most recent transaction price at 4PM ET does not fully reflect
all available market information. One example is international equities that trade on
exchanges that are located in different time zones and close 2-15 hours before U.S. markets.
In addition, domestic small-capitization equities and high-yield and convertible bonds
often trade infrequently and have wide bid-ask spreads. This can cause the most recent
transaction price to be much different from the price that one would see in a liquid market
at 4 PM, even for assets that trade on exchanges that are open at that time. Investors can
take advantage of mutual funds that calculate their NAVs using stale closing prices by
trading based on recent market movements. For example, if the U.S. market has risen since
the close of overseas equity markets, investors can expect that overseas markets will open
higher the following morning. Investors can buy a fund with a stale-price NAV for less than
its current value, and they can likewise sell a fund for more than its current value on a day
that the U.S. market has fallen. Similar opportunities exist when the values of infrequently
or illiquidly-traded domestic assets have recently changed. Also known as Stale Price
Arbitrage.

Near money
Assets those are easily convertible into cash, such as money market accounts and bank
deposits.
Nearby delivery month
The month of the futures contract closest to maturity; the front month or lead month.

Negative Amortization
An increase in the outstanding balance of a loan resulting from the failure of periodic
payments to cover required interest charged on the loan. Generally occurs during the first 5
to 10 years of the life of a graduated payment mortgage (GPM) and under indexed loans for
which the applicable interest rate may be changed without affecting the monthly payments.

Negative Carry
The cost of financing a financial instrument (the short-term rate of interest), when the cost
is above the current return of the financial instrument.

Negative Cash flow

Occurs when spending in a business is greater than earnings.

Negative convexity
A bond characteristic such that the price appreciation will be less than the price
depreciation for a large change in yield of a given number of basis points. For example, a
fixed-rate mortgage may lose value as rates go down because of prepayments.

Negative covenant
A bond covenant that limits or prohibits certain actions unless the bondholders agree.

Negative duration
Occurs when the price of an MBS moves in the same direction as interest rates.

Negative Income tax

A proposal to assist taxpayer with below-subsistence-level incomes. After filing a tax
return, such persons would receive a subsidy to bring them up above the poverty level.

Negative pledge
An agreement in which the borrower agrees not to pledge any of its assets as security
and/or not to incur further indebtedness.

Negative working capital

Occurs when current liabilities exceed current assets, which can lead to bankruptcy.

Negative yield curve

When the yield on a short-term security is higher than the yield on a long-term security,
partially because high interest rates are creating a greater demand for short-term
borrowing.

Negotiable certificates of deposit

Large-denomination bank certificates of deposit that can be traded.
Negotiable instrument
An unconditional order or promise to pay some amount of money, easily transferable from
one party to another.
Negotiated commission
An unfixed broker's commission that is determined through negotiation, depending on the
specifics of the trades performed.

Negotiated markets
Markets in which each transaction is separately negotiated between buyer and seller (i.e.,
an investor and a dealer).

Negotiated underwriting
A securities offering process in which the purchase price paid to the issuer and the public
offering price are determined by negotiation rather than through competitive bidding.

Net adjusted present value

The adjusted present value minus the initial cost of an investment.

Net advantage of refunding

The net present value of entering into a lease financing arrangement rather than borrowing
the necessary funds and buying the asset.

Net advantage to merging

The difference in total post- and pre-merger market value minus the cost of the merger.

Net after tax gain

Capital gain after income taxes have been paid.

Net asset value

The value of a fund's investments. For a mutual fund, the net asset value per share usually
represents the fund's market price, subject to a possible sales or redemption charge. For a
closed-end fund, the market price may vary significantly from the net asset value.

Net book value

The current book value of an asset or liability; that is, its original book value net of any
accounting adjustments such as depreciation.

Net capital requirement

SEC requirement that member firms and nonmember securities broker-dealers maintain a
maximum ratio of indebtedness to liquid capital of 15 to 1.

Net cash balance

Beginning cash balance plus cash receipts minus cash disbursements.

Net change
This is the difference between a day's last trade and the previous day's last trade.
Net currency exposure
Exposure to foreign exchange risk after netting all intracompany cash flows.
Net current assets
The difference between current assets and current liabilities, also known as working
capital.

Net errors and omissions

In balance of payments accounting, net errors and omissions record the statistical
discrepancies that arise in gathering balance of payments data.

Net exposed assets

Exposed assets less exposed liabilities. This term is used with market values or, in
translation accounting, with book values.

Net financing cost

Also called the cost of carry or, simply carry, the difference between the cost of financing
the purchase of an asset and the asset's cash yield. Positive carry means that the yield
earned is greater than the financing cost; negative carry means that the financing cost
exceeds the yield earned

Net float
Sum of disbursement float and collection float.

Net income
The company's total earnings, reflecting revenues adjusted for costs of doing business,
depreciation, interest, taxes and other expenses.

Net interest cost (NIC)

The total amount of interest that will be paid on a debt obligation by a corporate or
municipal bond issuer.

Net investment
Gross, or total investment minus depreciation.

Net investment income per share

Income received by an investment company from dividends and interest on investments
less administrative expenses, divided by the number of outstanding shares.

Net operating loss carrybacks

The application of losses to offset earnings in previous years.

Net operating loss carry forwards

Application of losses to offset earnings in future years.

Net operating losses

Losses that a firm can take advantage of to reduce taxes.
Net operating margin
The ratio of net operating income to net sales.

Net period
The period of time between the end of the discount period and the date payment is due.

Net position
The difference between the open long contracts and the open short contracts held by a
trader in any one commodity.

Net present value rule

The difference between the open long contracts and the open short contracts held by a
trader in any one commodity.

Net proceeds
Amount received from the sale of an asset after deducting all transaction costs.

Net profit margin

Net income divided by sales; the amount of each sales dollar left over after all expenses
have been paid.

Net quick assets

Cash, marketable securities, and accounts receivable less current liabilities.

Net sales
Gross sales less returns and allowances, freight out, and cash discounts allowed.

Net salvage value

The after-tax net cash flow for terminating the project.

Net transaction
A securities transaction in which no commissions or extra fees are paid, such as in an initial
public offering.

Net working capital

Current assets minus current liabilities. Often simply referred to as working capital.

Net worth
Common stockholders' equity which consists of common stock, surplus, and retained
earnings.

Net yield
The rate of return on a security minus purchase costs, commissions, or markups.

Netting
Reducing transfers of funds between subsidiaries or separate companies to a net amount.
Netting out
To get or bring in as a net; to clear as profit.

Neural nets
Models which mimic the massive parallel processing that occurs in the brain.

New issue
Securities that are publicly offered for the first time, whether in an IPO or as an additional
issue of stocks or bonds by a company that is already public.

New listing
A security that has just been entered on a stock or bond exchange for trading.

New money
In a Treasury auction, the amount by which the par value of the securities offered exceeds
that of those maturing.

New issue market

The market in which a new issue of securities is first sold to investors. This is not a
separate market but refers to a niche of the overall market.

No adjournment
Within the text on the proxy, card are the words: "Shares will be voted at this annual
meeting or at any adjournment thereof." If a securityholder strikes out this phrase, the
proxy cannot be counted at any adjournment (reconvening) of the meeting.

No book
Used for listed equity securities. Not much, if any, stock is being bid for or offered at the
present time by customers or the specialist.

No protest
Instructions given to a collecting bank not to protest a specific item in the event of non
payment or non acceptance.

No brainer
A market in which it does not take very complex analysis to figure out how securities are
going to perform, such as a strong bull market.

No load fund
A mutual fund that does not impose a sales commission. Related: Load fund, no-load
mutual fund.

NOB (Note Against Bond)Spread

A futures spread trade involving the buying (selling) of a ten-year Treasury note futures
contract and the selling (buying) of a Treasury bond futures contract.
NOB Spread
Notes over bonds spread. This is the difference in yield between Treasury notes (maturing
in 2 to 10 years) and Treasury bonds (maturing in 15 or more years), which is traded using
Treasury note and bond futures.

Noise
Price and volume fluctuations that can confuse interpretation of market direction. Used in
the context of general equities. Stock market activity caused by program trades, dividend
rolls, and other phenomena not reflective of general sentiment. Antithesis of real.

Nominal annual rate

An effective rate per period multiplied by the number of periods in a year. Same as annual
percentage rate.

Nominal exchange rate

The actual foreign exchange quotation in contrast to the real exchange rate, which has been
adjusted for changes in purchasing power.

Nominal exchange price

The exercise price of a GNMA option contract, which equals the unpaid principal balance
multiplied by the adjusted exercise price

Nominal income
Income that has not been adjusted for inflation and decreasing purchasing power.

Nominal quotation
Used in the context of general equities. Bid and offer prices given by a market maker for the
purpose of valuation, not as an invitation to trade; must be specifically identified as such by
prefixing the quotes FYI (for your information) or FVO (for valuation only).

Nominal yield
The income received from a fixed income security in one year divided by its par value.

Non equity option

An option whose underlying entity is not common stock; typically refers to options on
physical commodities and index options.

Non cash charge

A cost, such as depreciation, depletion, and amortization, that does not involve any cash
outflow. That is, this is treated as an accounting expense -- not a real expense that demands
cash.

Non current asset

Any asset that is expected to be held for the whole year, not sold or exchanged, such as real
estate, machinery, or a patent.
Nondeliverable forward contacts(NDF)
Agreement regarding a position in a specified currency, a specified exchange rate, and a
specified future settlement date, that does not result in delivery of currencies. Rather one
party in the agreement makes a payment to the other party on the basis of the exchange
rate at the future date.

Non insured plan

Defined benefit pension plans that are not guaranteed by life insurance products.

Non member bank

Depository institution that is not a member of the Federal Reserve System. Specifically, a
state-chartered commercial bank that has elected not to join the System.

Non marketed claim

Claims that cannot be easily bought and sold in the financial markets, such as those of the
government and litigants in lawsuits.

Nonproductive loan
A loan that increases spending power, but is used in business that does not directly
increase the economy's output, such as a leveraged buyout loan.

Non-purpose loan
A loan with securities pledged as collateral, but which is not to be used in securities trading
or transactions.

Nonrefundable
Not permitted, under the terms of an indenture, to be refundable.

Non-systematic risk
Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also
called unique risk or diversifiable risk. Systematic risk refers to risk factors common to the
entire economy.

Nonvoting stock
A security that does not entitle the holder to vote on the corporation's resolutions or
elections.

Normal annuity form

A security that does not entitle the holder to vote on the corporation's resolutions or
elections.

Normal portfolio
A customized benchmark that includes all the securities from which a manager normally
chooses, weighted as the manager would weight them in a portfolio.
Notice period
The time during which the buyer of a futures contract can be called upon to accept delivery.
Typically, the 3 to 6 weeks preceding the expiration of the contract.

Notification date
The day the option is either exercised or expires.

NRA (Non Resident Alien) Tax

The tax which must be withheld by the corporation or its disbursing agent (usually 15% or
30%, depending on the hold's citizenship).
 O
Obligation
Legally enforceable duty to pay a sum of money, or agree to do something (or not do
something), according to the terms stated in a contract .the duty of a borrower to repay a
loan, and the legal right of a lender to enforce payment.

Off the shelf

Term used for securities and exchange commission rules 415 adopted in the 1980s, which
allows a corporation to comply with registration requirements up to two years prior to
a public offering of securities. With the registration on the shelf, the corporation, by simply
updating regularly filed annual, quarterly, and related reports to the sec, can go to the
market as conditions become favorable with a minimum of administrative preparation. The
flexibility corporate issuers enjoy as the result of shelf registration translates into
substantial savings of time and expense.

Off-balance sheet items

Obligations that are contingent liabilities of a bank, and thus do not appear on its balance
sheet. In general, off-balance sheet items include the following: direct credit substitutes in
which a bank substitutes its own credit for a third party, including standby letters of credit;
irrevocable letters of credit that guarantee repayment of commercial paper or tax-exempt
securities; risk participations in bankers' acceptances; sale and repurchase agreements;
and asset sales with recourse against the seller; interest rate swaps; interest rate options
and currency options, and so on.

Off-premise banking
Retail banking services provided away from a bank's main offices or its branches,
ordinarily through automated teller machines (ATMs) in convenience stores, shopping
centers, corporate office parks, and other locations. Off-premise banking networks, such as
atm systems, are costly to set up, but have a lower cost per transaction than conventional
branch offices staffed by tellers.

Offer
Price at which someone who owns a security offers to sell it; also known as the asked
price . This price is listed in newspapers for stocks traded over the counter . The bid price-
the price at which someone is prepared to buy-is also shown. The bid price is always lower
than the offer price.

Offering circular
Document that must accompany a new issue of securities. It contains the same information
appearing in the registration statement, such as a list of directors and officers, financial
reports certified by a CPA, underwriters, the purpose and use for the funds, and other
reasonable information that prospective buyers of a security need to know. A preliminary
prospectus, red herring (so named because of a red stamp indicating the tentative nature of
the document during the period in which it is being reviewed for fraudulent or misleading
statements by the securities and exchange commission (sec)), is issued prior to the final,
statutory prospectus, which also contains offering instructions.

Offering price
Price per share at which a new distribution of securities is offered to the public, also known
as the public offering price. In no-load mutual funds, the offering price is equal to the net
asset value of the securities offered for sale.

Office of the comptroller of the currency

Federal official, appointed by the president and confirmed by the senate, who is
responsible for chartering, examining, supervising, and liquidating all national banks. In
response to the comptroller's call, national banks are required to submit call reports of their
financial activities at least four times a year and to publish them in local newspapers.
National banks can be declared insolvent only by the comptroller of the currency.

Office of thrift supervision

Federal agency established by the financial institutions reform, recovery and enforcement
act of 1989 to examine and supervise savings and loan associations and federal savings
banks. The office of thrift supervision, replacing the federal home loan bank board as
primary regulator of state chartered and federally chartered savings institutions, is a
bureau within the u.s. Treasury department. The director of thrift supervision, the chief
operating officer of the ots, is appointed by the president with senate confirmation, and is
also one of the five directors of thefederal deposit insurance corporation . The structure of
the ots within the treasury department parallels the office of the comptroller of the
currency, the federal agency supervising national banks.

Office of thrift supervision

A federal agency created by firrea to regulate and supervise federally chartered savings and
loan associations . The ots takes over the thrift regulatory duties exercised by the federal
home loan bank board prior to passage of the act. The agency is part of the treasury
department.

Officer
Senior administrative official of a bank, appointed by the board of directors , to implement
and carry out its operating rules, including the bank's loan policy. The chairman of the
board is the highest ranking officer in a bank or bank holding company, reporting directly
to the board of directors, whereas the chief executive officer (ceo) is ordinarily the
executive with the most responsibility for day-to-day operations. In many smaller banks, it
is not unusual for the ceo to also hold the title of president or even chairman. Under the
bank president are other administrative officers: the chief operating officer (coo); the bank
cashier, who is senior administrative officer (his or her name appears on all official, or
cashier's, checks); executive vice presidents; and lesser officers, including senior vice
presidents, vice presidents, assistant vice presidents, branch office managers, and calling
officers (sometimes called account executives) who market banking services to corporate
customers.

Official check
Check drawn by a bank on its own funds and signed by its cashier. It is thus a direct
obligation of the bank. A cashier's check is distinguished from a money order, which an
order for the payment of money, as one is issued by one bank or post office and payable at
another.

Official staff commentary

Federal reserve commentary explaining in question and answer fashion the important
sections of consumer protection regulation. The fed has issued staff commentaries covering
regulation e, covering electronic funds transfers, and regulation z, covering consumer
credit.

Official statement
Financial disclosure by a state or local government planning a municipal securities offering
that states the purpose for the issue and how investors will be repaid. The official
statement also discloses pertinent information on the issuer's financial condition. Compare
with prospectus .

Offshore banking unit

Shell branch owned by a nonresident bank in an international financial center that, by
accepting deposits from foreign banks and other obus, makes loans in the eurocurrency
market, unrestricted by local monetary authorities or governments. An offshore banking
unit cannot, however, take domestic deposits. Since the 1970s these financial units have
sprung up in major european cities, the mideast, asia, and the caribbean. The major
offshore banking centers for u.s. Banks are the bahamas, the cayman islands, hong kong,
panama, and singapore, which offer favorable political, regulatory, and tax treatment. Since
1981, u.s. Banks have been permitted many of these same advantages through
international banking facilities, located in major u.s. Financial centers.

Omnibus budget reconciliation act of 1993

Legislation signed into law by president clinton after passing both house and senate by the
narrowest of margins. Some highlights effective at that time were tax rate increases for
high-income earners (new 36 and 39.6% tax brackets) and higher alternative minimum
tax rates. Social security recipients with incomes above $44,000 ($34,000 if single) might
have to pay tax up to 85% of their benefits. The act also increased the gasoline tax by 4.3
cents and raised the corporate tax to 35% for income above $1 million. Many provisions
have since been altered.

On-line
Computer equipment under the control of the central processing unit (cpu). Examples are
disk drives and printers. Linking up one computer to another computer that is in a remote
location. This connection is made possible by using the telephone lines. The computers
transmit data to each other.
On-us item
Check payable from funds on deposit at the same bank where it is presented for collection.
If there are sufficient funds in the account on which it is drawn (the drawee's account), the
check can be cashed or deposited into another account. Also called a house check.
Electronic funds transfer where the paying and receiving accounts are at the same bank.

Open account
Account that has a nonzero credit or debit balance. Credit or charge account-that is, an
account initiated by a creditor on the basis of credit standing. It may also refer to a balance
currently owing due to a credit sale, under mutually agreed-upon terms (such as method of
payment, trade discounts, delivery date, and quantities). An alternative to letter of credit in
international financing, usually extended without formal written contract or promissory
note, and represented on the records of the seller as unsecured accounts receivable for
which payment is expected within a specified period after purchase. Also called open book
account. Unpaid credit order , also called open credit. Credit relationship between a buyer
and a seller.

Open book
Euro market term for negative gap . Also called an unmatched book or short book. If the
average duration (maturity) of a bank's liabilities is less than the average duration of its
assets, or vice versa, it is said to be running an open book.

Open contract
Futures market contracts that have not been liquidated by subsequent sale or purchase of
the underlying instrument, by taking delivery of the instrument, or by taking an offsetting
position in futures. Also called open interest.

Open interest
Total number of contracts in a commodity or options market that are still open; that is, they
have not been exercised, closed out, or allowed to expire. The term also applies to a
particular commodity or, in the case of options, to the number of contracts outstanding on
a particular underlying security. The level of open interest is reported daily in newspaper
commodity and options pages.

Open market intervention

Action by central bankers to manipulate currency rates in the foreign exchange markets, or
maintain an orderly market in currency and securities. Central banks intervene through
buying or selling currencies or engaging in currency swaps with other central banks. For
example, the federal reserve might sell dollars and buy a foreign currency when the
exchange value of the dollar is too high, in relation to other currencies; buying dollars and
selling another currency in the open market has the opposite effect. Most central banks
intervene in the conduct of monetary policy to one degree or another. The federal reserve,
acting through the foreign exchange desk of the federal reserve bank of new york, and the
u.s. Treasury's exchange stabilization fund participate equally in financing exchange
market intervention. Exchange market intervention has no effect on bank reserves kept by
u.s. Banks at federal reserve banks.

Open market operations

Purchase or sale of government securities by the open market desk at the federal reserve
bank of new york, as directed by the federal open market committee.

Open market rates

Interest rates on various money market instruments that have an active secondary market.
Open market rates are influenced by a number of factors, including supply and demand,
current interest rates, and also trading arbitrage by market participants.

Open-end credit
Revolving line of credit offered by banks, savings and loans, and other lenders to
consumers. The line of credit is set with a particular limit, after which consumers can
borrow using a credit card, check, or cash advance. Every time a purchase or cash advance
is made, credit is extended on behalf of the consumer. Consumers may pay off the entire
balance each month, thereby avoiding interest charges. Or they may pay a minimum
amount, with interest accruing on the outstanding balance.

Open-end fund
Type of investment company that sells new shares to the public and stands ready to buy
back (redeem) its shares at the market price when investors wish to sell. Open-end
investment companies are better known to the public asmutual fund , and are so named
because these companies are continually creating new shares when they sell securities.
Consequently, the net asset value of mutual funds increases or decreases as investors buy
shares or redeem them. Funds typically invest in a variety of financial instruments,
including common stocks, corporate bonds, tax exempt bonds, and short-term money
market instruments. Contrast with closed-end fund.

Open-end investment company

A mutual fund that accepts new investments at all times.

Open-end lease
A lease, usually an automobile or vehicle lease, in which payments do not fully amortize the
obligation. The monthly payments ordinarily are lower than closed-end lease financing, but
the lease requires a balloon payment at maturity. The size of the balloon is disclosed when
the lease is taken out. Contrast with closed-end lease .

Open-end lease
Lease agreement that provides for an additional payment after the property is returned to
the lessor, to adjust for any change in the value of the property.

Open-end mortgage
Mortgage under which the mortgagor (borrower) may secure additional funds from the
mortgagee (lender), usually stipulating a ceiling amount that can be borrowed.
Operating lease
Lease written for a shorter period than the economic life of the leased asset. These leases
ordinarily are written by equipment manufacturers, who are expected to take back the
equipment and re-lease it to other users. Both commercial banks and finance companies
write operating leases. Operating leases are cancelable leases, meaning the equipment can
be returned at any time if it becomes obsolete or no longer is needed.

Operating profit (or loss)

The difference between the revenues of a business and the related costs and expenses,
excluding income derived from sources other than its regular activities and before income
deductions; synonymous with net operating profit (or loss), operating income (or
loss), and net operating income (or loss).

Operational targets
Federal reserve monetary policy objectives, usually expressed in terms of projected
changes in monetary aggregates (the money supply ) and credit ( nonborrowed reserves ).
The federal reserve board chairman reports the fed's intentions, that is, what the fed
expects to achieve through its monetary policy, in twice-annual reports to congress, as
called for by the full-employment and balanced growth act of 1978. The growth projections
are stated as upper and lower ranges, covering the fourth quarter of one year to the fourth
quarter of the following year.

Opportunity cost
Present value of the income that could be earned (or saved) by investing in the most
attractive alternative to the one being considered. The cost of pursuing one course of action
in terms of the foregone return offered by the most attractive alternative. For example,
investing in government bonds instead of originating mortgages. Also calledalternative
cost.

Option:
A. In general: right to buy or sell property that is granted in exchange for an agreed upon sum. If
the right is not exercised after a specified period, the option expires and the option buyer
forfeits the money. See also exercise.
B. Securities: securities transaction agreement tied to stocks, commodities, currencies, or stock
indexes. Options are traded on many exchanges

Option arm
Adjustable-rate mortgage (arm) that enables the borrower to select from various loan
payment options every month. These mortgages are typically structured with a low
introductory interest rate and as many as four major types of payment options: a fully
amortizing 30-year payment, a fully amortizing 15-year payment, an interest-only
payment, and a minimum payment option that adjusts after the first 12 months. Option
arms are suitable for borrowers who want maximum payment flexibility or who expect to
own their property for a short time period. Also called flexible payment arm.
Option-adjusted spread
Method used in calculating the relative value of a fixed-income security containing
an embedded option such as a borrower's option to prepay a loan. Oas models, taking into
account the effects of prepayments under various interest-rate scenarios, attempt to
estimate the future value of a security. The methodology makes it easier to work out a side-
by-side comparison of two different bonds, one of which has a call option (or prepayment
option) and one that does not. The callable bond often has a higher yield to compensate for
the early redemption feature.

Options clearing corp

Corporation, owned by the stock exchanges, providing trade comparison and settlement
services for all option trades on u.s. Securities exchanges. The corporation's prospectus,
given to option traders, describes its rules for ethical conduct and outlines trading risks in
exchange traded options. Occ's intermarket clearing corporation also provides a link to the
new york futures exchange.

Order:
A. Investments: instruction to a broker or dealer to buy or sell securities or commodities. Securities
orders fall into four basic categories: market order , limit order , time order, and stop order.
B. Law: direction from a court of jurisdiction, or a regulation.
C. Negotiable instruments: payee's request to the maker, as on a check stating, "pay to the order
of (when presented by) john doe."
D. Trade: request to buy, sell, deliver, or receive goods or services which commits the issuer of the
order to the terms specified.

Ordinary interest
Simple interest based on a 360-day year rather than on a 365-day year (the latter is
called exact interest). The difference between the two bases when calculating daily interest
on large sums of money can be substantial. The ratio of ordinary interest to exact interest is
1.0139.

Organization for economic cooperation and development

A forum set up to discuss, develop, and refine economic and social policies. It is an
international organization that encourages economic growth, high employment, and
financial stability among its members.

Original issue discount

Amount that the original issue price of a bond , collateralized bond obligation or other debt
instrument is below par value or face value. These bonds require special tax treatment
from the internal revenue service. The internal revenue servi ce treats the increase in price
from the original issue price to par at maturity as interest subject to income tax. Even
though no interest is received, taxes are due on the annual accretion of bond interest. At
the extreme, a zero-coupon bond pays no interest at all until maturity.

Original maturity
Interval between the issue date and the maturity date of a bond, as distinguished
from current maturity , which is the time difference between the present time and the
maturity date. For example, in 2001 a bond issued in 1999 to mature in 2014 would have
an original maturity of 15 years and a current maturity of 13 years.

Origination fee
Fee charged for originating and processing a mortgage loan application; it is one of the
required disclosures at loan closing. The real estate settlement procedures act requires that
lenders disclose origination and closing costs associated with real estate loans, so
consumers can compare fees.

Originator
Bank, savings and loan, or mortgage banker that initially made the mortgage loan
comprising part of a pool of mortgages. Investment banking firm that worked with the
issuer of a new securities offering from the early planning stages and that usually is
appointed manager of the underwriting syndicate ; more formally called the originating
investment banker. In banking terminology, the initiator of money transfer instructions.

Out of the money

Term used in options trading when the market value of an underlying security or financial
instrument is lower than theexercise price of a call option (an option to buy) or higher than
the strike price of a put option (an option to sell). An out-of-the-money option has no
benefit or intrinsic value , although buyers of these options hope they will move in the
money by the expiration date.

Out-of-town check
A. Foreign items: Check drawn on any bank other than the bank where it is presented for payment.
Also called transit items.
B. Transit letter: Documentation accompanying checks or drafts submitted for collection, listing
the number of checks (items) being sent and the total dollar amount of the checks. A cash
letter accompanies checks presented to other banks for payment; a remittance letter is used
when the sending bank does not have an account at the receiving bank.
C. Outright forward: Forward market purchase or sale of foreign exchange without a
corresponding spot market purchase. For example, buying a one-month, two-month, or three-
month contract in a given currency.

Outstanding
Unpaid; used of accounts receivable and debt obligations of all types. Not yet presented for
payment, as a check or draft. Stock held by shareholders, shown on corporate balance
sheets under the heading of capital stock issued and outstanding.

Over and short

General ledger account where differences in transaction journals are recorded, such as a
teller's cash difference. Also known as a difference account. Transaction journals that
refuse to balance are one of the daily hazards of banking; the causes usually are
bookkeeping or clerical errors, for example, a transposed digit in a teller's transaction log.
Over collateralization
Type of credit enhancement by which an issuer of securities pledged collateral in excess of
what is needed to adequately cover the repayment of the securities plus a reserve. By
pledging collateral with a higher face value than the securities being offered for sale, for
example 125% of principal value, an issuer of mortgage backed bonds can get a more
favorable rating from a rating agency and also guard against the possibility that the bonds
may be called before maturity because of mortgage prepayments.

Over-extension
A. Banking: A loan balance or total credit obligation beyond the borrower's ability to pay . In
situations where the borrower has taken on more credit than he can handle, a debt
consolidation loan (combining several obligations in a single loan repayable over a longer term)
may be the only alternative to bankruptcy. As a rule of thumb, borrowers who pay more than
one-third of their net income to repayment of consumer debt, excluding mortgage debt, may be
over-extended in their ability to repay recurring household debt.
B. Securities: A trader's purchase of securities above his capital and borrowing power. This
situation could lead to losses in a declining market if the trader is unable to meet margin calls.

Over-ride
Decision by a credit analyst or bank lender to approve or decline a credit application,
despite the presence of other factors, such as derogatory information as released by a
credit reporting agency. Over-rides most often occur when a lender grants a loan request,
or rejects the application, even though a credit scoring system has determined
otherwise. See also credit scoring. Set aside of federal legislation by a state legislature
during a specified period of time after enactment of federal legislation. See
also preemptive right .

Over-the-counter
Market for trading securities that are not listed on an organized stock exchange, such as the
new york stock exchange or a regional stock exchange. U.s. Government securities,
corporate bonds, mortgage backed securities, asset-backed securities, and municipal
securities also are traded over-the-counter. Trading activity is carried out by broker-
dealers who communicate with each other by telephone, and by computer-controlled
networks of quotation terminals. In the otc market, prices are determined by negotiation
between buying and selling brokers, rather than auction bidding on the floor of an
exchange. Most bank stocks are traded over the counter, although many are listed on major
exchanges, as well as regional stock exchanges. Market away from regulated exchanges
where privately negotiated contracts are traded. Examples are foreign exchange forward
contracts, currency swaps, and interest rate swaps. See also currency
swap ; derivative ;forward exchange contract ; interest rate swap .

Overdraft
Situation where a borrower draws money against a previously established line of credit.
The basic cost to the borrower is the interest rate levied on the daily overdraft balance. The
borrower typically pays interest only on funds used, since there is no compensating
balance requirement, and only for the period in days for which the funds are taken. For this
reason, the effective interest cost of an overdraft "loan" is the nominal or stated interest
rate paid on the overdraft balance. Negative balance in a checking account caused by
payment of checks drawn against insufficient funds.

Overdraft
Extension of credit by a lending institution. An overdraft check for which there are not
sufficient funds (nsf) available may be rejected (bounced) by the bank. A bounced-check
charge will be assessed on the check-writer's account. Alternatively, the bank customer
may set up an overdraft loan account, which will cover nsf checks. While the customer's
check will clear, the account will be charged overdraft check fees or interest on the
outstanding balance of the loan starting immediately.

Overdraft cap
Maximum dollar amount a bank agrees to transmit to other financial institutions over
private payment networks and the federal reserves federal wire network in a single day. In
order to control daylight overdraft exposure, each bank's cap is a multiple of its risk-based
capital.

Overdraft protection
Bank customer's personal credit line that advances funds to cover an overdraft . The line is
activated by writing a check for more than the available balance in the account. Also
called cash reserve checking. Overdraft protection allows the check to be honored by the
drawee bank. The check writer avoids having to pay not sufficient funds (nsf) charges when
temporarily short of funds, but pays daily interest on the loan.

Overlapping debt
Debt created by a municipality when it issues municipal bonds to fund other development
projects by a governmental unit serving the same area. For example, a city may use income
from general obligation bonds to service county or school district bonds.

Overlying mortgage
A. Junior mortgage: Mortgage that is subordinate to other mortgages -for example, a second or a
third mortgage. If a debtor defaults, the first mortgage will have to be satisfied before the junior
mortgage.
B. Overnight money: Money that is sold in the interbank market by banks with idle funds to those
needing temporary funds. The fed funds market, where financial institutions sell excess
reserves from reserve accounts kept at federal reserve banks to one another, is the largest
source of overnight funds. Fed funds are due back at the selling bank at the start of business the
following day.
C. Overnight repurchase agreement: Sale of securities coupled with an agreement to repurchase
the securities at a higher price on a later date. A repurchase agreement is similar to a secured
loan. Most repurchase agreements (or repos, as they are called) are overnight transactions, with
the sale taking place one day and repurchase the next. Long-term repos, or term repos, can
extend for a month or more, usually for a fixed time period. The opposite side of a repurchase
agreement is areverse repurchase agreement, a purchase of securities followed by a sale back to
 the seller. Securities dealers use repurchase agreements to finance their inventories, selling
their inventories to counterparty investors (for instance, a money market mutual fund) that
have excess short-term funds they want to invest in higher-yielding securities. An innovation in
repo trading by the fixed-income clearing corporation, first introduced in 1998, allows dealer
firms to freely trade general collateral repos-the most widely traded type of repurchase
agreement-throughout the day without intraday trade-for-trade settlement, adding greater
efficiency to the repo market. Securities eligible for trading include fannie mae and freddie mac
fixed-rate mortgage backed securities and u.s. Treasury bills, notes, and bonds.

Overseas private investment corporation

Independent federal agency created by the foreign assistance act of 1969 to insure,
guarantee, and finance private investments in developing countries. Since 1979 opic has
operated as a unit of the international development cooperation agency.

Owner's paper
All forms of mortgages, debt, or second mortgages that are held by the seller rather than a
financial institution, for example, a purchase money mortgage . Also called a seller's
mortgage.

Operating cycle
Average time period between buying inventory and receiving cash proceeds from its
eventual sale. It is determined by adding the number of days inventory is held and
the collection period for accounts receivable. Some industries, such as distillery and
lumber, have a long operating cycle.
 P
Passbook
A book in ledger form in which are recorded all deposits, withdrawals, and earnings of a
customer's savings account.

Past-due item
Any note or other time instrument of indebtedness that has not been paid on the due date.

Payee
The person or organization to whom a check, draft, or note is made payable.

Paying (payor) bank

A bank upon which a check is drawn and that pays a check or other draft.

Payment due date

The date on which a loan or installment payment is due. It is set by a financial institution.
Any payment received after this date is considered late; fees and penalties can be assessed.

Payoff
The complete repayment of a loan, including principal, interest, and any other amounts
due. Payoff occurs either over the full term of the loan or through prepayments.

Payoff statement
A formal statement prepared when a loan payoff is contemplated. It shows the current
status of the loan account, all sums due, and the daily rate of interest.

Payor
The person or organization who pays.

Periodic rate
The interest rate described in relation to a specific amount of time. The monthly periodic
rate, for example, is the cost of credit per month; the daily periodic rate is the cost of credit
per day.

Periodic statement: The billing summary produced and mailed at specified intervals,
usually monthly.

Personal Identification Number (PIN)

Generally a four-character number or word, the PIN is the secret code given to credit or
debit cardholders enabling them to access their accounts. The code is either randomly
assigned by the bank or selected by the customer. It is intended to prevent unauthorized
use of the card while accessing a financial service terminal.

Point of sale (POS)

1) The location at which a transaction takes place. 2) Systems that allow bank customers to
effect transfers of funds from their deposit accounts and other financial transactions at
retail establishments.

Power of attorney
A written instrument which authorizes one person to act as another's agent or attorney.
The power of attorney may be for a definite, specific act, or it may be general in nature. The
terms of the written power of attorney may specify when it will expire. If not, the power of
attorney usually expires when the person granting it dies.

Pre-payment
The payment of a debt before it actually becomes due.

Preauthorized electronic fund transfers

An EFT authorized in advance to recur at substantially regular intervals.

Preauthorized payment: A system established by a written agreement under which a

financial institution is authorized by the customer to debit the customer's account in order
to pay bills or make loan payments.

Previous balance
The cardholder's account balance as of the previous billing statement.

Principal balance
The outstanding balance on a loan, excluding interest and fees.

Private Mortgage Insurance (PMI)

Insurance offered by a private insurance company that protects the bank against loss on a
defaulted mortgage up to the limit of the policy (usually 20 to 25 percent of the loan
amount). PMI is usually limited to loans with a high loan-to-value (LTV) ratio. The
borrower pays the premium.

Package Mortgage
Mortgage or deed of trust that covers personal property, such as furniture, appliances, and
other household items.

Paid-In Capital
Banking. The capital stock of a bank, Federal Reserve Bank, or international
development bank subscribed to, and paid by, its stockholders. Paid-in capital is the
amount contributed by stockholders to obtain a bank charter and commence business.
Federal Reserve member banks are required to purchase shares in their district Federal
Reserve Bank equal to 6% of their capital and surplus; only 50% of this amount actually is
paid. The remainder, or callable capital, can be called at any time.
Finance. The difference between par value of a corporation's outstanding shares of
stock and current market value. This value is adjusted downward when a corporation
repurchases its own stock. Contributions in excess of par value or donations not counted
toward capital stock are called capital surplus.

Pair-Off
Hedging technique involving trade of a mortgage backed security to offset a previous trade.
In mortgage banking, it allows a lender to buy back mortgages or mortgage backed
securities committed to a buyer in the secondary mortgage market.

Panic
Sudden loss of public confidence in the financial markets, characterized by falling prices
and business failures. Financial panics occurred at regular intervals in the nineteenth and
early twentieth centuries.

Paper
Generic term for short-term debt instruments, such as bankers' acceptances, commercial
paper, and documentary drafts. Short-term obligations are a source of credit to businesses
needing temporary financing, for example, an importer who needs bank financing to cover
the cost of merchandise until his inventory is sold. Short-term paper with maturities under
90 days is eligible for rediscount at a Federal Reserve Bank; that is, it can be used as
collateral for a Federal Reserve credit advance.

Paper Gain (or loss)

Popular name for unrealized capital gain or loss in an investment portfolio or an open
position in options or futures. Paper gains are determined by comparing the current
market price to the original cost of the investment. They are not realized until securities
are sold, a futures position is liquidated, or an option to sell is exercised. Also called paper
profits.

Paper Money
Bank notes designated by the U.S. Treasury as legal tender for payment of debts, principally
federal reserve notes. Paper money is also known as fiat money, because it is not backed by
the issuing government's pledge to exchange paper for an equivalent amount of gold or
hard currency.

Paper Profits
Popular name for unrealized capital gain or loss in an investment portfolio or an open
position in options or futures. Paper gains are determined by comparing the current
market price to the original cost of the investment. They are not realized until securities
are sold, a futures position is liquidated, or an option to sell is exercised. Also called paper
profits.
Par value
Transfer of funds, initiated by telephone or instruction from a computer terminal rather
than a check or draft.

Parallel Loan
Amount arbitrarily assigned by the corporate charter to one share of stock and printed on
the stock certificate. The par value represents the legal capital per share. There can be no
dividend declared that would cause the stockholders' equity to go below the par value of
the outstanding shares. Par value may be a minimum cushion of equity capital existing for
creditor protection. The par value is the amount per share entered in the capital stock
account. It is usually significantly lower than the market price per share.

Parity
A. In foreign exchange trading, absence of a counterproposal to a bid or offer of another party. The
term implies that both traders are dealing at exactly the same prices. Thus, they are at par or at
parity.
B. Purchasing power parity .
C. In financial swaps, the absence of any price difference between two maturity dates of a swap
agreement.

Participation
Risk Participation: Sale by a bank of its participation in a contingent obligation, for
example, a bank's participation in a banker's acceptance or a standby letter of credit. The
originating bank remains liable to the beneficiary for the full amount of the transaction if
the obligor fails to pay when payment is demanded. These are treated as off-balance sheet
transactions in computing risk-weighted capital, and are not included in a bank's equity
capital under the risk-based capital guidelines.
Loan Participation: Sharing of a loan by a group of banks that join together to
make a loan too large for any one bank to handle. Also known as participation financing,
loan participations are arranged through correspondent banking networks in which
smaller banks buy a portion of the overall financing package. Large syndications may run
into hundreds of millions of dollars, and involve more than one hundred different banks.
Syndications are also a convenient way for smaller banks to book loans that would
otherwise exceed their legal lending limits. By selling most of the financing to an upstream
correspondent, the local bank earns fee income from servicing the loan, and is able to
retain other banking relationships, such as checking accounts.

Participation Certificate (PC)

Certificate representing an undivided interest in a pool of conventional mortgage loans.
Principal and interest payments pass through to the certificate holders each month. For
example, a participation certificate can be a pass-through security that is issued and
guaranteed by.

Partnership Agreement
Written agreement among partners specifying the conduct of the partnership, including the
division of earnings, procedures for dividing up assets if the partnership is dissolved, and
steps to be followed when a partner becomes disabled or dies. Investors in limited
partnerships also receive partnership agreements, detailing their rights and
responsibilities.

Pass-Through Account
Method of maintaining required reserves, whereby nonbank financial institutions are able
to meet reserve requirements by holding deposits in a member bank that maintains an
equivalent deposit at a Federal Reserve Bank. The bank maintaining the pass-through
account does not have to be in the same Federal Reserve District as the bank owning the
account.

Pass-Through Security
Security that passes payments from borrowers to investors as loan payments are collected.
Its cash flow is from a pool or pools of underlying loans. The issuer remits, or passes
through, to the investor monthly payments of principal and interest. Servicing of the
underlying loans is usually done by the seller, who is paid a servicing fee. Actual lives of
pass-through securities can be shorter than the stated maturity, because in periods of
falling interest rates, borrowers pay off their loans early.

Passbook Loan
Collateral loan secured by savings account up to the amount advanced to the borrower.
Also called a passbook loan, these are relatively secure and risk-free consumer loans. The
lender takes possession of the passbook, or places a hold on the account equal to, or greater
than, the amount of the loan, and has right of offset (set-off) against the funds in the
account.

Passive Investor
Investor who lends money but does not actively contribute to management. For example, a
limited partnership in a real estate development project. Passive investors may deduct
investment losses only if gains from such investments exceed their losses. Income earned
by passive investors may become subject to the alternative minimum tax.

Past Due
Loan payment not made as of the scheduled payment date, and subject to late charges after
an allowable grace period . Continued lateness is noted in the borrower's credit history,
and may be reported to a credit bureau or credit reporting agency. Past due loans are
reported on a bank's call report .

Pay to Bearer
Check, draft, or other negotiable instrument transferable to the holder by delivery, without
endorsement. A bearer bond, such as a bond with detachable coupons, is not registered in
the name of a particular owner and is payable to whomever receives it in good faith.

Pay to Order
Negotiable instrument that is payable by endorsement and delivery. Pay to order
instruments are usually written "Pay to the order of XYZ" or "Pay to XYZ or order."
Ownership of a check, under the Uniform Commercial Code, can be transferred only after
the person accepting the check endorses it over to someone else.

Pay-by-Phone
Banking service allowing customers to pay merchant bills, verify account balances, and
transfer funds between accounts.

Pay-through Security
Security that passes payments from borrowers to investors as loan payments are collected.
Its cash flow is from a pool or pools of underlying loans. The issuer remits, or passes
through, to the investor monthly payments of principal and interest. Servicing of the
underlying loans is usually done by the seller, who is paid a servicing fee. Actual lives of
pass-through securities can be shorter than the stated maturity, because in periods of
falling interest rates, borrowers pay off their loans early.

Payable through Draft

Draft payable through a designated bank, drawing funds from the issuer's own account.
The bank, whose name is printed on the face of the draft, verifies neither the signature nor
the endorsement, which is the responsibility of the issuer. Payable through drafts are used
by corporations to pay freight bills, or by insurance companies to settle claims. A credit
union share draft account, a check-like negotiable instrument, also is a payable-through
draft, often cleared through a correspondent bank.

Payday Loan
Generic term for short-term cash advance secured by personal check, often at very high
interest rates. Also called check loan or payday advance loan.

Payee
Party named as the beneficiary of a check or negotiable instrument the person to whom the
written amount on the face of the instrument is paid.

Payer
Party responsible for making payment of the amount written on a check, draft, or other
negotiable instrument. Also called the maker or writer.

Paying Agent
Agent, usually a commercial bank, authorized by a securities issuer to make principal
payments and periodic interest payments to bondholders. The bank, or banks, acting as
paying agent charges a fee for this service. Occasionally, the treasurer of the issuing
organization will be designated as paying agent.

Payer Bank
The bank paying a check, unless the check is payable at another bank and is sent to that
bank for payment or collection. Also, a payable through bank, for example, when the
writing on a draft (a payable through draft ) states its payable through XYZ bank.
Paid-up capital
The proportion of a company's issued capital that has been paid for by its shareholders.
Details of paid-up capital should show the different classes of shares issued, the number of
shares issued in each class, the amount paid on each and what has been called and not yet
paid.

Paper profits
Unrealised profits that would be crystallised if the owner were to act; for example, land or
securities might have improved in market value compared with their purchase price but
the owner's profit remains on paper unless the land or securities are sold. If the owner
waits too long and the market weakens, the paper profits could fade.

PAR (prime assets requirement)

Used in foreign exchange to describe a currency whose forward rate is the same as its spot
rate.

Par forward
A facility favoured by gold producers which evens out the price curve or income stream
(normally in contango in the gold market) to provide a constant price for the life of the
transaction. This produces steady cashflow and also brings forward some income. A par
forward in foreign-exchange markets is a series of contracts with the same forward rate
applying to all forward commitments to produce an even set of foreign-currency cashflows.

Par value
The face value of a security. If a commonwealth bond is trading at $102 and it was issued at
$100 then it is trading 'above par', ie, at a premium. Conversely, if the $100 bond were sold
for $98 then it would be at a discount or 'below par'. The par value of a share is set by the
issuing company and often is quite different from the share's market price.

Parcel
A bundle or quantity of bills of exchange, bonds, treasury notes or shares whose details,
such as maturity date or issuer, are identical.

Parent company
A company that controls one or more other companies. The parent company's financial
statements are presented to show the parent's own financial situation, as well as that of the
group of companies.

Pareto optimality
A concept of optimality, recognised as Pareto's Law, which essentially means a situation in
which nobody could be made better off without someone else being made worse off. It was
the result of early work by the Italian economist and sociologist Vilfredo Pareto (1848 -
1923).
Pari passu
Latin for 'with equal progress'. The phrase is used to indicate simultaneous and equal
change or to describe similar ranking of securities or lenders; for example, when a new
issue of shares is made, they could be said to rank pari passu, ie, equally with existing
shares for the purposes of dividend payments. A common agreement between joint lenders
is a pari passu clause under which, in the event of a shortfall, they agree to share equally
whatever is available.

Parity
In financial terms, equality of value. The word has come to be used in the sense of 'one-for-
one' in foreign exchange. When the $A fell below 100 US cents, it was described as 'falling
below parity'.

Partial lookback option

An option with a time 'window' of 30 or 60 days when the strike price is set or adjusted at
the optimum level. After that, the option operates as normal. The cost of a partial lookback
option falls between that of a conventional option and a lookback option because its
window is for a limited period.

Participation
Similar to an option in structure, a participation contract includes a floor return and a
reduced exposure to a favourable outcome on the underlying instrument, or a ceiling
return with reduced exposure to an unfavourable outcome.

Participation certificate
A pass-through security representing an interest in a pool of instruments such as
mortgage-backed securities.

Partnership
Two or more individuals who have joined together to carry on a business, sharing in risks
and profits. As partnerships are not incorporated, each of the parties shares equally in
these risks and rewards and is liable for all the partnership's debts. Creditors of a
partnership can claim on the partners personally; there is no limited liability for the
partners as is available to shareholders of a limited liability company.

Pass a dividend
Not declare (pay) a dividend. A company would choose not to pay a dividend if it had made
no profit, if it had made a loss or if it intended to retain profits for investment or
restructuring.

Pass-through security
A security, such as a bond or certificate, that represents an interest in a pool of mortgages.
All payments from the mortgagors on the loans in the pool pass through to the certificate
holders to repay principal and interest. Mortgage-backed securities are the most common
type of pass-through security; these operate either as direct issues of pass-through
securities or as issues structured with a trustee. With direct issues the originator of the
mortgage issues pass-through securities to investors, giving them beneficial ownership of
the underlying mortgage. The trustee structure interposes a third party which can be an
additional safeguard; in this case beneficial ownership of the mortgage passes to the
trustee and the trustee in turn issues pass-through securities which represent interests in
the underlying mortgage. The securities are marketed by the party originating the
mortgage.

Pay-back period
The length of time needed before an investment makes enough money to recoup the initial
outlay of cash.

Pay-off
The value of an option when it expires.

Pay-off diagram
A diagram showing an option's value at expiry relative to a range of underlying prices.

Payee
The person to whom a cheque or bill of exchange is made payable.

Paying bank
The bank on which a cheque is drawn (the bank whose name is printed on the cheque) and
which pays the amount for which the cheque is written and deducts that sum from the
customer's account.

Payola
Sometimes a reward, sometimes a bribe; a gift or remuneration to someone who has the
potential to use his or her influence in your favour.

Payout ratio
The proportion of profit distributed through dividends to ordinary shareholders. The ratio
is calculated by dividing the dividends by the amount earned in profit.

Peace dividend
The 'profit' that comes to an economy when political confrontation ends and resources
such as materials and labour and scientific, management or creative skills are diverted
from defence-related areas to economic construction.

Pension funds
Superannuation funds which pay out benefits in the form of a pension (ie, in instalments)
on the member's retirement.

Percentile
The 'top percentile' is the same as the top 1 per cent. Percentile is a common breakdown on
a scale of numbers. It appears 99 times in the scale 1 to 100. The percentile of a set of
numbers is that number below which a certain per cent of the numbers fall; for example, in
a range of 1 to 10, 5 is the fortieth percentile as 40 per cent of the numbers are below it.
The fiftieth percentile is in the middle.

Perfect competition
A theoretical device found mostly in textbooks. Perfect competition assumes that buyers
and sellers of a product are equally matched so that neither side can determine prices, the
economy is free from barriers and restrictions and all participants have perfect knowledge
and act in a rational manner. Despite the absence of perfect competition in the real world
(except perhaps at the racetrack) the concept provides a useful starting point for the
analysis of forms of competition which are not perfect (and is an important influence on
trade practices legislation).

Perks
Short for perquisites, the additional non-cash benefits provided by an employer to an
employee over and above the employee's salary. Once a tax-effective way to enhance
employee rewards, these benefits have lost much of their appeal to both sides since the
introduction of a comprehensive fringe benefits tax.

Perpetual bond
A bond that is issued with no maturity date. The bondholder earns income on the bond
through the coupon stream; a buyer has to be found in the market if the holder wishes to
sell, as the bond has no redemption date on which the issuer must pay out the face value.

Perpetual floating-rate note

A note with the same characteristics as the perpetual bond; that is, no set maturity date and
an even interest stream. Such notes were launched in 1984 as euro-FRNs and have been
issued by many of the world's big banks because they represent a fairly inexpensive
method of raising capital. Perpetuals are privately placed and held by banks, for whom they
rank as quasi-capital; they are not very liquid and tend to be repackaged with, say, options
attached, to make them more attractive to a buyer.

Personal loan
A type of loan available from banks, finance companies and other financial institutions,
generally for purposes such as buying a car, boat or furniture. Funds are advanced (lent) to
the customer for a fixed period, at a variable or fixed rate of interest with repayments
calculated at the outset on the basis of monthly instalments.

Phillips curve
A graph of the relationship between wage increases and unemployment. In 1958 A.W.
Phillips showed that in the UK periods of high unemployment were associated with small
increases in wages and prices. This suggests that a government could make a choice
between unemployment and inflation, which might be politically difficult. Phillips
reportedly said in later years at the Australian National University in Canberra that if he
had known what they would do with his graph he would never have drawn it. Phillips was
not as dogmatic about his causal relationship as the popular version of his theory suggests.
Piggy bank
A retail bank, as distinct from a wholesale or investment bank.

Piggy-back option
A share option which when converted to a share automatically creates another option.

Pit
The area on the trading floor of a futures exchange where traders gather for action. Each
commodity traded on the exchange has its own pit and only traders are allowed into the
pits.

Plain vanilla
A description of a basic financial instrument, uncomplicated by bells and whistles.

Planned economy
An economy in which the government maintains absolute control of the production and
distribution of resources.

Plough back
To reinvest profits in a business rather than distribute them to the owners (shareholders).

Poison pill
A defensive action against a hostile takeover in which a target company takes action to
make itself appear less attractive to its predator.

Pooled development fund

These were established in 1993 to replace the management and investment companies
(MICs) program. Based on the same concept, the scheme provides for a concessional
corporate tax rate of 15 per cent, can pay fully-franked dividends and its shares are free of
capital gains tax. However, losses incurred by investing in the pooled development fund
scheme are not tax deductible and the scheme has had little impact.

Portfolio
A collection of various company shares, fixed interest securities or money-market
instruments. People may talk grandly of 'running a portfolio' when they own a couple of
shares but the characteristic of a serious investment portfolio is diversity. It should show a
spread of investments to minimise risk - brokers and investment advisers warn against
'putting all your eggs in one basket'.

Portfolio balance
The blend of investments in a portfolio, taking into account interest rates, inflation, other
potential uses for the money, whether an investment is in a politically sensitive area, etc.

Portfolio insurance
A form a portfolio protection developed in the late 1970s by the California-based firm
Leland O'Brien Rubinstein Associates Inc. At its simplest, portfolio insurance is an
investment strategy designed to manage exposure to a risk asset (usually shares) to limit
or control losses. The concept was tested in the October 1987 sharemarket crash.
Supporters of the theory concede that such strategies may not achieve their targets if
financial markets gap (record large, one-off movements in price) as severely as happened
during that crash.
Portfolio investment
The acquisition of bonds (of more than twelve months to maturity) or of shares in a
company, domestic or foreign, for investing purposes only. Portfolio investment carries a
share in profits and dividends but stops short of bringing a say in how the business is run.

Portfolio management
Managing a large single portfolio or being employed by its owner to do so. portfolio
managers have the knowledge and skill which encourage people to put their investment
decisions in the hands of a professional (for a fee).

Position
Money-market, futures, foreign-exchange and sharemarket traders talk of 'taking a
position' when taking a stand, executing a deal when others are hanging back. 'Position' can
also refer to a trader's cash/securities/currencies balance, whether he or she is short of
cash, has money to lend, is overbought or oversold in a currency, etc.

Position limit
The maximum amount, either net long (bought) or net short (sold) of futures and option
contracts that may be held by one party, as designated by the exchange on which he or she
is trading or by the board or management of his or her company as part of its overall risk-
management strategy.

Pre-settlement risk
The chance that something might go wrong in a transaction before it is settled; eg, a
counterparty could go into liquidation.

Preference shares
Shares which rank ahead of ordinary shares for the purposes of claiming dividend
payments or any assets of the company should it be wound up. Preference shares rank
behind debentures.

Premium
Shares or securities bought at a premium are bought for more than their par or face value.
In the context of options, the premium is the cost of buying an option; it represents the
maximum amount the option-buyer can lose (and is likened to an insurance premium) and
is income for the option seller. In foreign exchange, a currency trading at a premium is
worth more in the forward market than in the spot market. In insurance, the premium is
the price paid (usually in regular instalments) by a policyholder to the insurance company
to maintain an insurance policy. Premium is also the opposite of discount.
Prepayment
Paying a bill or debt before it is due. Some loan agreements carry penalties for early
repayment, reflecting the lender's expectations of the interest to be earned under the
original contract. Sometimes exporters will hasten payments if they believe that their own
currency is about to appreciate or be revalued.

Preservation
Certain superannuation benefits must, by law, be maintained ('preserved') in either a
superannuation or rollover fund until retirement, ie, the 'preservation age' has been
reached.

Preshipment finance
Funds to cover an exporter's costs before goods are sent overseas.

Presold issue
Stock that has been placed with subscribers before an issue officially opens and before all
details of rates, terms and conditions have been released.

Price discovery
Determining the price level for a commodity or instrument based on supply and demand.

Price maintenance
Collusion among manufacturers to maintain artificially high prices for their products. Such
concerted action is illegal under section 45 of the Trade Practices Act. Dealing with
customers on differing terms can be a normal aspect of business in any market but in
certain cases is outlawed by the act. Also price discrimination, price fixing.

Price takers/makers
In perfect competition, all producers are price takers, as they have to accept what the
market says is the appropriate price and they cannot do anything to shift that price; in a
pure monopoly, though, one firm is the price maker and the rest of the market has to take
that price. Real-world markets are mostly oligopolistic, with a handful of producers able to
make prices which price takers have to accept.

Price-earnings ratio
A yardstick for measuring the value of a company's shares. It shows the relationship
between the market price of a company's shares and the earnings per share. Divide the
annual earnings per share of, say, $2 into the market value of, say, $12 and the price-
earnings ratio is 6.

Prices Surveillance Authority

A commonwealth statutory authority established in March 1984 under the Prices
Surveillance Act. The authority's two main functions are to review notifications of price
increases and to hold public inquiries. The authority also monitors price movements in a
number of industries undergoing microeconomic reform. For example, having held public
inquiries into credit-card interest rates, and fees and charges imposed by financial
institutions on retail transaction accounts, the authority continues to monitor these
markets. In 1995 the Prices Surveillance Authority merged with the Trade Practices
Commission to form the Australian Consumer and Competition Commission.

Primary market
The new issue market. Bonds and treasury notes sold by the Reserve Bank in regular
tenders are primary market stock; once they are sold into traders' hands they are in the
secondary market.

Prime (or base) rate

The rate charged by banks to their best (prime) customers. Most bank customers pay the
prime rate plus a margin that is assessed according to perceived credit risk. The term is
often abbreviated to 'prime' or 'base'.

Prime assets requirement

An obligation on banks to hold a stock of 'prime' or high-quality liquid assets such as notes
and coin, balances with the Reserve Bank (excluding non-callable deposits) and
commonwealth government securities (bonds and treasury notes). The requirement was
introduced in 1985 to replace the liquid assets and government securities (LGS)
convention.

Principal
The face value amount of a loan, on which interest is calculated.

Prior charge
A charge that ranks ahead of another. For example, a specific mortgage will usually rank
ahead of a floating charge over assets.

Private placement
A method of fundraising where the borrower obtains cash by selling securities - bonds or
promissory notes - direct to a group of investors. There is no advertising of the issue, no
prospectus has to be circulated as the stock is not on offer to the public, and the fundraising
is often only publicly recorded after the event in a 'tombstone'.

Private sector
The activities within an economy that are operated by and undertaken by private
individuals, rather than by government.

Private sector liquidity

Money and short-dated government securities in the hands of the private sector, ie,
companies and private individuals.

Privatization
The transfer of government-owned services into private hands. This is usually justified on
the grounds that private ownership makes for greater efficiency, although it is argued that
greater efficiency is achieved only if privatization goes hand-in-hand with increased
competition. Privatization became a popular course of action for many governments in the
1980s, either to raise funds through public tenders or share offerings or as a response to an
ideological attitude that governments have no business competing with private enterprise.
The policy was enthusiastically embraced by the UK's conservative government under
Margaret Thatcher and by 1991 most public utilities such as telecommunications, gas,
airports, water and electricity had been privatized.

Pro forma
A description applied to a balance sheet, profit-and-loss and cash flow statement drawn up
using various stated assumptions. From the Latin as a matter of form.
 Q
Qualifying Ratios
The percentage of payment-to-income (P/I) and debt-to-income (D/I - also called Back-end
Ratio) that is used to measure the borrower’s capacity to repay the mortgage debt.

Quantitative Analysis
Quantitative analysis is a form of analysis that uses numbers and ratios derived from a
company’s financials to assess its prospects.

Quanto Option
A quanto option is an option designed to address currency risk. The premium the buyer
pays for the option is in the currency of the asset he is investing in. Yet if the option is
exercised, the investor receives any profit in his home (or reference).

Quartile Rank
Quartile rank refers to performance over time rated on a scale of 1-4. A ranking of 1
indicates that whatever is being ranked - usually a mutual fund - is in the top 25% of the
sample, a quartile of 2 indicates it is in the top 50%, etc.

Qualified endorsement
Endorser's writing on a check limiting his liability in event of nonpayment or non
acceptance of an instrument. It usually is written with the words without recourse , or
similar words to indicate the endorser is not secondarily liable for payment.

Qualified opinion
Opinion by a certified auditor, stating that the auditor is unable to verify completely the
accuracy of the financial records of a bank, because of certain omissions in the records or
the limited scope of the audit . A qualified opinion does not necessarily mean, however, that
there are serious errors or omissions.

Qualified thrift lender

Lender that follows guidelines of the 1989 Financial Institutions Regulatory Act for
mortgage lenders specializing in home mortgage finance. In exchange for holding 65% of
their portfolio in residential mortgages or mortgage-backed securities, such lenders may
borrow funds from their district Federal Home Loan Bank. Savings and loans, commercial
banks and credit unions can also affiliate with Federal Home Loan Banks as qualified thrift
lenders.

Quantity theory of money

Theory correlating the quantity of money and prices in the economy. It attempts to explain
how inflation can be controlled by monetary policy , by control of the money supply. The
theory's detractors cite the existence of quasi-money or near money, and also the ability of
nonbank financial institution to develop and introduce new forms of credit. Yet, the
quantity theory has gained respect in recent years largely through the work of Milton
Friedman of the University of Chicago.

Quarterlies
Interim financial reports on the condition of a publicly held company, released each
quarter of its fiscal year.

Quasi-public corporation
Privately operated corporation that fulfills a public mandate, such as purchasing loans in
the secondary market , thereby helping to maintain adequate funding sources for lenders.
Quasi-public corporations often have government backing behind their debt obligations,
and some issue stock that is publicly traded.

Quick assets
Current assets of a business, excluding inventories, that could be converted into cash if
necessary within a short period, usually one year or less. Also known as liquid assets.

Quiet title action

Legal action brought to eliminate any interest or claim in a property by others. It is the
procedure used to remove title defects from a real estate title when a quitclaim deed
cannot be obtained.

Quitclaim deed
Document in which title, claim, or ownership of property or an estate is relinquished to
another, without representing that such title is valid. Usually it contains no covenant or
warranty against outstanding claims of previous lien holders.

Quotation
Broker's stated price giving the highest bid to buy or lowest offer to sell. A full quotation
displays the price that will be paid (the bid price), and price offered (the offered price). The
normal order of listing is bid first, and asked second. The amount of activity is indicated by
the spread between bid and asked quotes.
 R
Raider
Individual or corporate investor who intends to take control of a company (often ostensibly
for greenmail) by buying a controlling interest in its stock and installing new management.
Raiders who accumulate 5% or more of the outstanding shares in the target company must
report their purchases to the SEC, the exchange of listing, and the target itself.

Rainmaker
A valuable employee, manager or subcontracted person who brings new business to a
company.

Rally
An upward movement of prices.

RAM (Reverse-annuity Mortgages)

Bank loan for an amount equal to a percentage of the appraisal value of the home. The loan
is then paid to the homeowner in the form of an annuity.

Random Variable
A function that assigns a real number to each and every possible outcome of a random
experiment.

Randomized Strategy
A strategy of introducing into the decision-making process a chance element that is
designed to confound the information content of the decision-maker's observed choices.

Range
The high and low prices, or high and low bids and offers, recorded during a specified time.

Rate Covenant
A provision governing a municipal revenue project financed by a revenue bond issue,
which establishes the rates to be charged users of the new facility.

Rate of Interest
The rate, as a proportion of the principal, at which interest is computed.

Rate of Return
Calculated as the (value now minus value at time of purchase) divided by value at time of
purchase. For equities, we often include dividends with the value now.
Rate of Return Ratios
Ratios that measure the profitability of a firm in relation to various measures of investment
in the firm.

Rate Risk
In banking, the risk that profits may drop or losses occur because a rise in interest rates
forces up the cost of funding fixed-rate loans or other fixed-rate assets.
Ratio Hedge
The number of options compared to the number of futures contracts bought or sold in
order to establish a hedge that is neutral or delta neutral.

Raw Material
Materials a manufacturer converts into a finished product.

Reaction
A decline in prices following an advance.

Real
Used in the context of general equities. (1) natural (2) not dividend roll-or program
trading-related (3) not tax-related. "Real" indications have three major repercussions: a)
pricing will be more favorable to the other side of the trade since an investment bank is not
committing any capital; b) price pressure will be stronger if real since a natural
buyer/seller may have information leading to his decision or more behind it, and c) an
uptick may be required for the trader to transact if the indication is not real and the trader
has no long position.

Real Appreciation/depreciation
A change in the purchasing power of a currency.

Real Assets
Identifiable assets, such as land and buildings, equipment, patents, and trademarks, as
distinguished from a financial investment.

Real Estate
A piece of land and whatever physical property is on it.

Real Gain or Loss

A gain or loss adjusted for increasing prices by an inflation index such as the CPI.

Real GDP
Inflation-adjusted measure of Gross Domestic Product.

Real Interest Rate

The rate of interest excluding the effect of expected inflation; that is, the rate that is earned
in terms of constant-purchasing-power dollars. Interest rate expressed in terms of real
goods, i.e. nominal interest rate adjusted for expected inflation.
Realized Compound Yield
Yield assuming that coupon payments are invested at the going market interest rate at the
time of their receipt and held thus until the bond matures.

Rebalancing
Realigning the proportions of assets in a portfolio as needed.

Recapture
A provision in a contract that allows one party to recover (recapture) some degree of
possession of an asset, such as a share of the profits derived from some property.

Receipts
Funds collected from selling land, capital, or services, as well as collections from the public
(budget receipts), such as taxes, fines, duties, and fees.

Receivables Turnover Ratio

Total operating revenues divided by average receivables. Used to measure how effectively
a firm is managing its accounts receivable.

Receive Versus Payment

An instruction that only cash will be accepted in exchange for delivery of securities.

Receiver
A bankruptcy practitioner appointed by secured creditors to oversee the repayment of
debts.

Recession
A temporary downturn in economic activity, usually indicated by two consecutive quarters
of a falling GDP.

Re-characterization
The reversal of a traditional IRA contribution or conversion into a Roth IRA, or vice versa.

Recovery
The use of depreciation of assets to offset costs; or a new period of rising securities prices
after a period of declining security values.

Recovery
An upward price movement after a decline.

Red Herring
A preliminary prospectus providing information required by the SEC. It excludes the
offering price and the coupon of the new issue.

Redeemable
Eligible for redemption under the terms of an indenture.
Redemption
Repayment of a debt security or preferred stock issue, at or before maturity, at par or at a
premium price.

Redemption Date
The date on which a bond matures or is redeemed.

Rediscount
To discount short-term negotiable debt instruments for a second time, after they have been
discounted with a bank.

Reference Asset
An asset, such as a corporate or sovereign debt instrument, that underlies a credit
derivative.

Refinancing
An extension and/or increase in amount of existing debt.

Reflation
Government monetary action that causes a reversal of deflation.

Refund
To retire existing bond issues through the sale of a new bond issue, usually to reduce the
interest rate being paid

Refundable
Eligible for refunding under the terms of a bond indenture.

Registered Owner
An individual or organization to whom certificates are directly issued and who, as a result,
is recorded on the corporation's security holder records (as maintained by the transfer
agent).

Registrar
Financial institution appointed to record issue and ownership of company securities.

Registration
In the securities market describes process set up pursuant to the Securities Exchange Acts
of 1933 and 1934 whereby securities that are to be sold to the public are reviewed by the
SEC.

Regression Analysis
A statistical technique that can be used to estimate relationships between variables.
Regulations
Rules specifying the appropriate behavior of agencies, organizations or individuals in the
securities industry.

Reimbursement
Payment made to someone for out-of-pocket expenses has incurred.

Reinstatement
The restoration of an insurance policy after it has lapsed for nonpayment of premiums.

Reinvestment
Use of investment income to buy additional securities. Many mutual fund companies and
investment services offer the automatic reinvestment of dividends and capital gains
distributions as an option.

Release
Relieve party to a trade of any previously made obligation concerning that trade, hence
allowing the would-be transacted to show the inquiry/order to a new broker.

Remainder
A right of a third party to receive the use or control of property after termination of an
intervening interest in that property, usually a life estate.

Remit
To pay for purchases by cash, check, or electronic transfer.

Renewal
Placement of a day order identical to one not completed on the previous day.

Rent
Regular payments to an owner for the use of some leased property.

Repo
An agreement in which one party sells a security to another party and agrees to repurchase
it on a specified date for a specified price.

Report
Written or oral confirmation that all or part of one's order has been executed, including the
price and size parameters of the trade being reported; often followed by a fresh picture.

Representations
In the context of project financing, a series of statements about a project, a sponsor, or the
obligations under the project contracts or the financing agreements.
Reproducible Assets
A tangible asset with physical properties that can be matched or duplicated, such as a
building or machinery.

Required Rate Of Return (RRR)

The minimum expected yield by investors require in order to select a particular
investment.

Required Return
The minimum expected return you would need in order to purchase an asset, that is, to
make the investment.

Research and Development (R&D)

Development of new products and services by a company in order to obtain a competitive
advantage.

Reserve
An accounting entry that properly reflects contingent liabilities.

Resolution
A document that records a decision or action by a Board of Directors, or a bond resolution
by a government entity authorizing a bond issue.

Resources
Factors needed to produce goods and services (natural, human, and capital goods.

Retail
Individual and institutional customers as opposed to dealers and brokers.

Retire
To extinguish a security, as in paying off a debt.

Retracement
A price movement in the opposite direction of the previous trend.

Return
The change in the value of a portfolio over an evaluation period, including any distributions
made from the portfolio during that period.

Return of Capital
A cash distribution resulting from the sale of a capital asset, or securities, or tax breaks
from depreciation.

Return on Investment (ROI)

Generally, book income as a proportion of net book value.
Return On Capital Employed (ROCE)
Indicator of profitability of the firm's capital investments. Determined by dividing Earnings
Before Interest and Taxes by (capital employed plus short-term loans minus intangible
assets). The idea is that this ratio should at least be greater than the cost of borrowing.

Revenue
The income the nation collects from taxes.

Reverse Repo
In essence, refers to a repurchase agreement. From the customer's perspective, the
customer provides a collateralized loan to the seller.

Right
Privilege granted shareholders of a corporation to subscribe to shares of a new issue of
common stock before it is offered to the public. Such a right, which normally has a life of
two to four weeks, is freely transferable and entitles the holder to buy the new common
stock below the public offering price.

Risk
Often defined as the standard deviation of the return on total investment. Degree of
uncertainty of return on an asset.

Risk Factor
In arbitrage pricing theory or the multi beta capital asset pricing model, the set of common
factors that impact returns, e.g., market return, interest rates, inflation, or industrial
production.
 S
Safe deposit box
A container in a secure vault that is rented to an individual or organization for the
safekeeping of valuables.

Sales charge
The fee charged by a mutual fund when issuing shares, usually payable as a commission to
a marketing agent, such as a financial advisor, who is thus compensated for the assistance
provided.

Sales desk
International banks buy and sell financial instruments on behalf of clients.

Sales/price ratio
Determined by dividing revenue per share by current stock price. Revenue per share is
determined by dividing revenue in the past 12 months by the number of shares
outstanding.

Savings
Secured loan - A loan secured by funds on deposit in a savings account, normally
maintained at the lending institution. Funds in the savings account equal to the amount of
outstanding principal of the loan may not be withdrawn.

Savings and loan association

Historically, a depository institution that accepted deposits mainly from individuals and
invested heavily in residential mortgage loans.

Savings bank
Depository institution historically engaged primarily in accepting consumer savings
deposits and in originating and investing in securities and residential mortgage loans; now
may offer checking-type deposits and make a wider range of loans.

Scrip dividend
A benefit distribution in which a company distributes dividends in form of share or a
combination of share and cash.

Scrip issue
Shares given without charge to existing shareholders in proposition to shares they already
hold.

SEAQ - Stock Exchange Automated Quotation system.

SEATS plus
Stock exchange alternative trading system which provides a combination of quotes and/or
firm orders.

SEAQ international
SEAQ International (Stock Exchange Automated Quotations system for international
stocks) fulfills the same service as SEAQ but for international stocks.

Second mortgage
A mortgage that is in a second position behind (or subordinate to) the original first
mortgage; see also Junior Lien. A second mortgage is a good alternative to refinancing
when one has an original first mortgage loan with a low interest rate.

Secondary market
A secondary market brings together investors wishing to sell and investors willing to buy,
and in the process discovers a market price determined by current levels of supply and
demand. Secondary market prices also help determine the pricing of new issues.

Sec 23A
Section 23A of the Federal Reserve Act limits the amount of covered transactions between
a bank and any single affiliate to 10 percent of the banks capital stock and surplus and
limits the amount of covered transactions between a bank and all its affiliate.

Securities
Paper certificates (definitive securities) or electronic records (book-entry securities)
evidencing ownership of equity (stocks) or debt obligations (bonds).

Securities exchange commission

An independent, nonpartisan, quasi-judicial regulatory agency with responsibility for
administering the federal securities laws.

Security
A tradable financial asset.

Seigniorage
The profit which results from the difference between the cost of making coins and currency
and the exchange value of coins and currency in the markets.

Self-employed borrower
A borrower whose income is derived from a business source in which he or she has an
ownership interest of 25 percent or more.
Self-employed organizations
Nongovernment organizations that have statutory responsibility to regulate their own
members such as the New York Stock Exchange (NYSE) and National Association Of
Securities Dealers (NASD).

Senior security
A security with claims on income and assets that rank higher than certain other securities .
Debt, including notes, bonds and debentures, is senior to stock. In the event of bankruptcy,
senior securities have first claim on corporate assets.

SFR (single family residence)

A structure intended to house one family.

Seller’s point
In reference to a loan, seller’s points consist of a lump sum paid by the seller to the buyer’s
creditor to reduce the cost of the loan to the buyer. This payment is either required by the
creditor or volunteered by the seller, usually in a loan to buyers.

SETS
SETS (Stock Exchange Electronic Trading System): Otherwise known as The Order Book,
this is an electronic trading system that matches buy and sell orders at the best available
price. Member firms of the London Stock Exchange enter bid or offer orders.

Sharpe ratio
The Sharpe ratio is a measure of what is called risk-adjusted return. It is used by investors
and fund managers to assess the relative performance of alternative investment products.

Short
A trader, who has committed to deliver stock which he does not own at a specified price at
some time in the future, is known as short. Such a trader anticipates the price of the stock
will fall allowing them to buy the security on the market at a lower price.

Short against the box

Shorting against the box means short selling securities that you already own. This results in
a neutral position where your gains in a stock equal the losses. Investors short against the
box in order to delay a taxable event such as delaying capital gains.

Short sale
Selling an asset the seller doesnt own at the time of the sale in the hope of purchasing the
asset profitably at a lower price in the future to make a promised delivery.

Short term debt securities

Short-term money markets are the short end of the capital market, where high volume, low
risk borrowing and depositing are undertaken. Money markets are wholesale cash markets
through which banks, corporations and government bodies fund short-term deficit.
Short term interest rates
Interest rates on loan contractor debt instruments such as Treasury bills, bank certificates
of deposit or commercial paper having maturities of less than one year. Often called money
market rates.

Signature card
A form signed by a depositor upon opening an account at a financial institution. The card
establishes the type of account ownership and sets forth the account terms and the
obligations of the customer and the institution. Signature cards are used by company.

Single price auction

There are two ways of pricing an issue after it has been allocated through a competitive
auction - single or multiple pricing.

Slippage
Slippage is an unpleasant word for an unpleasant event. Its the experience of not getting
filled at (or even very close to) your expected price when you place a market order.

Small cap stock

Companies with a low stock-market capitalization .

Special drawing right

A type of international money created by the International Monetary Fund (IMF) and
allocated to its member nations.

Split capital trust

An investment company comprising two or more share classes. These are typically income
and capital but are frequently expanded to include zero-dividend preference shares,
stepped preference shares and highly-geared ordinary shares.

Spot FX
A spot foreign exchange transaction is a contract to exchange two currencies, typically in
two business days (spot value date), at an exchange rate agreed today. The spot market is
the market is the 24-hour global market in which these transactions take place.

Spot price
The price of an asset for immediate delivery . The spot price of an asset can be contrasted
with the forward price, which is a price for an asset which is to be delivered at a fixed time
in the future.

Spot transaction
A foreign exchange transaction in which each party promises to pay a certain amount of
currency to the other on the same day or within one or two days.
Spread betting
Financial spread betting lets you back your trading judgment without having to buy the
underlying instrument or product you want to trade.

Spread trades
Spread trades (also known as pairs trades) involve a trader taking a two-position play, one
long and one short, on two different instruments.

Stamp duty
Stamp duty is a UK tax on buying shares and is applied as a percentage - currently 0.5% - of
the value of any given share transaction. For example, if you buy 1,000 of a particular stock,
you will pay 5 in stamp duty upon purchase.

Startup funding
The fund received by a newly established deposit insurance system by initial contributions
from banks, government, and/or the central bank.

State member bank

A bank that is chartered by a state and has elected to join the Federal Reserve system .

Statement
A written record prepared by a financial institution, usually once a month, listing all
transactions for an account, including deposits, withdrawals, checks, electronic transfers,
fees and other charges and interest credited or earned.

Stag
A stag is someone who buys newly-issued shares with the aim of selling them immediately
for a profit as soon as dealing in the market begins.

Stock splits
When a company divides its shares, it is said to carry out a stock split. For example, if a
corporation had 4 million shares outstanding and split them 3 for 1, it would have 12
million shares outstanding.

Stop loss
The price at which a security is sold automatically to protect the investor against further
losses. In some of the more volatile securities, a stop-loss is considered vital.

Street name
Securities held in the name of brokers, banks or their nominees, instead of in the
customers’ name.

Straight bond
The straight or plain vanilla bond is the most common debt security and all other bond
types are variations of, or additions to, standard straight bond features.
Strike price
The price at which an option is due to be exercised at some time in the future. When you
buy an option, you will pay a premium for the privilege of being able to buy the stock upon
which the option is based at a definite price at some time in the future.

Subordinate financing
Secondary financing secured by a lien that is junior to the first mortgage or senior claim -
for example, a second mortgage.

Subordinated debt
A debt instrument that ranks lower than another instrument in the priority of its claim on
the issuers assets.

Subrogation
The process where a deposit insurer is substituted as the claimant for the insured deposits
paid by a deposit insurer.

Supplemental income
Income derived from sources such as interest/dividends, capital gains, and rental
properties; these sources require tax returns to support the qualifying income.

Survey
A report prepared by a registered land survey professional that shows the precise location
of the property.

Swap arrangement
Short-term reciprocal lines of credit between the Federal Reserve and 14 foreign central
banks as well as the Bank for International Settlements.

Sweat equity
The exchange of labor or services in lieu of paying cash for the purpose of receiving credit
toward the down payment. Not generally an eligible source of down payment.

SWIFT
SWIFT is an acronym for the Society for Worldwide Interbank Financial
Telecommunications. SWIFT is a communications system that advises member banks to
transfer funds from one member to another - it is an information and instruction system,
not a payment.

Synthetic
A synthetic is a financial instrument artificially created by using a collection of other assets
whose combined features are comparable to the instrument it replicates.

Systematic risk
Risk that cannot be eliminated by diversification. Also known as market risk, as it reflects
the risk that stems from general market conditions.
 T
TAKA
Monetary unit of Bangladesh

TAKE DOWN
An advance of money to a borrower under a credit agreement or commitment to lend. A
borrower who draws $20,000 against a $70,000 revolving line of credit takes down the line
by the amount used..

TAKE OUT
In lending, to pay off a borrower's other creditor, by replacing a short-term loan with a
longer maturity loan, taking out the other lender.

TAKE OUT COMMITMENT

Agreement between a mortgage banker and a long-term investor under which the latter
agrees to purchase a mortgage at a specific future date. The investor, called a take-out
lender , is typically an insurance company or other financial institution.

TAKE OUT LOAN

Permanent financing, usually structured as an amortizing, fixed payment mortgage, on an
office development, housing project, or mixed use income producing property. A recent
innovation is the zero-coupon mortgage, in which interest is due and payable in one lump
installment or balloon payment at maturity.

TAKE OUT LENDER

Financial institution that extends a long-term mortgage on real property that replaces the
interim financing, or construction loan arranged by a savings and loan, bank, or mortgage
banker. The institution extending the long-term loan, or permanent financing, is often an
insurance company or institutional investor willing to make a long-term investment in
income producing property, realizing a capital gain from the eventual sale of the property,
in addition to cash flow from rental payments by property tenants.

TALA
Monetary unit of SAMOA

TANDEM LOAN
Subsidized mortgage program under which the purchases mortgages above fair market
value, and resells them through the Federal National Mortgage Association (Fannie Mae).
The program provides financial assistance to developers of nonprofit public housing
projects. Ginnie Mae pays the difference-the discount between the price paid by Fannie
Mae and the price at which it buys the mortgages, using its credit rating to guarantee the
discount, which public housing authorities could not otherwise afford, and in turn accepts a
limited loss on the deal.

TARGET RATE
Rate set by a bank's Asset-Liability Committee as a desirable objective in repricing
maturing deposits or loans.

TAX AND LOAN ACCOUNT

Account in a private-sector depository institution, held in the name of the district Federal
Reserve Bank as fiscal agent of the United States, that serves as a repository for operating
cash available to the U.S. Treasury. Withheld income taxes, employers' contributions to the
Social Security fund, and payments for U.S. government securities routinely go into a tax
and loan account.

TAX ANTICIPATION BILL

Short-term obligation issued by the U.S. Treasury to raise funds during a period when tax
receipts are not large enough to cover current disbursements. TABs mature approximately
one week after quarterly corporate tax payments are due. The attractiveness of TABs is
that the government will accept them in payment for taxes at their face value.

TELEPHONE BILL PAYMENT

Banking service allowing customers to pay merchant bills, verify account balances, and
transfer funds between accounts. Telephone bill payment was popularized in the mid-
1970s by savings and loan associations that wanted to offer their customers transaction
accounts even though, at the time, they legally couldn't offer checking accounts, so the
payments were instead taken out of savings accounts.

Telephone order
1. verbal instruction to move funds from one bank account to another, or from one
bank to another, by check or electronic transfer, such as a payment over the fed
wire network.
2. Mail-order purchase charged to a bank card or travel and entertainment card. No signature is
required, and the customer has the same consumer rights and obligations as when making a
purchase in person

Telephone transfer
Transfer of account balances from one account to another or from payer to recipient made
by telephone order, rather than traditional written authorization or instrument. The
accounts being debited can be checking, savings, or, if three or fewer telephone transfers
per month, money market deposit accounts.
Teller
Bank employee who accepts deposits, cashes checks, and performs other banking services
for the public. In most financial institutions, tellers work from behind a counter or
enclosure. Large banks assign teller functions by job description: a mail teller processes
incoming bank deposits arriving through the mail; a loan teller keeps a record of payments
to customer accounts; and a note teller handles the collection of funds on notes and drafts
payable by other banks.

Tellers cheque
Check drawn by a bank on its own funds and signed by its cashier. It is thus a direct
obligation of the bank. A cashier's check is distinguished from a money order , which is an
order for the payment of money, as one issued by one bank or post office and payable at
another.

Temporary loan
Short-term working capital loan to finance a firm's inventory or receivables. These loans
have maturities generally under one year, and are evidenced by a promissory note taken or
a warrant issued by the borrower. A temporary loan can be unsecured or secured by a lien
on the firm's assets. Working assets acquired through temporary financing eventually will
be converted into cash through the firm's trade cycle, when it sells inventory for cash or
collects its receivables.

Tenge
Monetary unit of Kajhakistan

Tenor
Shorthand reference for maturity on a note or financial instrument. Designates the time
when a draft is payable: on sight (when presented), a given number of days after
presentment, or a given number of days after the date of the draft.

Term federal fund

Reserve account balances purchased for periods longer than a single day, but generally less
than 90 days. Banks purchase Fed funds for an extended period when they see their
borrowing needs lasting several days, or they believe short-term rates may rise and they
want to lock in the current rate. Fed funds purchased for an extended term, like overnight
Fed funds, are not subject to reserve requirements and sometimes are preferred to other
purchased liabilities of comparable maturity.
Term loan
Intermediate- to long-term (typically, two to ten years) secured credit granted to a
company by a commercial bank, insurance company, or commercial finance company
usually to finance capital equipment or provide working capital. The loan is amortized over
a fixed period, sometimes ending with a balloon payment. Borrowers under term loan
agreements are normally required to meet minimum working capital and debt to net worth
tests, to limit dividends, and to maintain continuity of management.
Fixed-term business loan with a maturity of more than one year, providing an organization
with working capital to acquire assets or inventory, or to finance plant and equipment
generating cash flow. The term loan is the most common form of intermediate-term
financing arranged by commercial banks, and there is wide diversity in how it is structured.
Maturities range from one year to 15 years, although most term loans are made for one- to
five-year periods. Term loans are paid back from profits of the business, according to a
fixed amortization schedule. Term loans may be secured or unsecured, and carry a rate
based on the lender's cost of funds, the federal funds rate, LIBOR, or the bank prime rate .
Loan interest normally is payable monthly, quarterly, semiannually, or annually. Most
business loans contain both affirmative and restrictive covenants that impose certain
conditions on the borrower that permit acceleration of the maturity if the loan conditions
are violated. The lender may, for example, restrict cash dividends paid and loans taken out
by corporate officers, and usually will require the borrower to maintain the business in
good order, keep adequate insurance, and file quarterly financial statements with the bank.
Larger borrowings often are financed by several banks through a syndication arrangement.

Term mortgage
Non-amortizing mortgage, usually with a maturity under five years, that provides for
interest-only payments for a specified period, after which the outstanding principal balance
is due and payable in a lump-sum balloon payment.

Term purchase agreement

Repurchase agreement with a maturity of more than one day. Also known as a term repo.
Banks and savings institutions that have excess cash to invest often buy government
securities instead of certificates of deposit, which have a minimum maturity of seven days.
In a repurchase agreement, the bank buys securities from a dealer, or from a nondealer
bank, with an agreement to sell back the securities later at a predetermined price. The
difference between the purchase price and the resale price represents the payment of
interest. Term repos may pay higher yields than overnight repos, because the seller
assumes interest rate risk for a longer period than an overnight repo.

Termination statement
Statement releasing a lender's claim or security interest in a borrower's assets when a debt
is fully paid, and terminating a previously filed financing statement. The Uniform
Commercial Code requires secured lenders to sign a termination statement, generally
known as Form UCC-3 to clear the borrower's name of liens listed in public records.

Third country acceptance

In international trade, a banker's acceptance rawn on a bank in a country other than the
country of the importer or exporter, and paid in the national currency of the accepting
bank. Third country acceptances, also called refinance bills, often are used by exporters to
obtain bank financing at competitive rates. Since the mid-1970s, Japanese and South
Koreans have financed a large portion of their exports, including exports to European
countries, through bankers' acceptances denominated in U.S. dollars, which accounts for
much of the growth of these acceptances in the last decade.

THIRD PARTY CHECK

1. Check or draft payable to someone other than the check writer (the maker of the instrument)
or the person who initially negotiates the check by endorsing the back of the instrument.
2. Check transferred by endorsement exchanging it for cash at a bank teller. The Uniform
Commercial Code allows transfer of a check to a new owner any number of times. In practice,
however, multiple endorsed checks are uncommon, and banks may be reluctant to accept
them without verifying signatures of endorsers.
3. Payable through draft . Credit Union share draft account often are paid by a commercial bank,
which then debits the credit union's account after paying drafts presented for payment, as are
drafts that are written against a money market mutual fund.

Third Party credit

Credit facilitating the sale of merchandise and services that is arranged by someone other
than the seller. Retail merchants accept bank credit cards and travel and entertainment
cards as payment for merchandise, which often is less costly than extending credit directly,
because the merchant is relieved of the expense of funding the credit receivables and
collecting the payments. In return for payment of a merchant discount, computed as a
percentage of net sales, the merchant can get immediate credit for bank card sales slips
deposited with a bank. If the merchant discount rate is 2%, the merchant gets $98 for every
$100 in credit sales. As long as the merchant follows the terms of the credit agreement, the
merchant also is not liable for credit or fraud losses.

Third party payment

Payment made out to and deposited in the account of someone other than the person who
initiates the payment, or who initially receives it. Such payments may be third party
checks transferred by endorsement, written or oral instructions directing a bank to pay a
consumer's bills, or electronic payments.

Thrift institution
Organization formed primarily as a depository for consumer savings, the most common
varieties of which are the savings and loan association and the savings bank. Traditionally,
savings institutions have loaned most of their deposit funds in the residential mortgage
market. Deregulation in the early 1980s expanded their range of depository services and
allowed them to make commercial and consumer loans. Deregulation led to widespread
abuse by savings and loans that used insured deposits to engage in speculative real estate
lending. This resulted in the Office of Thrift Supervision (OTS) , established in 1989 by
the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) ,
popularly known as the "bailout bill." credit union are sometimes included in the thrift
institution category, since their principal source of deposits is also personal savings, though
they have traditionally made small consumer loans, not mortgage loans.
ii)depository financial institution whose primary function is promoting personal
savings (thrift) and home ownership through mortgage lending. Thrift institutions hold
most of their assets in mortgages and collect most of their deposits from
consumers. savings and loan associations savings banks , and credit unions are all
considered thrift institutions. Thrift institutions, at one time restricted to mortgage lending,
have gained parity with commercialbanks over the last 20 years and many thrifts offer the
same range of nonmortgage credit services-credit cards, auto loans, home equity loans, and
business loans-available from commercial banks.

Thrift institutions advisory council

Advisory body established by the Monetary Control Act of 1980 to advise the Federal
Reserve Board of Governors on the needs of savings institutions. This panel is composed
of representatives of savings banks, savings and loan associations, and credit unions.

Tier 1
Bank equity capital, also called core capital, supporting bank lending. Tier 1 capital
includes common stock and retained bank earnings.

Tier 2
Secondary source of bank capital financing banking activities. Tier 2 capital includes
subordinated debt, convertible securities, and a portion of the loan loss reserves for
possible bad loans.

Tiered rate account

Savings account that pays a rate of interest scaled according to the amount invested in the
account. Typically, the higher the balance in the account, the higher the rate. Savings
accounts with longer terms generally pay higher rates than accounts with shorter terms.

Tight money
Economic condition in which credit is difficult to secure, usually as the result of Federal
Reserve action to restrict the money supply . The opposite is easy money.

Time deposit
Savings account at a financial institution that earns interest but is not legally subject to
withdrawal on demand or transfer by check. The depositor can withdraw only by giving
notice. A Certificate of Deposit (CD) is a special type of time deposit. Should the CD
depositor wish to withdraw funds prior to the date of maturity, the financial institution
imposes a substantial penalty.

Time Draft
Written order to be paid at a given future time after the drawee accepts it. It differs from
a sight draft, which is payable on demand. Draft payable at a specified or determinable
time in the future, as distinguished from a sight draft, which is payable on presentation
and delivery.

Time Loan
That is payable in full at a specified maturity date, e.g., 30, 60, 90, or 120 days. Interest on
this type of loan ordinarily is deducted (discounted) in advance when the loan is made. It
differs from a demand loan in that the lender cannot call or demand repayment of a time
loan before the maturity. Time loans are repaid from turnover of assets, for example, the
sale of inventory or collection of accounts receivable.

Time Value of money

Concept that a dollar one has today is worth more than a dollar tomorrow. The reason:
today's dollar can earn interest by putting it in a savings account or placing it in an
investment. The longer it takes to get $1, the less it is worth today because interest is being
lost.

Time – sale – financing

Form of indirect lending (dealer financing) in which a bank or other third party purchases
installment sales contracts at a discount from face value from a dealer, and the borrower
makes payments to the lender. This usually is done in conjunction with dealer floor
planning.

Time Sale financing

Form of indirect lending (dealer financing) in which a bank or other third party purchases
installment sales contracts at a discount from face value from a dealer, and the borrower
makes payments to the lender. This usually is done in conjunction with dealer floor
planning.

TITLE
Legally valid claim to ownership of real property, evidenced by deed, certificate of title, or
bill of sale. A lender will extend mortgage financing to a buyer only if the seller holds
uncontested ownership of the property in question. Most states treat a mortgage as a lien
against the title held by the lender, or mortgagee, but some states recognize a mortgage as
a binding obligation of the borrower, or the mortgagor named in the title.

Tolar—monetary unit of slovenia

Tombstone
Advertisement placed in newspapers by investment bankers in a public offering of
securities. It gives basic details about the issue and lists the underwriting group members
involved in the offering in alphabetically organized groupings according to the size of their
participations. It is not "an offer to sell or a solicitation of an offer to buy," but rather it calls
attention to the prospectus , sometimes called the offering circular. A tombstone may also
be placed by an investment banking firm to announce its role in a private placement ,
corporate merger , or acquisition ; by a corporation to announce a major business or real
estate deal; or by a firm in the financial community to announce a personnel development
or a principal's death. slang term for financial advertising listing acquisitions, new
securities offered for sale, listing the underwriting parties in order of their participation-
with managing partners listed at the top and participating members below. The name
derives from the minimal artwork in financial ads. It lists only the relevant data of the
parties to the transaction. Such ads are not an offer to sell, as securities regulations prohibit
explicit advertising, other than through a prospectus.

Tomorrow next
Foreign exchange and money market term for trades executed tomorrow for delivery on
the next business day. For example, a currency purchased on Tuesday is deliverable on
Thursday, or the spot delivery day plus one day. Also known as rollover or T/N. The spot
market price for two-day delivery is adjusted by a premium to account for the extra day.

Topping Up clause
Language in a back-to-back loan, or a two-currency loan, protecting the lender from
currency devaluations. The borrower is required to make additional payments of, say 5%
in the depreciating currency if the value of that currency declines by that amount. Such
provisions can cause problems if the party on the other side of a back-to-back loan has no
use for the additional currency, or is required to report topping up payments as additional
income. Dependence on these special payments has been reduced by passing the credit risk
to a bank, in exchange for payment of a fee.

Total capital
Bank supervisor's measure of a bank's qualifying capital in computing itsrisk-based capital
reserves. Total capital is measured as follows: tier 1 equity capital (common stock and
qualifying preferred stock), plus tier 2 capital (reserves for loan losses, subordinated debt,
and preferred stock not counted as Tier 1 capital).
Total lease obligation
total of all direct costs of a consumer lease, including monthly rentals, interest, and any
contingent payments( balloon payment ) due at the end of the lease, and fair market value
(residual value) of the property at lease termination. Federal Reserve Regulation
M requires disclosure of closing costs in consumer leases. The lessor must also tell the
lessee whether the lease contains a purchase option available at the end. An open-end
lease may require a balloon payment, depending on the value of the property, although the
Consumer Leasing Act limits such payments to no more than three times the average
monthly payment.

Translation exposure.
Also called accounting exposure, the impact of an exchange rate change on the reported
consolidated financial statements of an MNC. An example would be the impact of a French
franc devaluation on a U.S. firm’s reported income statement and balance sheet. The
resulting translation (accounting) gain or losses are said to be unrealized—they are
“paper” gains and losses. Exhibit 109 contrasts translation, transaction, and economic
exposure.
 U
Underwrite
Generally, to underwrite means to assume a risk for a fee. Its two most common contexts are:
1. Securities: a dealer or investment bank agrees to purchase a new issue of securities
from the issuer and distribute these securities to investors. The underwriter may be one
person or part of an underwriting syndicate. Thus the issuer faces no risk of being left
with unsold securities.
2. Insurance: a person or company agrees to provide financial compensation against the
risk of fire, theft, death, disability, etc., for a fee called a premium.

Undisclosed Reserves
These reserves often serve as a cushion against unexpected losses, but they are less permanent
in nature and cannot be considered as ‘Core Capital’. Revaluation reserves arise from
revaluation of assets that are undervalued on the bank’s books, typically bank premises and
marketable securities.

Unemployment It
Is the state in which a worker wants, but is unable, to work. The unemployment rate is the
number of unemployed workers divided by the total civilian labour force.

Unrealized gains or losses

Gains/losses arising from the revaluation of assets compared with their adjusted cost of
acquisition.

Umbrella Fund
Sometimes known as a fund of funds - is an investment fund that invests in other funds rather
than in direct investments.

Underwriter
An analyst who reviews the supportive documentation to determine the risk associated with
the loan request. The person who gives the final loan approval.

Uninsured Deposit
Types of deposits that are not covered by a deposit insurance system.

Unit of Trading
Is a term used in futures and options markets to indicate the amount of the underlying the
contract is based on?

Unearned Income
Money received for which no exchange was made, such as a gift.
Unit Trusts
A unit trust is a trust formed to manage a portfolio of securities in which small investors can
buy units. It differs from an investment trust in that investors who buy units are not
shareholders

Universal Stock Futures (USFs)

Are futures contracts written on individual shares? The product was launched by The London
International Financial Futures and Options Exchange in January 2001.

Unsecured Loan
A loan not backed by any collateral. A credit card is an unsecured loan.
 V
VA mortgage
Home mortgage loan granted by a lending institution to qualified veterans of the U.S. armed
forces or to their surviving spouses and guaranteed by the VA. The guarantee reduces risk
to the lender for all or part of the purchase price on conventional homes, mobile homes,
and condominiums.

Valuation
Placing a value or worth on an asset. Stock analysts determine the value of a company's
stock based on the outlook for earnings and the market value of assets on the balance
sheet.

Valuation reserve
Special account set up to offset changes in one or more accounts, for example, accumulated
depreciation from depreciable fixed assets or dividends payable.

Value compensated
Purchase or sale of foreign currencies between two banks in which both parties agree to fix
the values of the currencies exchanged at the spot rate price on the settlement date.

Value date
Date that a customer can use funds deposited in an account.

Value dating
Crediting electronic payments to a customer's account with funds available on a future
date.

Value impaired
Programs, for example, electronic deposit of Social Security benefits into a beneficiary's
account, or payroll direct deposit. Nonperforming loan because the borrower is delinquent
in interest payments six months or more.

Variable rate certificate

Certificate of Deposit carrying a yield set at a spread over a base rate-for example, the
current 90-day CD rate-and adjusted quarterly.

Variable rate loan

Consumer installment loan or commercial loan carrying an interest rate that fluctuates
according to changes in an index rate.
Variable rate mortgage
Mortgage agreement between a financial institution and a real estate buyer stipulating
predetermined adjustments of the interest rate at specified intervals

Vault
Armored storage facility meeting minimum security standards. It is used for storage or
safekeeping of customer valuables in safe deposit boxes , a bank's portfolio of investment
grade securities, such as treasury bonds , and cash balances sufficient to meet daily cash
needs.

Vault cash
Cash in a bank's vault that is used for day-to-day business needs, such as cashing checks for
customers.

Velocity of money
Number of times that money balances turn over in the economy.

Vendor single interest insurance

Insurance policy that protects a lender's security interest in a vehicle or automobile
financed by an installment loan.

Vendor’s lien
Seller's right to reclaim property sold to a buyer if the purchaser falls behind in payments.

Venture capital
Important source of financing for start-up companies or others embarking on new or
turnaround ventures that entail some investment risk but offer the potential for above
average
future profits

Verification
Employer's confirmation of a borrower's annual income, requested by a lender when
screening a credit application.

Vested interest
Right of beneficial interest in real or personal property, which may be deferred for
enjoyment in future years.

Virtual banking
Financial services accessed via the Internet's World Wide Web.

Visa
Member-owned association, based in San Mateo, California, that licenses Visa service marks
to financial institutions issuing Visa credit and debit cards
Visible supply
Calendar of new issues of municipal bonds coming to market in the next 30 days, used as a
measure of available investments in gauging market acceptance of new issues.

Visibility
The degree of predictability of a company’s future earnings. A company with low visibility
is one that finds it difficult to foresee how its future earnings will shape up.

Voidable
Preference transfer of assets by a debtor filing a voluntary bankruptcy petition in favor of
one creditor at the expense of other secured creditors. If the transfer was made in the 90
days prior to filing the petition, or was made in anticipation of a bankruptcy filing, the
bankruptcy trustee may set aside the preference.

Volume
The number of transactions in a futures contract (one side only) during a specified period
of time. A market with a high number of contracts is good for trading.

Voluntary bankruptcy
Legal proceeding whereby a debtor voluntarily files a petition for relief from creditors

Voluntary conveyance
Process by which a homeowner who has not made timely payments of principal and
interest on a mortgage loses title to the home

Voluntary System
A deposit insurance system that a targeted institution has the right to decide to participate
in as a member.

Voluntary termination
Cancellation of a swap contract by mutual agreement of the counterparties, usually
involving a lump-sum payment from one party to the other.

Voluntary trust
Type of living trust in which the person setting up the trust (the settlor) retains legal title of
the gift transferred to the beneficiary, even though the beneficiary has actual title and
possession.

Vostro account
Account used by a bank to describe a demand deposit account maintained with it by a bank
in a foreign country.

Voting trust certificate

Receipt issued to shareholders of a company placing voting rights in the hands of a few
individuals, who are known as voting trustees.
Voting Rights
Common stockholders are owners of the corporation and have a voice in management
through their voting rights.

Voucher
Document authorizing disbursement of cash to cover a liability.

Voucher check
Check with a detachable form indicating the reason for payment.
 W
Warrant
A warrant is similar to a call option in that it gives the holder the right but not the
obligation to subscribe for ordinary shares in a company. Warrants, however, are issued by
the company itself and are therefore a liability to the shareholders of that

Wilshire 5000
Probably the most comprehensive index of the entire US equity market: this index
measures the performance of shares in all US-based companies with readily-available price
data.

With-Profits Endowment Policy

A with-profits endowment policy pays a guaranteed sum plus bonuses. Bonuses derive
from the life company investing a proportion of the premiums paid; and contributions are
higher than a non-profits policy as the policyholder shares the profits of the life

Withdrawal Form
A source document filled out by a customer to authorize a withdrawal from the customers
savings or checking account. The form is kept by the financial institution for its records.

Withheld Deposits
Deposits that are temporarily suspended to be paid by the deposit insurer due to lack of
enough information. See also Suspense Account.

Working Capital
The current funds available to administer the deposit insurance function.

Workout
The making of special repayment arrangements in light of likely or actual default on a loan

Workout Agreement
A plan approved by borrower and lender by which the delinquent borrower can reschedule
loan payments so that the entire outstanding principal is eventually repaid.

Wraparound
A financing device that permits an existing loan to be refinanced and new money to be
advanced at an interest rate between the rate charged on the old loan and the current
market interest rate. The creditor combines or wraps the remainder of the old
Wage assignment
Clause in a loan agreement allowing the lender to attach the borrower's wages if the
borrower defaults, without notifying the borrower.

Wage earner plan

Popular name for a debt repayment plan under Chapter 13 of the Bankruptcy Code. The
debtor voluntarily agrees to repay over a three- to five-year period a portion of obligations
due creditors in exchange for a promise by creditors to refrain from further collection
efforts. Court supervised repayment plans help debtors earning a regular income restore
their credit ratings without liquidating their personal or financial assets.

Wage garnishment
Court order to an employer to withhold all or part of an employee's wages and send the
money to the court or to a person who has won a lawsuit against the employee. An
employee's wages will be garnished until the court-ordered debt is paid. Garnishing may be
used in a divorce settlement or for repayment of creditors.

Waiver of exemption
Clause in a loan agreement whereby the borrower waives a right to exempt personal or
real property from attachment or seizure in the event of default. This credit practice was
prohibited by banking regulatory agencies in 1985.

Waiting period
Popular name for the Securities And Exchange Commission rule mandating a 20-day
cooling-off period dating from the filing of the registration statement and a
preliminary prospectus . The regulatory intent is to encourage disclosure to potential
investors, but not actual selling. The SEC allows the offering to clear the registration
process by not objecting to anything disclosed in the registration papers. Any objection by
the SEC automatically would restart the 20-day period, unless the agency has accelerated
the process.

Waiver
A voluntary relinquishment of a right to property owned, claim against another's property,
or to any legally enforceable right. In banking, the term has numerous meanings, such as an
agreement not to charge a credit card annual fee during the first year after a new card is
issued, or an agreement to forgo overdraft charges on bad checks.

Waiver of notice

1. Agreement by the endorser of a check, draft, or note to accept legal responsibility,

without being notified formally, in the event the original maker defaults. Also
called waiver of demand.
2. Waiver of a bank's customary right to be notified formally when it presents eligible
paper (drafts, acceptances) forrediscount at the Federal Reserve discount window.
 Endorsement by the bank is legally considered a waiver of demand, notice, and protest
by the Federal Reserve, should the original signer default on the notes.

Wall Street
Popular name for the financial district in New York City where the New York Stock
Exchange, the American Stock Exchange, leading securities firms, and several major banks
and insurance firms are located. In a more generic sense the term is broader in scope,
referring to the investment banking and securities brokerage industry regardless of where
the firms involved actually are located.

Ward
An incompetent person or a child whose affairs are put in the hands of
a guardian appointed by a court, who acts as a fiduciary. The child's guardian administers
the child's estate on behalf of the child until the child reaches the age of adulthood.

Warehouse

1. Bonded storage facility where commodities, finished goods, or works in process are
under a warehouse receipt. Also called a field warehouse.
2. Swap maker's book listing inventory of swaps to be held or traded, either for other
financial institutions or to profit from position taking. A financial institution that
manages a swap book is known as a market maker.

Ware house finance

Financing secured by a firm's balance sheet assets, such as inventory, receivables, or
collateral other than real estate. The most common forms are accounts receivable
financing, in which the lender advances funds against trade receivables, inventory lending,
and equipment leasing. Asset-based lending covers a broad range of secured lending
activities, and is used to support the credit needs of firms that cannot obtain bank financing
on a fully unsecured basis.

Warehouse receipt
Document giving proof of ownership of goods held in inventory, for example, unfinished
goods temporarily stored in a field warehouse by a manufacturer. The receipt is
a title document for its holder and may be either negotiable or nonnegotiable. Anegotiable
warehouse receipt is deliverable to the bearer or to another party named; a nonnegotiable
receipt specifies to whom the stored goods are deliverable. Most warehouse receipts are
issued in negotiable form, making them eligible as collateral for working capital loans from
a bank.

Warehousing

1. Holding of mortgages by a mortgage banker on a short-term basis until the loans are
sold to an investor. The mortgage originator finances the inventory of unsold loans
with a short-term line of credit, using the mortgages as loan collateral. This form of
 financing commonly is used by mortgage bankers to raise working capital funds until
mortgages held in inventory are sold to a permanent investor, the take-out lender.
2. Temporary storage of transactions by an Automated Clearing House (ACH) or a
financial institution, as for corporate customers. ACH associations may hold
transactions for financial institutions up to 31 days prior to the value date when funds
actually are moved.
3. Pledging a mortgage as collateral for short-term loans, usually called a hypothecated
mortgage.
4. Interest carryover in an adjustable-rate mortgage subject to a periodic rate cap. When
a rise in borrowing costs exceeds the interest rate cap, lenders may defer interest
payable to future time periods if allowed by the mortgage contract.

Warm card
Bank card with restricted usage. Withdrawals or deposits may be permitted, but not both.
An example can be a deposit-only card, allowing merchants to deposit their daily cash
receipts at a night depository and get a transaction receipt from an Automated Teller
Machine.

Warning bulletin
Paper listing of over-limit or past-due credit card accounts and stolen cards, compiled
weekly by Visa and MasterCard. Paper warning bulletins are now replaced by on-line
merchant terminals giving instant notification of suspected bad accounts. Merchants are
instructed to obtain authorization before accepting the cards listed. Also called cancellation
bulletin, hot card list, or restricted card list.

Warrant

1. Short-term interest bearing note issued by a state or local government to pay debts,
repayable from a defined income source. For example, notes issued in anticipation of
future tax revenues (a Tax Anticipation Note) or future cash receipts (a Revenue
Anticipation Note).
2. Certificate giving the bearer the right to buy securities, gold, or other commodities at a
stated price for a stated period or at any time in the future. The offered price usually is
above the market price, in contrast to a rights offer of newly issued securities at below
market prices. These instruments are offered to the public in negotiable form, and are
traded freely on the stock exchanges. They differ from stock purchase option, which
normally are offered only to the issuer's employees. Also called a subscription warrant.
3. Currency warrant. The yield and price of the instruments covered are fixed at the time
of the original sale.

Warranty
Statement, either written or implied, that assertions made in completion of a contract are
true. For example, a seller's claim in a warranty deed that the property being sold has a
marketable title. In mortgage banking, a lender's claim that loans offered for sale to a
secondary market conduit meet the buyer's specifications for pooling with other loans and
are not in arrears. Under a warranty agreement, the buyer has recourse against the seller.
A seller-servicer of loans sold in the secondary mortgage market agrees to buy back an
agreed-upon portion of losses from borrower defaults.

Warranty deed
Deed conveying the seller's interest in real property to the buyer. The seller, also known as
the grantor, certifies that the title on property being conveyed is free and clear of defects,
liens, and encumbrances. If a third party claim is not exempted specifically, the buyer (the
grantee) may sue the seller for the damages caused by the defective title.

Wash sale

1. Sale and repurchase of securities within a short period of time togive the appearance
of trading activity, sometimes done by stockmanipulators to give the impression of
trading activity and to raisestock prices. Sales between two people to boost prices, and
induce investors to buy, are now prohibited by stock exchange rules..
2. Disallowed tax loss resulting from sale of a security at a loss in a 30-day
period,followed by a repurchase of the same or a substantially identical security, or
purchase of a call option, in the next 30 days. Internal Revenue Service rules disallow
tax losses involving sale and purchase of the same or substantially identical securities
within a 61-day period. To be dissimilar, securities must have different interest rates,
voting power or earnings power, or, in the case of bonds, different maturities. Only
traders are exempted from the IRS rule that losses from wash trading have to be
recognized when the trades took place.

Wasting trust
Trust account that allows the trustee to use part of the trust principal to make payments to
a beneficiary if the interest income is insufficient. The term also applies to trusts that invest
largely in wasting assets such as oil and gas reserves.

Watch list

1. List of banks regarded by bank examiners as having earnings problems or impaired

capital these generally are banks given a rating higher than 3 on the camels
rating scale used by federal banking regulators to identify banks needing closer
supervision. (A CAMELS rating is a composite score, based on six criteria: Capital,
Assets, Management, Earnings, Liquidity, and Sensitivity to market risk). A CAMELS
rating of 4 or 5 indicates financial weaknesses in the balance sheet, such as a higher
ratio of nonperforming loans to total assets than banks of similar size. If uncorrected,
these problems could impair a bank's future viability. A bank placed on the watch list
is considered a problem bank, and is examined more frequently by bank supervisory
agencies than other banks. (In contrast, a bank given a CAMELS rating of 1 is a bank
 with strong earnings and few nonperforming assets.) In any event, a CAMELS rating is
never disclosed publicly.
2. List of banks issuing Certificate of Deposit to the secondary market that have
potentially weak balance sheets, compiled by credit rating agencies, such as Standard
& Poor's.
3. List of countries whose ability to meet debt service payments on external debt are
followed closely by federal banking agencies for changes in financial condition. The
list, a rating of country risk associated with loans to developing countries, is compiled
by the Interagency Country Exposure Review Committee, whose members are drawn
from the Federal Reserve Board, the Comptroller of the Currency, and the Federal
Deposit Insurance Corporation.
4. Any list of loans or credit exposures compiled by a bank for internal monitoring. For
example, a maturity tickler of time loans maturing in the next 30 days and commercial
loans with a perfected security interest due to expire in the next six months, unless
renewed.

Weak currency
Currency said to be a less desirable form of payment than other currencies. Weak currency
countries have frequent currency devaluations against currencies of major trading
partners, balance of payment deficits, or political instability. These currencies generally
trade at a discount in relation to currencies of economically developed countries. Foreign
exchange dealers generally do not make markets in weak currencies, except for currency
speculation. A dealer who expects a weak currency to decline in value may sell that
currency short, making a profit from the difference in exchange rates.
Acceptability of one currency versus another is dependent, of course, on local market
conditions. The Portuguese escudo, for example, may be a weaker currency than the U.S.
dollar, but its relative weakness may not be significant enough to discourage exporters
from accepting it as payment. Contrast with strong currency.

Weak market
Market in which there are few bids to buy and few offers to sell. A thin market may apply to
an entire class of securities or commodities futures such as small Over the Counter stocks
or the platinum market-or it may refer to a particular stock, whether exchange-listed or
over-the-counter. Prices in thin markets are more volatile than in markets with great
liquidity, since the few trades that take place can affect prices significantly. Institutional
investors who buy and sell large blocks of stock tend to avoid thin markets, because it is
difficult for them to get in or out of a position without materially affecting the stock's price.

Wednesday scramble
Last-minute buying or selling of federal funds on the day that banks report their deposit
account balances subject to reserve requirements. Banks temporarily short of reserves
make up the shortfall by buying overnight funds-Fed Funds-from a bank with excess
reserves. Federal Funds purchased ordinarily are returned to the selling bank at the
opening of business the following day.
Weighted Average Coupon (WAC)
Weighted average of the underlying coupon interest rates of mortgage loans or other loans
backing asset-backed securities or mortgage-backed securities, as of the issue date, using
the balance of each mortgage as the weighting factor. This calculation is used only when the
underlying loans have variable interest rates. WAC is computed by multiplying the coupon
rate of each mortgage or mortgage-backed security by its remaining balance, adding the
products, and dividing the result by the remaining balance.

Weighted average life

Estimated useful-life expectancy of a depreciable group of assets.

Weighted Average Maturity (WAM)

Weighted average life of the remaining terms to maturity of the underlying loans of a
mortgage certificate at the issue date, using the balance of each loan as the weighting
factor. Weighted average maturity is computed by multiplying the maturity of each
mortgage in a given pool by its remaining balance, adding the products, and dividing the
result by the remaining balance.

Weighted Average Remaining Term (WART)

Remaining term of mortgage-backed securities or asset-backed securities at any given
point in their life. It is affected by prepayments and must be adjusted monthly. It is
sometimes used interchangeably with Weighted Average Maturity

What-if calculation
Forecasting computation that allows testing of different hypotheses for Repricing assets
and acquiring funds. These hypothetical calculations usually are executed with a
spreadsheet program using a microcomputer. In asset-liability management, a what-if
calculation can estimate the difference between maturing assets and liabilities for different
time periods in the future. These models also can forecast changes in pro forma financial
statements under different interest rate scenarios, and are an analytical tool used in credit
analysis.

When issued
Short form of "when, as, and if issued," a term referring to a transaction made conditionally
because a security, although authorized, has not yet been issued. New issues of stocks and
bonds, stocks that have split, and U.S. Treasury securities are all traded on a when-issued
basis. In a newspaper listing, WI next to the price indicates such a security.

Whole loans
Mortgage loan sold in its entirety, without any participation kept by the seller. The investor
assumes all contractual rights and responsibilities, and may pay the seller a servicing fee
for collecting principal and interest payments. The purchase price usually is discounted
when the mortgage coupon is below current market rates
Whole pools
Mortgage Participation Certificate representing an undivided interest in an entire pool
of mortgage loans, rather than a pro rata share, or fractional interest, in the loans packaged
for sale to an investor.

Wholesale banking
Banking services offered to corporations with sound financial statements, and institutional
customers, such as pension funds and government agencies. Services include lending, cash
management, commercial mortgages, working capital loans, leasing, trust services, and so
on. Most banks divide wholesale banking into several different businesses: the Fortune 500
and Fortune 1000 market composed of the 500 and 1,000 largest U.S. corporations,
respectively; the Middle Market; and the small business market.

Widow’s allowance
Allowance of personal property made by a court or by statute to give a widow sufficient
funds from an estate for household expenses during the period immediately following her
husband's death.

Widow’s exemption
Allowed deduction from state inheritance taxes, claimed by a widow for her share of her
deceased husband's estate.

Wildcat banking
Period in the first half of the 19th century when state chartered banks issued their own
banknotes (paper money). Many of these banks were organized more for the purpose of
issuing banknotes than for taking deposits or making loans, and many failed. Wildcat banks
got their name e-cause many were found in hard-to reach areas, where the "wildcats" lived.

Will
Formal document distributing the assets of an estate after the death of the person signing
it-the testator. A will is usually written, signed by the testator in the presence of two or
more witnesses. Most states also allow handwritten or holographic wills if signed in the
presence of the testator by two or more witnesses. Preparing a will has several advantages
over leaving an estate intestate: the testator can designate how the estate will be
distributed and can establish a testamentary trust for the benefit of children. A will also
allow property or real estate owned by the testator to be sold more easily.

Window

1. Market opportunity for new loans or other combination of events that must be acted
upon, or lost forever.
2. Federal Reserve discount window, so named because bankers used to apply in person
at a Federal Reserve Bank teller window for short-term credit advances.
3. Period during the day when Automated Clearing House or wire transfer payments
may be submitted to a Federal Reserve Bank, clearing house, or other processing
organization for settlement between banks. See also cut-off time.

Window dressing
Special adjustments in financial position to give the appearance of adequate liquidity, often
to comply with reporting requirements. It gives the appearance of a healthy balance sheet,
whereas actual conditions may state otherwise. For example, an organization might buy
U.S. Treasury securities and other cash equivalent securities to build up its cash position.
Window dressing, or sprucing up the balance sheet, takes place just before the statement
date, for example, at the end of a fiscal year or quarter, and is intended to add size to the
financial institution. Mutual funds sell off securities not preferred by the public, and
purchase securities preferred by the public. Fund managers sell junk bonds held for yield,
in favor of AAA-rated securities for appearance.

Wire fate item

Checks, notes, or drafts sent to an out-of-town bank with instructions to notify by wire,
usually federal wire, as to whether they were paid or not. Notification tells the sending
bank when the check actually was paid, which is especially useful if the check is written for
a large amount or if the check is being handled as a noncash item.

Wire transfer
Order to pay funds electronically by wire or telephone instruction, usually involving a large
dollar payment. For example, the Federal Reserve Wire Network (federal wire), and
the Clearing House Interbank Payments System (CHIPS) are wire transfer payment
systems. The Federal Reserve Wire Network links Federal Reserve offices, depository
institutions, the U.S. Treasury, and other government agencies. It transfers funds, U.S.
government securities, and Federal Reserve administrative, supervisory, and monetary
policy messages.

With exchange
Writing on a check or draft specifying that any collection costs above the face value are
payable by the drawee of the check, or the payer of the draft being presented for payment.
Sometimes written "payable with exchange."

With full recourse

Clause in an asset sales agreement whereby a bank selling whole loans or loan
participations to an investor agrees to fully reimburse the investor for losses resulting from
the purchased loans, for example, by taking back any loans that become delinquent in
principal and interest payments.
With interest
Bonds or securities paying accrued interest to the bearer. When sold, the buyer pays any
interest accrued since the last payment date, in addition to the market price.

With right of survivorship

Joint tenant account in which assets of either owner pass to the other tenant when either
tenant dies, rather than to the owner's heirs

Withdrawal

1. Taking funds out of a deposit account by writing a check , draft , or withdrawal slip in
the case of a time deposit or savings deposit. Certain time deposits and certificates of
deposit require a notice of withdrawal before funds are withdrawn in cash or
transferred to another account. These may also be subject to an early withdrawal
penalty or forfeiture of interest. See also Regulation Q
2. substituting new collateral securing a collateral loan , allowing the borrower to take
back the original collateral pled

Withdrawal notice
Written notice of a depositor's intention to withdraw funds from an interest bearing
account. Banks may require customers to give notice seven days before withdrawals from
time deposit accounts, and also Negotiable Order of Withdrawal (NOW) accounts. Most
banks, however, waive the notice requirement in NOW accounts.

Withdrawal penalty
Charge assessed against holders of fixed-term investments if they withdraw their money
before maturity. Such a penalty would be assessed, for instance, if someone who has a six-
month certificate of deposit withdrew the money after four months

Withholding
Procedure used to ensure that federal income tax is paid on earnings even though the
recipient cannot be identified by a Social Security number. Banks, brokers, and other
entities report nonwage earnings paid out on IRS Form 1099. When the form cannot be
filed because it lacks the taxpayer's Social Security number, 20% of the interest, dividends,
or fees is withheld by the payer and remitted to the federal government. For example, if
interest earned on a bank account is $1000 and there is no Social Security number on file
for the account, the bank withholds $200. Financial institutions have account holders fill
out a Federal W-9 form requiring the individual to certify that the Social Security numbers
given are correct and that they are or are not subject to backup withholding. The
information regarding interest payments is reported by the bank to the IRS for comparison
with individual tax returns. Backup withholding is not an additional tax; the tax liability of
persons subject to backup withholding will be reduced by the amount of tax withheld. The
IRS Code Section 3406 (a)(1)(c) applies to backup withholding.
Without
Expression for a market characterized by the absence of either bids or offers, indicating a
one-way market. If XYZ at $50 was the bid, and there as no offer, the quote would be $50
without. This is usually a market where rising prices are expected.

Without recourse
In general: phrase meaning that credit risk, or risk of nonpayment, is assumed by the
buyer, rather than the seller, of a promissory note or the holder of a negotiable instrument.
In negotiable instruments law, the endorser of a check or draft cannot be held accountable
for payment to subsequent holders in the event the maker or drawer fails to pay, if the
endorsement contains the words "without recourse." Such an endorsement is a qualified
endorsement under Article 3 of the Uniform Commercial Code. See also holder in due
course
banking:

1. Financing arrangement or dealer floor planning in which the dealer's liability is

limited to warranties about the quality of the installment contracts, which the lender
purchases at a discount. Defective installment contracts are not charged back
automatically to the dealer. A nonrecourse plan may, however, require the dealer to
assist in repossessions and collections of delinquent accounts. See also nonrecourse
loan
2. Language in a secondary market sale of loans, certificates of deposit, and so on, in
which the seller is under no obligation to reimburse the investor for any losses
suffered. Transactions where the buyer can ask for compensation are regarded by
bank regulators as financings and do not qualify as sales of assets; the loans or
deposits involved must remain on the seller's balance sheet.

Won
Monetary unit of South Korea and North Korea.

Working capital

1. Current assets of an organization, especially cash, accounts receivable, and inventory.

Also called liquid capital. Definitions of the term vary. An alternative definition is net
working capital, or the excess of current assets over current liabilities. A firm's
working capital ratio (current assets divided by current liabilities) is a measure of its
liquidity,
2. Earning assets of an organization, including marketable securities, receivables, and
inventory, which can be converted to cash if needed.

Working capital loan

Short-term business loan financing the purchase of income-generating assets, principally
inventory. Working capital loans are generally written with lending terms requiring full
payment within a specified period, such as 60 days or 90 days from the date the funds are
advanced.
Working reserves
Funds available to banks for lending or investment, widely regarded as an indicator of
available bank credit. Excess reserves are the amount remaining after required reserves
are subtracted from reserve balances deposited with a Federal Reserve Bank. The total of
free reserves is computed by subtracting from a bank's excess reserves (or reserve account
balances above its reserve requirements) any borrowings from the Federal Reserve.

Workout agreement
Mutual agreement by borrower and lender to reschedule loan payments, modify payment
terms by extending the original maturity, and so on. This normally is done in lieu
of foreclosure action, in which the lender attempts to sell at auction any loan collateral
pledged by the borrower. Loans in this stage of negotiations already are covered fully by
loan loss reserves and have been written off as bad debt. By negotiating new terms with the
borrower, the lender expects to collect more from recoveries than from legal remedies,
such as foreclosure, liquidation, and bankruptcy.

World Bank
Organization that assists less-developed countries in strengthening their economies; also
called World Bank. The IBRD makes loans to countries or firms for such purposes as roads,
irrigation projects, and electric-generating plants.
.
World Bank group
collective name for the International Bank For Reconstruction And Development
(IBRD) (the World Bank) and its affiliates: the International Finance Corporation,
organized in 1950 to provide long-term project financing to developing countries; and the
International Development Association, formed in 1960 to make long-term (up to 50 years)
loans at low interest rates. The International Development Association is supported by
periodic contributions from World Bank member countries. The World Bank itself raises
capital for lending by selling bonds in the capital markets of member countries and from
direct contributions of member governments.

Worn currency
Circulating money retired from use as it wears out. The average life of a $1 bill, the most
widely circulated Federal Reserve note is about 15 to 18 months. Currency no longer fit for
use as legal tender is removed from circulation and burned by Federal Reserve Banks.is
removed from circulation and burned by Federal Reserve Banks. Mutilated or partially
destroyed currency is redeemable at full face value if more than half the original note is
intact.

Wrap account
Brokerage account placing assets managed by several investment advisors under a single
account relationship. In a wrap account, all administrative and management fees, including
broker commissions, are rolled into one comprehensive fee, which is paid quarterly. Wrap
fees generally vary from 1% up to 3% of the assets managed.
Wrap accounts provide a convenient way for investors to spread their assets over an
assortment of mutual funds and have access to top money managers. The broker selects
funds matching the investor's asset allocation objective for risk and investment return and
receives an ongoing fee to monitor the account. Typically, the wrap fee ranges from 1% to
3% of assets. The mix of funds in the investor's portfolio is adjusted, or rebalanced,
periodically to stay within original investment objective.

Wraparound mortgage
Financing arrangement in which an existing mortgage is refinanced and additional money
loaned at an interest rate between the rate charged on the old loan and current market
rates. The lender, who agrees to pass through part of the loan payments to the original
mortgage lender, combines or wraps the remainder of the old loan with the new loan, and
the borrower makes one monthly payment. Wraparound loans generally earn a higher
yield for the lender than new mortgage loans because the wraparound lender advances
only the difference between the unpaid first mortgage and the combined principal of the
two loans, but the wraparound rate is computed on the borrower’s total debt. A
wraparound mortgage is an alternative to refinancing the entire loan when a borrower
needs additional funds.

Writ of attachment
Legal document placing a borrower's assets under the control of a court order, for example,
when a bank initiates foreclosure action for nonpayment of debt. Basically, a property
execution that attaches to assets of a corporation, as distinct from a wage garnishment,
which applies to individuals.

Write down
Revaluation of securities, loans, or other ass ets when the market value is lower than the
book value at which the asset is carried. Marketable securities carried as trading account
assets for a bank's trading account or held for other institutions must be adjusted to
market value (mark to market) daily, by either writing down or writing up. Loans and
leases are carried to maturity at the original book value, unless a bank is required to write
down their value by a banking regulatory agency.

Write off

1. Accounting process whereby a loan determined to be a worthless asset is removed

from the books as an earning asset and charged to the loan loss reserves account. Its
book value is written down to zero.
2. Process of removing a bad debt or uncollectible loan from the balance sheet.

Writer

1. Person who sells put option and call option contracts.

2. Insurance underwriter.
Written notice

1. consumer protection clause in the truth in lending act stating that consumers have to
be notified in writing of any changes in credit terms. This notice may be included in
the periodic billing statement, as for example, a change in the method of computing
the interest rate in a credit card account. A change in rate applies to the entire balance
owed and new purchases, once notification is given and the customer continues to use
the account, unless state law says otherwise. See also Regulation B; Regulation Z .
2. Notice that banks may legally require from customers before paying draft from
a Negotiable Order of Withdrawal (NOW) Account. See also notice of withdrawal.

Wrongful dishonor
Failure to pay a check or draft properly endorsed and presented for payment. Under
the Uniform Commercial Code (UCC), the payer bank has until midnight of the day after it
receives a check to pay or dishonor it. A bank may return a check with a missing signature,
altered date, and so on, without penalty. If, however, the drawee the person presenting the
check) suffers financially because of the bank's refusal to honor an otherwise payable
check, the bank may be liable to its customer for damages. The customer must still be able
to prove financial harm.
 X
X
1. A NASDAQ stock symbol specifying that it is a mutual fund.
2. A symbol used in stock transaction tables found on the internet and in newspapers to
indicate that a stock is trading ex-dividends or ex-rights.

Xd: Abbreviation for ex.

X-mark signature
Signature made by a person unable to sign his or her own name. To be legally valid, the
signature must be witnessed by another person.
XMI: Applies to derivative products. Quotron symbol for the Major Market Index (MMI).

Xu

A monetary unit of Vietnam, worth one

X12
Uniform standard for inter-industry electronic interchange of business transactions. The
X12 committee of the American National Standards Institute develops and fosters
standards for electronic interchange of trade-related transactions, such as order placement
and processing, invoicing, payments, and cash application data. The Data Interchange
Standards Association, Inc. in Falls Church, Virginia, is secretariat for the X12 standards
committee.

X9
Financial standards committee of the American National Standards Institute, a voluntary
association that sets financial industry payment standards for banks and other depository
financial institutions. Its members include banks, retailers, equipment suppliers, and
federal agencies. The American Bankers Association acts as secretariat for the X9
committee.
 Y
Yankee bonds
Dollar-denominated bonds issued within the United States by foreign banks and companies.

Yankee cd
A certificate of deposit (CD) issued in the U.S. market by a branch of a foreign bank.

Yankee stock offerings

Offerings of stock by non-U.S. MNCs in the U.S. markets.

Yen
Japanese currency. Its symbol is ¥.

Yield
Also called real return or real rate of return

Yield to call
The yield of a bond, if it is held until the call date. This yield is valid only if the security is called
prior to maturity. The calculation of yield to call is based on the coupon rate, length of time to
the call date, and the market price. In general, bonds are callable over several years and
normally are called at a small premium.

YIELD TO MATURITY
Also called effective Yield to maturity (YTM) is the real return to be received from Interest
income plus capital gain (or loss) assuming the bond is held to maturity. The YTM Incorporates
the stated rate of interest on the bond as well as any discount or premium that may have been
generated when bought.

Yuan - China’s currency.

 Z
Z
Fifth letter of a NASDAQ stock symbol indicating that listing is a fifth class of preferred stock, a
stub, a certificate representing a limited partnership interest, foreign preferred when issued, or
a second class of warrants.

1. Used in stock transaction tables in newspapers to indicate that the volume reported is the actual
number of shares transacted, not the number of round lots: z150.
2. Used in over-the-counter stock transaction tables to indicate that no representative quote is
available: z.

Z
1. A symbol appearing next to a stock listed on NASDAQ indicating that the share being traded has
a miscellaneous right, warrant, or receipt attached to it. All NASDAQ listings use a four-letter
abbreviation; if a Z follows the abbreviation, it indicates that the share's category does not easily
fit into other categories.
2. In over-the-counter trading, a symbol meaning that no quote is available for a security.
3. On a table, a symbol indicating an exact number, instead of an estimate, of securities traded.

Z bond
A bond on which interest accrues but is not currently paid to the investor but rather is
added to the principal balance of the Z bond and becoming payable upon satisfaction of all
prior bond classes.

Z score
Statistical measure that quantifies the distance (measured in standard deviations) a data
point is from the mean of a data set. Separately, Z score is the output from a credit-strength
test that gauges the likelihood of bankruptcy.

Z-tranche
The last tranche in a collateralized mortgage obligation. A Z-tranche accrues periodic
interest but receives no cash payments until previous tranches from the same CMO are
retired.

Zabara
Applies mainly to international equities. Japanese securities transactions conducted on the
principal of auction, i.e., (1) price priority in which the selling (buying) order with the
lowest (highest) price takes precedence over other orders, and (2) time priority in that an
earlier order takes precedence over other orders at the same price.
Zabara
A system of equity trading in which an order with a better price has priority over other
orders; if two orders have the same price, the order made first is executed first.

ZAR
ISO 4217 code for the South African rand. It was introduced in 1961, replacing the South
African pound when South Africa became fully independent from the United Kingdom. It
was a very valuable currency for most of its early history, but mounting international
pressure over apartheid and the uncertainty during reforms since then have greatly
weakened it. It has been marked by fairly steady depreciation since the mid-1980s.
However, it is a regionally important currency, being used in Namibia and Zimbabwe as
well as South Africa.

Zero Based Budgeting

A system of budgeting where each department or division of a company must justify all
expenditures and allocations rather than simply increases over the previous fiscal year.
That is, the budget is made with every department starting at zero dollars to spend, and
each department must demonstrate need for what it wants to receive. Zero-based
budgeting is advantageous because it is more detail-oriented than other forms of
budgeting; among other things, it makes it easier to detect and eliminate over-inflated
budgets. On the other hand, zero-based budgeting is more difficult and time consuming to
put together and often has a bias toward departments that directly produce revenue
instead of departments like R&D.

Zero Basis Risk Swap

An interest rate swap between a municipality and a financial institution. The municipality
is the fixed rate payer and the financial institution is the floating rate payer. The floating
rate the financial institution pays (and that the municipality receives) is identical to the
adjustable interest rate on a floating rate note that the municipality previously issued. A
ZEBRA makes a municipality's borrowing costs more predictable and therefore reduces its
risk.

Zero Balance Account

An account that maintains no funds in it because the account holder transfers only enough
funds into it to cover checks written on it. A zero balance account exists so companies can
prevent excessive balances on accounts and more effectively control how they distribute
funds.
Zero cost loan

A popular advertising hype for a mortgage loan with no costs to the borrower. The reality is
that the borrower pays a higher than normal interest rate on the loan. The normal loan
expenses, including the profit to all the intermediaries, are paid out of the higher yield. This
could result in dramatically increased overall mortgage costs.
Example: The table shows a $150,000 loan at 7.5 percent interest on a 30-year amortization
with the borrower paying all closing costs and expenses and a $150,000 loan at 8.5 percent
interest with no costs at closing.

Zero Bracket Amount

In the United States, the amount of income not taxed before the Tax Reform Act of 1986.
Taxpayers who chose not to itemize deductions subtracted the zero-bracket amount from
their adjusted gross income. The amount was indexed to inflation and therefore had the
potential to change every tax year. It has since been replaced by the standard deduction.

Zero Cost Collar

An investment strategy in which one buys or sells one position while taking an opposite
position for the same price that will limit both the return and the risk of one's investment.
An investor sells a position that caps return while buying one that limits loss, while a
borrower does the opposite. A zero-cost collar may be used for options, stocks, interest
rates, or commodities.

Zero lot line

A type of construction in which the building sits directly on the property lines. It is usually
prohibited by setback requirements in local zoning or in deed restrictions

Zero Minus Tick

A trade on a security that occurs at the same price as the security's previous trade, which
was itself less than the price on the trade before that. For example, a security that trades for
$5 at 10:00, $4.90 at 10:01, and $4.90 at 10:02 has experienced as zero-minus tick. Until
2007, a short sale was not permitted on a zero minus tick.

Zero plus Tick

On an exchange, a transaction in which a security was traded at the same price as its
previous trade, which was in turn higher than the trade before that. Some regulations and
rules on exchanges only permit certain transactions following a zero-plus tick or an uptick,
though some, such as the short sale rule have become obsolete with increased digitalization
of the market.

Zero prepayment assumption

The assumption of payment of scheduled principal and interest with no payments.

Zero Sums
Describing a situation in which the gain of one person equates to the loss of another
person. That is, for every dollar one person makes in a zero sum transaction, another
person loses a dollar. Not every transaction is zero sums: stock trading is not zero sum
because some trades are mutually beneficial to the buyer and the seller. Options and
commodity markets, however, are zero sums, as wealth cannot be created from these
transactions, only shifted.

Zero tick
A security transaction in which the sale price is identical to the price of the immediately
preceding transaction in the same security.

Zero Uptick
A trade on a security at the same price as the previous trade where the previous trade
occurred at a higher price than the trade before that. This was once important because
short sales could only occur after an uptick or a zero uptick, but this rule is no longer in
effect.

Zero-balance account (ZBA)

A checking account in which zero balance is maintained by transfers of funds from a master
account in an amount only large enough to cover checks presented.

Zero-Base Budgeting
A system of budgeting where each department or division of a company must justify all
expenditures and allocations rather than simply increases over the previous fiscal year.
That is, the budget is made with every department starting at zero dollars to spend, and
each one must demonstrate need for what it receives. Zero-based budgeting is
advantageous because is more detail-oriented than other forms of budgeting; among other
things, it makes it easier to detect and eliminate over-inflated budgets. On the other hand,
zero-based budgeting is more difficult and time consuming to put together and often has a
bias toward departments that directly produce revenue instead of departments like
customer service.

Zero-Beta Portfolio
A portfolio with no systematic risk. A zero-beta portfolio is most useful for a risk adverse
investor; however, its expected return is the risk-free rate of return, which is very low.

Zero-Bracket Amount
In the United States, the amount of income not taxed before the Tax Reform Act of 1986.
Taxpayers who chose not to itemize deductions subtracted the zero-bracket amount from
their adjusted gross income. The amount was indexed to inflation and therefore had the
potential to change every tax year. It has since been replaced by the standard deduction.

Zero-coupon bond
A bond in which no periodic coupon is paid over the life of the contract. Instead, both the
principal and the interest are paid at the maturity date.
Zero-coupon certificate of deposit
A certificate of deposit that pays no periodic interest and that is sold at a discount from face
value (that is, maturity value). A zero-coupon CD is essentially the same as any other CD in
which the investor leaves interest to compound.

Zero-Coupon Convertible
1. A bond that may be converted into common stock in the company issuing it. A zero-coupon
convertible bond is sold at a discount from par and matures at par. They tend to be volatile in
the secondary market because the convertible option may or may not become worthwhile,
depending on how the company is doing. Additionally, like all zeros, they can fluctuate in price,
sometimes dramatically, with changes in interest rates.

2. A municipal bond that may be converted into corporate bonds in the company issuing it. A
zero-coupon convertible bond is sold at a discount from par and matures at par. They tend to be
volatile in the secondary market because the convertible options may or may not become
worthwhile, depending on how the entities they represent are doing. These zero-coupon
convertibles are tax-exempt, but are convertible to other bonds that may yield more.

Zero-coupon convertible security

A zero-coupon bond convertible into the common stock of the issuing company after the
stock reaches a certain price, using a put option inherent in the security.

Zero-Investment Portfolio
A portfolio consisting of long positions and short positions with no combined net worth. To
give a very simple example, suppose one buys 100 shares in AT&T while simultaneously
selling 100 shares; this creates a zero-investment portfolio. A zero-investment portfolio has
the advantages of carrying little or no risk and reducing taxes. Obviously, however, there is
little or no return on a zero-investment portfolio. A portfolio of zero net value established
by buying and shorting component securities, usually in the context of an arbitrage
strategy.

Zero-minus tick
Sale that takes place at the same price as the previous sale, but at a lower price than the last
different price. Antithesis of zero-plus tick. The sale of a security when the price is the same
as the security's preceding sale price but is below the last different sale price. A short sale
of a security is not permitted on a zero-minus tick. A trade on a security that occurs at the
same price as the security's previous trade, which was itself less than the price on the trade
before that. For example, a security that trades for $5 at 10:00, $4.90 at 10:01, and $4.90 at
10:02 has experienced as zero-minus tick. Until 2007, a short sale was not permitted on a
zero minus tick.