BANKING , INTERNET TERMS - GLOSSARY

USEFUL FOR IBPS PO/CLERKS, SBI PO/CLERKS, SSCGL,LIC AAO EXAMS.

PART A

BANKING TERMS

Acceleration clause :   A  clause in a loan agreement  stating that the entire loan

balance shall become due immediately if a breach of certain conditions stated occurs.

Acceptance for honour :   When  a  bill  of  exchange  has been dishonoured it may be accepted by someone who has no interest in the bill in order to safeguard the good name of the drawee. This is known as Acceptance for Honour.

Acceptor :  Before any value attaches to a bill of exchange it must be accepted by the person  who  is  to  make  the  payment,  that  is,  the  person  on  whom  it  is  drawn.  Thus the acceptor of a bill is also the drawee, that is, the debtor.

Account payable  (trade creditors):  The amounts owed by a business to suppliers

(e.g. for raw materials)

Account payee only:   If a cheque is crossed in this way it can be paid only into the account of the payee named on the cheque and, therefore, cannot be transferred by endorsement to someone else as is the case with a simple crossing.

Accounting, double-entry:  An accounting system whereby each transaction is entered in two accounts. This permits a constant checking of accuracy, since in double-entry accounting the right side of the balance sheet (assets) always equals the left side (liabilities plus equity).

Accounts payable :  A business’s current liabilities or debts that must be paid within one year.

Accounts receivable (trade debtors):  Amounts due to a business payable within 1

year (Current Assets), from customers for sales made on credit.

Accounts receivable financing:  Financing receivables for Working Capital. (Books Debts/Bills).

Acts of god:  Term denotes any occurrence to denote that cannot be ascribed to

human agency and, therefore, could not be foreseen, such as storms, floods, etc.

Ad valorem : Taxes/duties calculated according to value (amount to be paid is

proportionate to the value). Many stamp duties also are ad valorem.

Administrator:  A person appointed by a court to settle the estate of a deceased

person according to the terms of the will when the will has named no executor or the one named has failed to qualify.

Advising bank:  A bank in an exporter’s own country that informs the exporter that a letter of credit has been opened with a foreign bank, by the importer.

Affidavit:  A sworn statement in writing before a proper official, usually a notary

public.

After date:  The words used in a bill of exchange to indicate that the period of the bill should commence from the date inserted on the bill, e.g. ‘…… 30 days after date, pay ………....’.

After sight:  The words used in a bill of exchange to indicate that the period of the bill should commence from the date on which it is presented to the drawee for

acceptance, i.e., has sight of it.

Agent:    A person who acts for another person by a Power of Attorney. The

distinguishing characteristics of an agent are (a) that he or she acts on behalf, and

subject to the control, of his or her principal; (b) that he or she does not have title to the property of his or her principal; and (c) that he or she owes the duty of

obedience to the orders given by his or her principal.

Allonge :   Paper attached to a negotiable instrument. Used for endorsements when there is no space for them on the instrument itself.

Amalgamation:  The combining of two or more separate businesses into a new one, while dissolving the original businesses.

Amortisation:  This term is used in two senses: 1) repayment of loan over a period of time; 2) write-off of an expenditure (like issue cost of shares) over a period of time.

Annual report:  A formal financial report issued annually to shareholders by a

company. The annual report generally includes a set of financial statements (balance sheet, income statement, etc.); the auditor’s report;  a review of the year’s

accomplishments; and management’s expectations for the future.

Anualise :  To convert statistics for a certain  period into figures that would be

represented if the statistics for the period continued for a year. For example, sales of 100 during a certain month might be expressed as sales of 1,200 on an annualised basis.

Appraisal:  1) A report containing an opinion of value based upon a factual analysis. 2) The act of making such an analysis.

Asset and liability management : The management of a bank’s assets and liabilities to maximise profits. This requires planning to meet needs for liquidity, avoiding excessive risk of default, planning maturities to avoid unwanted exposure to interest rate risk, and controlling interest rates offered and paid to assure an adequate spread between the cost of, and the return on, funds.

Asset management The management of the financial assets of a company in order

to maximise the return on the investment.

Assets. Current:  Form part of the working capital of a business and are turned over frequently in the course of trade. The most common current assets are stock in trade, debtors, (converted into cash, usually within 1 year), and cash.

Aassets, Intangible (invisible asset):  An asset which has no substance or physical

body; Non material resources of a firm having no quantifiable value, such as a patent, franchise, or good will (An asset that can neither be seen nor touched). (E.g. The purchase price of ‘Goodwill’ is determined by the profits a business has enjoyed due to business ethics, quality of the product handled, or desirable location).

Assets, Tangible:  Material resources that can be touched or recognised with the

senses, such as cash, land, or machinery. (Can be transferred/converted/disposed).

assignment  The  act  of  transferring,  of  a  document  (a  deed  of  assignment)

transferring, property. Examples of assignment include the transfer of rights under a LIC Policy.

Assignment of life policies:  Transfer of the legal right under a life-Insurance policy to collect the proceeds. Assignment is only valid if the life insurer is advised and agrees; life insurance is the only form of insurance in which  the assignee need not possess an insurable interest.

At sight:  A term used on a bill of exchange to indicate that it is payable on its being presented. In contrast to other bills of exchange it does not require to be accepted.  Such a bill is known as a ‘sight’ bill. Legally a cheque is a bill of exchange of this kind.

Attachment : 1) Legal writ of process for seizing a person’s property and bringing it into the custody of the law; to arrest a fund in the hands of a third person who may become liable to pay it over. 2) The seizure of property by court order. Attachments are usually taken to provide security in a pending suit.

Authorised capital:  When a new company is formed its application for registration is accompanied by a statement indicating the amount of capital with which it proposes to  be  registered.  This  is  known  as  its  nominal, registered, or authorised capital. The actual amount issued may be less than this, and so the company will be able to increase its capital at a later date up to the full amount authorised without further application to the Registrar of Companies.

Authorised dealer:  A bank that is permitted by RBI to deal in foreign exchange.

Automated teller machine (ATM):  A machine, activated by a magnetically encoded card or by the transmission of a code via a keyboard or keyset, that allows customers to make routine banking transactions, such as withdrawal and deposit of funds, transfer of funds between accounts, and the payment of certain obligations, especially outside normal banking hours. May also be used to obtain statements. They are, generally, operated by Credit/ATM/Debit cards or multifunctional cards in conjunction with PIN. ATMs are often known colloquially as cash dispensers. They can be ‘On site’ (at the Bank) or ‘Off site’.

Average clause:  1) In an insurance policy, in which it is stated that the sum payable in the event of a claim shall not be more than the proportion that the insured value of an item bears to its actual value. 2) A partial loss in marine insurance. bad debt An amount owed by a debtor that is unlikely to be paid; example, due to a company going into liquidation. 

Bailee :  1) An individual or other legal entity who receives and holds property under a contract of bailment. 2) A person who receives goods or money from another person in trust.

Bailor : A person who delivers property in trust to another person or legal entity for a certain purpose and limited period.

Balance of payment:  1) The accounts setting out a country’s transactions with the

outside world. They are divided into various sub-accounts notably by the current

account and the capital account. The former  includes the trade account, which

records the balance of imports and exports. Overall the accounts must always be in balance. A deficit or surplus on the balance of payments refers to an imbalance on a sub-account, usually the amount of which the foreign-exchange reserves of the government have been depleted or increased. The conventions  used for presenting balance-of-payments statistics are those recommended by the International Monetary Fund. 2) A double-entry bookkeeping system that records all of a country’s receipts from and payments to foreign countries during a given period.

Balance of trade:  The accounts setting out the results (over a period) of a country’s trading position. It is a component of the balance of payments, forming part of the current account. It includes both the visibles (i.e., imports and exports in physical form/merchandise) and the invisible balance (receipts  and expenditure on such services as insurance, finance, freight and tourism).

Balance Sheet:  A statement of the total assets and liabilities of an organisation at a particular date, usually the last day of the accounting period. The statement lists the fixed and current assets and, shows how they have been financed (liabilities).

balloon payment  The last payment on a loan when that payment is substantially

larger than other earlier payments.

Bancassurance (allfinanz) The combination of traditional loan and saving bank

products with such assurance products.

Bank credit card :  A credit card, issued by a bank, used as a means of indicating to participating merchants that the issuing bank has established a line of credit for the cardholder and will pay the sales notes submitted by the merchant. The specific financial arrangements with the issuing bank may not be discernible from the card.

Bank Draft (banker’s cheque; banker’s draft) A cheque drawn by a bank on

itself or its agent. A person who owes money to another buys the draft from a bank  and hands it to the creditor who need have no fear that it might be dishonoured. A bank draft is used if the creditor is unwilling to accept an ordinary cheque.

Bank for International Settlements (BIS):  An international bank originally

established in 1930 as a financial institution to coordinate the payment of war

reparations between European central banks. It was hoped that the BIS, with

headquarters in Basle, would develop into a European central bank but many of its

functions were taken over by the International Monetary Fund (IMF) after World

War-II.

Bank guarantee : An undertaking given by a bank to settle a debt should the debtor

fail to do so. A bank guarantee can be used as a security for a loan but the banks

themselves will require good cover in cash or counter-indemnity before they issue a guarantee.  A guarantee has to be in writing to be legally binding. Such guarantees are backed, amongst other collateral, by  counter guarantees  with an indemnity clause. They are immediately paid on invocation.

Bank rate:  The rate at which the central bank of the country is prepared to lend to

the other banks in the banking system.

Banker’s acceptance:  A time draft (usance bill) (bill of exchange) drawn on and

accepted by the bank on which it was drawn (i.e., stamped with the word ‘accepted’ and signed by a representative of the bank). it usually arises from international trade transactions where there is an underlying obligation of a buyer to make the payment to a seller at some future time. Many  banker’s acceptances are created when payment is made by a letter of credit. In all instances, the bank accepting the draft assumes the obligation of making payment at maturity on behalf of the buyer or the buyer’s bank.

Barter:  The exchanging of goods for goods without the use of money. It has three

serious drawbacks; i) it is dependent on two people mutually being able to satisfy

one another’s wants; ii) a rate of exchange has to be determined before a

transaction can take place; iii) the exchange of large for small commodities is

difficult. The use of a medium of exchange overcomes the difficulties of barter.

Base currency The currency used as the basis for an exchange rate i.e., a foreign

currency rate of exchange is quoted per single unit of the base currency, usually

sterling or US dollars.

Base rate:  The rate used as a basis by banks for the rates they quote to charge their customers. In practice most customers will pay a premium over base rate to take care of the bank’s profit and risk involved, competitive market pressures.

Basel Capital Accord : The Basel Capital Accord is an Agreement concluded among country representatives in 1988 to develop standardised risk-based capital

requirements for banks across countries. The Accord was replaced with a new capital adequacy framework (Basel II), in June 2004.

Basel II:   is based on three mutually reinforcing pillars that allow banks and

supervisors to evaluate properly the various risks that banks face. These three pillars are (a) minimum capital requirements,  which seek to refine the present

measurement framework; (b) supervisory review of an institution’s capital adequacy and internal assessment process; (c) market discipline through effective disclosure to encourage safe and sound banking practices.

Basel Committee on Banking Supervision : The Basel Committee is a committee

of bank supervisors consisting of members from each of the G10 countries. The

Committee is a forum for discussion on the handling of specific supervisory

problems. It coordinates the sharing of supervisory responsibilities among national authorities in respect of banks’ foreign establishments with the aim of ensuring effective supervision of banks’ activities worldwide.

Basis point:  One hundredth of one per cent; this unit is often used in finance when prices involve fine margins. Typically used in expressing bond yield differentials (9.50% - (minus) 9.15%=0.35% or thirty-five basis points).

Basket of currencies:  A group of selected currencies used to establish a value for

some other currency.

Bear market: A market dominated by bears. (A bear is an operator who has a

pessimistic view of future).

Bearer:  A term applied to cheques and bonds, the possession of which gives a right to payment without endorsement. A cheque payable to bearer, unless crossed, can be cashed over the counter of the issuing bank without having to be endorsed by the person presenting it. Bank-notes are always payable to bearer.

bearer bonds:  Bonds which can be transferred from one person to another without

the new ownership having to be registered, the legal owner being the holder.

Bearer security:  A security for which possession is the primary evidence of

ownership.

Beneficiary :  1) A person for whose benefit a trust exist. 2) A person who benefits

under a will. 3) A person who receives money from the proceeds of a letter of credit.

Bill Discount:  A promissory note or bill of exchange from which a bank has deducted, in advance, its fees or interest (discount) charge for lending the funds.

Bill of entry:  Particulars of all goods imported into the country are required by the Customs at the port of entry. These particulars are given on a form known as a Bill of Entry.

Bill of exchange: An unconditional order in writing, addressed by one person (the

drawer) to another (the drawee) and signed by the person giving it, requiring the

drawee to pay on demand or at a fixed or determined future time a specified sum of money to or to the order of a specified person (the payee) or to the bearer. If the bill is payable at a future time the drawee signifies (sign) acceptance, which makes the drawee the party primarily liable upon the bill; the drawer and endorsers may also be liable upon a bill (as sureties). The use of bills of exchange enables one person to transfer to another an enforceable right to a sum of money. A bill of exchange is not only transferable but also negotiable, since, if a person without an enforceable right to the money transfers a bill to a holder in due course (for value), the latter obtains a good title to it.

Bill of lading:  1) A document acknowledging the shipment of a consignor’s goods for carriage by sea. It is used primarily when the ship is carrying goods belonging to a number of consignors (a general ship). In this case, each consignor receives a bill issued (normally by the master of the ship) on behalf of either the ship-owner or a charterer under a charter party. The bill serves three functions; it is a receipt for the goods; it summarises the terms of the contract of carriage; and it acts as a

document of title to the goods. During transit, ownership of the goods may be

transferred by delivering the bill to another if it is drawn to bearer or by endorsing it if it is drawn to order. It is not, however, a negotiable instrument. The bill gives

details of the goods, fright, etc., if the packages are in good order a clean bill is

issued; if they are not, the bill says so (a dirty bill of lading). It is, generally, asked

in a set of which each is valid. 2) A document used in foreign trade, it gives the

name of the ship and full particulars of  the goods – the quantity, their type, the

special markings on the packing cases (if any), any other important details, together with the names of the ports of embarkation and disembarkation. A Bill of Lading is a document of title, giving the holder a right to possession of the goods to which it refers.

Blanket policy:  An insurance policy that covers a number of items but has only one total sum inured for individual items. The policy can be of any type, e.g. covering a fleet of vehicles or a group of buildings.

Blocked account:  A bank account from which money cannot be withdrawn, for any of a number of reasons.

Blue chip:  Colloquial name for any of the ordinary shares in the most highly regarded (rated) companies traded on a stock market. Originating in the USA, the name comes from the colour of the highest value chip used in poker. Blue-chip companies have a well-known name, a good growth record, excellent record in management, conservative financial structure, regular dividend payments, and large assets. The main part of an investor’s equity portfolio will consist of blue chips.

Body Corporate : A corporation consisting of a body of persons legally authorised to act as one person (company), while being distinct from the person (company). For example, the shareholders of a company are separate from the company.

Bonus shares:  Shares issued to existing shareholders as a result of capitalisation of reserves.

Book value:  The value of an asset as recorded in the books of account of an

organisation. This is normally the historical cost of the asset reduced by amounts

written off for depreciation.

Bottom line:  The profit figure used as the earnings figure in the earnings-per share calculation of a company.

BPO/ Call Centre:  A Business Process Outsourcing (BPO) organisation is responsible for performing a process or a part of a  process of another business organisation. Such  outsourcing  is  done  to  save  on  costs  or  gain  in  productivity.  They use information technology in the processing and delivery of their services, through telecommunications/ data networks/ electronic media.

A Call Centre performs that part of a client’s business which involves handling

telephone calls. (E.g., Customer complaints coming in over a telephone.)

Break-even:  Carrying on business so that neither profit nor loss is made.

Break-even point:  The point at which total fixed and variable costs exactly equal

revenues.

Break-up value: The value of an asset on the assumption that an organisation will

not continue in business. On this assumption the assets are likely to be sold

piecemeal and probably in haste (distress sale).

Bretton Woods: The site where the World Bank and the International Monetary Fund was founded in 1944. Rules were developed there regarding fixed exchange rates.

Bretton Woods Agreement (1944) : An international conference which met at

Bretton Woods, New Hampshire, USA, in 1944 to consider the international monetary system to be operated after the end of the Second World War. Experience of restrictionist practices during the 1930s had clearly only led to a reduction of world trade, and therefore the conference condemned all such devices as multiple exchange rates, blocked accounts, bilateral trade agreements, and all forms of exchange control. To achieve these objectives two new international institutions were proposed- the International Monetary Fund and International (or World) Bank. 

Bridge loan:  Temporary finance provided to a project until long term arrangements are made.

Broad Money:  An informal name for M3.

Buyer credit:  In export finance, a means whereby the overseas importer uses a loan to pay the exporter.

Call Money:  Money put into the money market that can be called at short notice.

call option A short-term instrument that gives the owner the right to buy a security

at a fixed price until a stated future date.

CAMEL:  A mnemonic for the five principal areas examined by bank supervisory

authorities.

C – capital adequacy

A – asset quality

M– management quality 

E – earnings

L – liquidity

Capital:  Capital refers to the funds (e.g., money, loans, equity) which are available to carry on a business, make an investment, and generate future revenue. Capital also refers to physical assets which can be used to generate future returns.

Capital Adequacy:  A measure of the adequacy of an entity’s capital resources in

relation to its current liabilities and also in relation to the risks associated with its

assets.

An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming changes in the value of its assets without becoming insolvent. For example, under  BIS (Bank for International Settlements) rules, banks are required to maintain a certain level of capital against their risk adjusted assets.

Capital gains:  Gains arising from the sale of capital assets.

Case law :    Legal principles enunciated and embodied in judicial decisions that are derived from the application of particular areas of law to the facts of individual cases. As opposed to statutes — legislative acts that prescribe certain conduct by demanding or prohibiting something or that declare the legality of particular acts — case law is a dynamic and constantly developing body of law."

Case of need : An endorsement written on a bill  of exchange giving the name of

someone to whom the holder may apply if the bill is not honoured at maturity.

Cash conversion cycle:   The  length  of  time  required  for  a  firm  to  move  through  the production cycle, from cash to purchasing and processing materials, through collecting accounts receivables, and back into cash.

Cash Flow:  The amount of cash being received and expended by a business, which is often analysed into its various components. A cash flow projection (or cash budget) sets out all the expected payments and receipts in a given period.

Certificate of commencement of business:  A document issued by the Registrar of

Companies to a public company on incorporation; it certifies that the nominal value of the company’s allotted share capital is at least equal to authorised minimum. Until the certificate has been issued, a public limited company cannot do business or exercise its borrowing powers.

Certificate of deposit (CD):  A formal receipt for funds left with a bank as a special deposit. Such deposits  bear interest, in which case they are payable at a

definite date in future or after a specified minimum notice of withdrawal.

Certificate of Incorporation:  The certificate that brings a company into existence; it is issued to the company by the Registrar  of  Companies.  It is issued when the

Memorandum and Articles of Association have been submitted to the Registrar of

Companies, together with other documents that disclose the proposed registered

address of the company, details of the proposed directors and company secretary,

the nominal and issued share capital. The  statutory registration fee must also be

submitted. Until the certificate is issued, the company has no legal existence.

Certificate of origin:  A document issued to certify  the country of origin for goods

traded internationally.

Cheque:  1) A ‘bill of exchange drawn on a banker payable on demand’. It is an order, written by the drawer, to a banker to pay on demand a specified sum of money to the person or persons named as payee on the cheque.  Cheques have been exempted from stamp duty. The drawer completes the cheque by inserting the name of the payee,  the  amount  he  or  she  is  to  be  paid, and then dating and signing it. The cheque may be made payable to the payee or order, or to the payee or bearer. It may  be  either  open  or  crossed.  If  it  is  open  it  can  be  cashed  at  the  branch  of  the bank on which it has been drawn,(also in other authorized branches) but if it has been crossed it must be paid into a banking account. In the case of a bearer  cheque no endorsement is required, but

endorsement of an order cheque is required unless it is paid directly in to the payee’s own account.  2) In a crossed cheque two parallel lines across the face of the cheque indicate that it must be paid into a bank account and not cashed over the counter (a general crossing). A special crossing may be used in order to further restrict the negotiability of the cheque, for example adding the name of the payee’s bank. An open cheque is an uncrossed cheque that can  be  cashed  at  the  bank  of  origin.  An order cheque is one made payable to a named recipient ‘or order’ enabling the payee to either deposit it in an account or endorse it to a third party, i.e. transfer the rights to the cheque by signing it on the reverse.  3) By endorsing an order cheque the payee can renounce his interest in it and use it to pay a debt of his own to another person. Restrictions can be placed on the negotiability of cheques by means of special crossings.

CHIPS:  Abbreviation for Clearing House Inter-Bank Payments System.

Clean bill:  A bill without documents attached to it, in contrast to a Documentary Bill.

Close-end fund:  A fund set up by an investment company that issues a fixed

number of shares to its investors.

Commercial Paper (CP):  A relatively low-risk short-term unsecured form of

borrowing. The main issuers are large creditworthy rated companies. 

commitment fee  An  amount  charged  by  a  bank  to  keep  open  a  line  of  credit  or  to continue to make unused loan facilities available to a potential borrower. 

Company:  A corporate enterprise that has a legal identity separate from that of its

members; it operates as one single unit, in the success of which all the members

participate.    An incorporated company is a legal person in its own right, able to own property and to sue and be sued in its own name. A company may have limited liability (a limited company), so that the liability of the members for the company’s debts is limited.    A private company is any registered company that is not a public company. The shares of a private company not offered to the public for sale. The legal requirements for such a company are less strict. 

Conditional sale agreement:  A contract of sale under which the price is payable by instalments and ownership does not pass to the buyer (who is in possession of

goods) until specified conditions relating to the payment have been fulfilled. The

seller retains ownership of the goods as security until paid in full.

Conditionality:  The terms under which the International Monetary Fund (IMF)

provides balance-of-payments support to member states. The principle is the support will only be given on the condition that it is accompanied by steps to solve the underlying problem. Programmes of economic reform are agreed with the member;   these emphasise the attainment of a sustainable balance-of-payments position and  boosting the supply side of the economy.

Confirmed letter of credit:  A letter of credit issued by the local bank of an importer and confirmed by another bank, usually located in the exporter’s country. The second bank’s irrevocable obligation is added to the obligation of the issuing bank to honour drafts and documents presented in accordance with the terms of credit.

Consideration :  A promise by one party to a contract that constitutes the price for

buying a promise from the other party to the contract. A consideration is essential if a contract, is to be valid.

Consular Invoice:   An invoice for merchandise shipped from one country to another, prepared by the shipper and certified at the shipping point by a consul of the country of destination. The consul’s certification applies to the value of the merchandise, port of shipment, destination, and, in certain cases, place of origin of the merchandise.

Consumer Credit:  Short-term loan to the public for the purchase of goods. The most common forms of consumer credit are credit accounts at retail outlets, personal loans from banks, hire purchase and credit cards.

Contingent Liability: 1) A liability that, at a balance sheet date, can be anticipated to arise if a particular event occurs. Typical examples include a court case pending

against the company, the outcome of which is uncertain, or loss of earnings as a

result of a customer invoking a penalty  clause in a contract that may not be

completed on time. Such liabilities must  be explained by a note on the company

balance sheet.  2) The obligation of a person or business that guarantees a payment.   3) A liability that will only exist if a specific event occurs. (Letters of Credit and Bank Guarantees are two examples of Contingent Liability for the banks).

Continuing Guarantee: A guarantee of one party’s debts by another party that is

not limited to a specific loan but may also be applicable to the later debts.

Contribution Margin: The difference between revenue and variable cost. Unit

contribution margin is the difference between unit selling price and unit variable cost.

Total contribution margin : is the difference between total revenue and total variable costs.

Convertibility:  The extent of which one currency can be freely exchanged for

another.

Convertible Bond:  A bond giving the investor the option to convert the bond into

equity at a fixed conversion price or as per a pre-determined pricing formula.

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

Corporate Seal:  A company’s official seal (an emblem or a device that imprints that emblem). The corporate seal is usually required for authentication of legal

documents.

Corporation:  A business organisation that is treated as a single legal entity and is

owned by its share holders, whose liability is generally limited to the extent of their investment. The ownership of a corporation is represented by shares  that are issued to  people  or  to  other  companies  in  exchange for cash, physical assets, services, and good will. The share holders elect the board of directors, which then directs the management of the corporation’s affairs.

Correspondent Bank:  A bank in foreign country that offers banking facilities to the customers of a bank in another country. These arrangements are usually the result of agreements, often reciprocal, between the two banks. The most frequent

correspondent banking facilities used are those of money transactions.

Counter Trade:  The practice in international trading of paying for goods in a form

other than by currency. For example, a South American country wishing to buy

aircraft may countertrade by paying in coffee beans.

Country Risk:  The possibility that a foreign government will either prevent the

fulfilment of a contract entered into by  a company or take over control of the

management of overseas subsidiaries.

Coupon:  The  stated  rate  of  interest  on  a  bond. One of a series of actual certificates, attached to the bond, each evidencing interest owed from time to time.

coupon rate The stated interest rate on a bond.

Covenant:  1) A promise by a definite provision in a loan agreement by one party to another regarding the performance or non-performance of certain acts, or a promise that certain conditions do or do not exist. 2) Agreement by a borrower contained in the documents, legally binding upon the Borrower over the life of the loan, unless otherwise stated, to perform certain acts such as the timely provision of financial statements or to refrain from certain acts such as incurring further indebtedness beyond an agreed level.

Credit Card:  A plastic card issued by a bank or finance organisation to enable holders to obtain credit in shops, hotels, restaurants, petrol stations, etc. The retailer or trader receives periodical payments from  the credit-card company equal to its total sales in the period by means of their credit cards. Customers also receive monthly statements from the credit-card company, which may be paid in full within a certain number of days with no interest charged, or they may make a specified minimum payment and pay interest on the outstanding balance.

Credit Rating:  An assessment of the creditworthiness of an individual or a firm, i.e. the extent to which they can safely be granted credit. Traditionally, banks have

provided confidential trade references (status reports).

Crossing:  This means drawing two parallel lines across the face of a cheque, the

effect of which is to make it necessary to pay it into a banking account. There are

several types of general and special crossing which can be used to place restrictions on the negotiability of a cheque.

Cumulative preference shares:   If in a previous year the  interest on these shares

has not been paid the holders are entitled to receive it in a later year before any

dividend is paid on the ordinary shares, if profit is available.

Currency Swap:  A transaction in which specified amounts of one currency are

exchanged for another  currency at a fixed rate.

Currency, Foreign Exchange Position:  A bank’s net holdings in foreign exchange in any particular currency at any given time.

Debit Card : A plastic card issued by banks to customers to withdraw money electronically from their accounts. When you purchase things on the basis of Debit Card the amount due is debited immediately to the account . Many banks issue Debit-Cum-ATM Cards. Debtor : A person who takes some money on loan from another person. Demand Deposits : Deposits which are withdrawn on demand by customers.  E.g. savings bank and current account deposits. Demat Account : Demat Account concept has revolutionized the capital market of India. When a depository company takes paper shares from an investor and converts them in electronic form through the concerned company, it is called Dematerialization of Shares. These converted Share Certificates in Electronic form are kept in a Demat Account by the Depository Company, like a bank keeps money in a deposit account. Investor can withdraw the shares or purchase more shares through this demat Account. Dishonour of Cheque : Non-payment of a cheque by the paying banker with a return memo giving reasons for the non-payment. E-Banking : E-Banking or electronic banking is a form of banking where funds are transferred through exchange of electronic signals between banks and financial institution and customers ATMs, Credit Cards, Debit Cards, International Cards, Internet Banking and new fund transfer devices like SWIFT, RTGS belong to this category. EFT - (Electronic Fund Transfer) : EFT is a device to facilitate automatic transmission and processing of messages as well as funds from one bank branch to another bank branch and even from one branch of a bank to a branch of another bank. EFT allows transfer of funds electronically with debit and credit to relative accounts. Either or Survivor : Refers to operation of the account opened in two names with a bank. It means that any one of the account holders have powers to withdraw money from the account, issue cheques, give stop payment instructions etc. In the event of death of one of the account holder, the surviving account holder gets all the powers of operation. Electronic Commerce (E-Commerce): E-Commerce is the paperless commerce where the exchange of business takes place by Electronic means. Endorsement : When a Negotiable Instrument contains, on the back of the instrument an endorsement, signed by the holder or payee of an order instrument, transferring the title to the other person, it is called endorsement. Endorsement in Blank : Where the name of the endorsee or transferee is not mentioned on the instrument. Endorsement in Full : Where the name of the endorsee or transferee appears on the instrument while making endorsement. Execution of Documents : Execution of documents is done by putting signature of the person, or affixing his thumb impression or putting signature with stamp or affixing common seal of the company on the documents with or without signatures of directors as per articles of association of the company.

Factoring : Business of buying trade debts at a discount and making a profit when debt is realized and also taking over collection of trade debts at agreed prices. Foreign Banks : Banks incorporated outside India but operating in India and regulated by the Reserve Bank of India (RBI),. e..g., Barclays Bank, HSBC, Citibank, Standard Chartered Bank, etc. Forfaiting : In International Trade when an exporter finds it difficult to realize money from the importer, he sells the right to receive money at a discount to a forfaiter, who undertakes inherent political and commercial risks to finance the exporter, of course with assumption of a profit in the venture. Forgery : when a material alteration is made on a document or a Negotiable Instrument like a cheque, to change the mandate of the drawer, with intention to defraud.

Garnishee Order : When a Court directs a bank to attach the funds to the credit of customer's account under provisions of Section 60 of the Code of Civil Procedure, 1908.

General Lien : A right of the creditors to retain possession of all goods given in security to him by the debtor for any outstanding debt.

Guarantee : A contract between guarantor and beneficiary to ensure performance of a promise or discharge the liability of a third person. If promise is broken or not performed, the guarantor pays contracted amount to the beneficiary.

Holder : Holder means any person entitled in his own name to the possession of the cheque, bill of exchange or promissory note and who is entitled to receive or recover the amount due on it from the parties. For example, if I give a cheque to my friend to withdraw money from my bank,he becomes holder of that cheque. Even if he loses the cheque, he continues to be holder. Finder cannot become the holder.

Holder in due course : A person who receives a Negotiable Instrument for value, before it was due and in good faith, without notice of any defect in it, he is called holder in due course as per Negotiable Instrument Act. In the earlier example if my friend lends some money to me on the basis of the cheque, which I have given to him for encashment, he becomes holder-in-due course.

Hypothecation : Charge against property for an amount of debt where neither ownership nor possession is passed to the creditor. In pledge, possession of property is passed on to the lender but in hypothecation, the property remains with the bo

Identification : When a person provides a document to a bank or is being identified by a person, who is known to the bank, it is called identification. Banks ask for identification before paying an order cheque or a demand draft across the counter. Indemnifier : When a person indemnifies or guarantees to make good any loss caused to the lender from his actions or others' actions. Indemnity : Indemnity is a bond where the indemnifier undertakes to reimburse the beneficiary from any loss arising due to his actions or third party actions. Insolvent : Insolvent is a person who is unable to pay his debts as they mature, as his liabilities are more than the assets . Civil Courts declare such persons insolvent. Banks do not open accounts of insolvent persons as they cannot enter into contract as per law. Interest Warrant : When cheque is given by a company or an organization in payment of interest on deposit , it is called interest warrant. Interest warrant has all the characteristics of a cheque. International Banking : involves more than two nations or countries. If an Indian Bank has branches in different countries like State Bank of India, it is said to do International Banking. Introduction : Banks are careful in opening any account for a customer as the prospective customer has to be introduced by an existing account holder or a staff member or by any other person known to the bank for opening of account. If bank does not take introduction, it will amount to negligence and will not get protection under law.

JHF Account : Joint Hindu Family Account is account of a firm whose business is carried out by Karta of the Joint family, acting for all the family members.. The family members have common ancestor and generally maintain a common residence and are subject to common social, economic and religious regulations.

Joint Account : When two or more individuals jointly open an account with a bank.

Karta : Manager of a Hindu Undivided Family (HUF) who handles the family business. He is usually the eldest male member of the undivided family.

Kiosk Banking : Doing banking from a cubicle from which food, newspapers, tickets etc. are also sold.

KYC Norms : Know your customer norms are imposed by R.B.I. on banks and other financial institutions to ensure that they know their customers and to ensure that customers deal only in legitimate banking operations and not in money laundering or frauds.  Address proof and Identification proof documents like passport, Aadhar Card, driving licence etc. is/are taken.

Law of Limitation : Limitation Act of 1963 fixes the limitation period of debts and obligations including banks loans and advances. If the period fixed for particular debt or loan expires, one can not file a suit for is recovery, but the fact of the debt or loan is not denied. It is said that law of limitation bars the remedy but does not extinguish the right.

Lease Financing : Financing for the business of renting houses or lands for a specified period of time and also hiring out of an asset for the duration of its economic life. Leasing of a car or heavy machinery for a specific period at specific price is an example.

Letter of Credit : A document issued by importers bank to its branch or agent abroad authorizing the payment of a specified sum to a person named in Letter of Credit (usually exporter from abroad). Letters of Credit are covered by rules framed under Uniform Customs and Practices of Documentary Credits framed by International Chamber of Commerce in Paris.

Limited Companies Accounts : Accounts of companies incorporated under the Companies Act, 1956 . A company may be private or public. Liability of the shareholders of a company is generally limited to the face value of shares held by them.

M1:  The narrowest definition of the nation’s money supply. It includes currency

(Notes and Coins) in circulation plus demand deposits (current accounts) at

commercial banks.

M2 : A definition of the nation’s money supply that includes M1 plus interest bearing deposits at commercial banks.

M3:  A definition of nation’s money supply that includes M2 plus the average of the (beginning and end-of-month) deposits in non-bank thrift institutions (postal savings bank, etc). 

Magnetic Ink Character Recognition (MICR):  Magnetic codes on the bottom of a

cheque that allow a machine to read, automatically sort and feed into a computer.

MICR encoding can include the amount  of the cheque, the account number, the

bank’s number, and the serial number of the cheque.

Management information system (MIS):  A specific data processing (reporting)

system  that  is  designed  to  furnish  management and supervisory personnel with

current information with real time speed. In the communication process, data is

recorded and processed for operational purposes. The problems are isolated for

referral to top management for decision making, and information is fed back to top management to reflect the progress in achieving major objectives.

Mandate:  A written authority given by one person (the mandator) to another (the

mandatory) giving the mandatory the power to act on behalf of the mandator.  It

comes to an end on the death, mental illness, or bankruptcy of the mandator.  They

are, generally, used for specific purposes for short durations.

Maturity:  The date upon which a (usance) bill of exchange, bond, or other negotiable instruments become due and payable. Bills of exchange drawn for a future date, have a maturity date which is set, starting with the specific date or acceptance, and running the specified number of days from date of loan or acceptance to maturity.    Presentation and request for payment of the instrument is made on the maturity date. The starting dates may be ‘so many days after date/sight/acceptance’.

memorandum of association An official document setting out the details of a

company’s existence. It must be signed by the first subscribers and must generally

contain the following information (as it applies to the company in question); the

company name; a statement that the company is a public/private company; the

address or the registered office; the objectives of the company (called the objects

clause); a statement of limited liability; and the amount of authorised share capital

and its division.

Minimum Balance:  The amount of money that a depositor must have in a specific

account to qualify for special services or to waive a service charge.

Minimum Subscription:  The minimum sum of money, stated in the prospectus of a new company, that the directors consider must be raised if the company is to be

viable.

Minor:  A person under legal age, that is, under the age at which he or she is

accorded full civil rights.

Misfeasance:  1) The negligent or otherwise improper performance of a lawful act. 2) An act by an officer of a company in the nature of a breach of trust or breach of

duty, particularly if it relates to the company’s assets.

Money-market instruments:  Financial products, usually with a short-term life, such as certificates of deposit, that are traded on the money markets.

moratorium An agreement between a creditor and a debtor to allow additional time for the settlement of a debt.

Mortgage:   A  mortgage  is  an  instrument  of  conveyance (generally of real estate) from a borrower, called the mortgagor, to the lender, called the mortgagee. The mortgage is only a ‘conditional’ conveyance, in that the property remains with the use and occupancy of the mortgagor as long  as  the  mortgagor  lives  up  to  the conditions of the mortgage. The major conditions are the continual payment of interest and principal as set forth in  the wording of the mortgage deed. The mortgagee has the right to foreclose the mortgage, or exercise his right to take over the property, in case the mortgagor fails to meet his obligations under the terms of the mortgage, subject to certain conditions and legal formalities. The interest created in the property gets reverted on payment of the dues to the mortgagee.

Mortgage-backed Security:  A bond-type security in which the collateral is provided by a pool of mortgages. Income from the underlying mortgages is used to meet interest and principal repayments.

Multinational corporation (MNC):  A business that has production facilities or other fixed assets in at least one foreign country and makes its major management

decisions in a global context.

Multiple Exchange Rate:  An exchange rate quoted by a country that has more than one value, depending on the use to which  the currency is put. For example, some countries quote a specially favourable rate for tourists or for importers of desirable goods.

Mutual Fund:  Mutual Fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. A fund established in the form of a trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including money market instruments.

Negative Cash Flow:  A cash flow in which the outflows exceed the inflows.

negative net worth The value of an organisation that has liabilities in excess of its

assets (capital eroded).

Negative Pledge:  A covenant in a loan agreement in which the borrower promises

that no secured borrowings will be made during the life of the loan or will ensure that the loan is secured equally and ratably with any new borrowings as specifically defined.

Negotiability:  The ability of a document to change hands thereby entitling its owner (holder) to some benefit, so that legal ownership of the benefit passes by delivery or endorsement of the document. For a document to be negotiable it must also entitle the holder to bring an action in law if necessary.

Negotiable Transferable by Endorsement: Title to a negotiable instrument can be

transferred by (endorsement as and where necessary and) delivery, without need for further certification. Bearer securities  are automatically negotiable by nature.

Registered securities can only be rendered negotiable by the completion of (a power of assignment) registration.

Negotiable Certificate of Deposit:  A transferable receipt issued by a commercial

bank in return for a customer’s deposit of funds. The bank agrees to pay the amount deposited plus interest to the bearer on a specific future date.

Negotiable instrument:  A document of title that can be freely negotiated. An

instrument, to be ‘negotiable’, must conform to the following requirements: 1) It

must be in writing and signed by the maker or drawer; 2) It must contain an 35

unconditional promise or order to pay a sum certain in money; 3) It must be payable on demand, or at a fixed or determinable future time; 4) It must be payable to order or to bearer; 5) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. If instruments, such as cheques, drafts, bills of exchange, acceptances, promissory notes, etc., meet the above requirements they may be transferred by (endorsement as and where necessary and) delivery to another person in good faith for a consideration. The new holder, called the transferee, is called a ‘holder in due course’. (b) An instrument can be negotiated by either inserting the name of a different payee or by making the document ‘open’ by endorsing it (signing one’s name), usually on the reverse. Bill of exchange, including cheques, in which the payee is named or that bears a restrictive endorsement, such as ‘not negotiable’, are non-negotiable instruments. (c) A negotiable instrument is transferred by  endorsement and delivery or by delivery alone as the case may be.

Net Asset Value (NAV):  The value of a share (unit of a Mutual Fund) in a company calculated by dividing the amount for the net assets of the company by the number of shares in issue. The asset value is frequently below the market price of a share because financial statements do not reflect the present values of all assets because of the monetary measurement convention and the historical cost accounting convention, whereas the market price may reflect them.

Net Assets:  The assets of an organisation less its current liabilities. The resultant

figure is equal to the capital of the organisation. Opinion varies as to whether long term liabilities should be treated as part of the capital and are therefore not

deductible  in  arriving  at  net  assets,  or  whether  they  are  part  of  the  liabilities  and therefore deductible. The latter view is probably technically preferable.

Net Book Value (NBV):  The value of an asset which  appears in the books of an

organisation (usually as at the date of the last balance sheet) less any depreciation

that has been applied since its purchase or its last revaluation.

Net Current Assets:  Current assets less current liabilities. The resultant figure is also known as working (or circulating) capital, as it represents the amount of the

organisation's capital that is constantly being turned over in the course of its trade.

Net Profit : 1) (net profit before taxation) The  profit of an organisation when all

receipts and expenses have been taken into account. Net profit is arrived at by

deducting from the gross profit all the expenses not already taken into account in

arriving at the gross profit, except tax. 2) (net profit after taxation) The final profit of an organisation, after all appropriate taxes have been deducted from the net profit before taxation. 3) The income remaining from all sources after the deduction of all expenses, including interest and tax payments when applicable and available for dividend payment/plough-back.

Net Tangible Assets: The tangible assets of an organisation less its current liabilities.   In analysing the affairs of an organisation the net tangible assets indicate its financial strength in terms of being solvent, without having to resort to such nebulous (and less easy-to-value) assets as goodwill.

Net worth:  The value of an organisation when its liabilities have been deducted from the value of its tangible assets. In order  to arrive at the true net worth it would normally be necessary to assess the true market values of the  assets rather than their book values. 

No Protest:  A term used in banks whereby one bank can instruct another collecting bank not to protest Bills in case of non-payment.  If  it  cannot  be  collected,  the collecting bank will return without protesting it. This will save the notary public’s protest fees against the instrument.

Nostro account:  A term meaning ‘our account with you’ that designates an account maintained by a bank with a foreign correspondent.

Not Negotiable:  Words marked on a bill of exchange indicating that it ceases to be a negotiable instrument, i.e., although it  can still be (transferred) negotiated, the holder cannot obtain a better title to it than the person from whom it was obtained, thus providing a safeguard if it is stolen. A cheque is the only form of bill that can be crossed ‘not negotiable’; other forms must have it inscribed on their faces.

Notary Public:  A public officer who takes acknowledgement of or otherwise attests or certifies deeds and other writings or copies of them, usually under his or her official seal to make them authentic. A notary public also takes affidavits, dispositions, and noting/protests of negotiable instruments.

Noting:  The procedure adopted if a bill of  exchange has been dishonoured by nonacceptance or by non-payment. Not later than the next business day after the day on which it was dishonoured, the holder has to hand it to a notary public to be noted.   The notary re-presents the bill; if it is  still unaccepted or unpaid, the notary notes the circumstances in a register and also a notarial ticket, which has to be attached to the bill. The noting can then, if necessary, be extended to a protest.

official receiver A person appointed to act as a receiver in bankruptcy and windingup cases. The Court that has jurisdiction over insolvency/winding-up matters has an official receiver, who is an officer of the court. The official receiver commonly acts as the liquidator of a company being wound up by the court.

Offset:  The right that enables a bank to seize any bank-account balances of a

guarantor or debtor if a loan has been defaulted upon.

Offshore banking:  The practice of offering financial services in locations that have attractive tax advantages to non-residents.

Offshore Banking Unit:  A banking unit that conducts business in other countries but is not allowed to do business in the country where it is located.

Offshore financial centres:  Centres that provide advantageous deposit and lending

rates to non-residents because of low taxation, liberal exchange controls, and low

reserve requirements for banks. Some countries have made a lucrative business out of offshore banking. Many countries established domestic offshore facilities enabling non-residents to conduct their business under more liberal regulations than domestic transactions. Their objective is to stop funds moving outside the country.

On Demand: Denoting a bill of exchange that is payable on presentation. An

uncrossed cheque is an example of such a bill.

Opportunity Cost:  The  income  or  benefit  foregone  as  the  result  of  carrying  out  a particular decision, when resources are limited or when mutually exclusive projects are involved.

Option: 1) The right to buy or sell a fixed  quantity of a commodity, currency, or

security at a particular date at a particular price (the exercise price). Unlike futures, the purchaser of an option is not obliged to buy or sell at the exercise price and will only do so if it is profitable; if the option is allowed to lapse, the purchaser loses only the initial purchase price of the option (the option money).  2) An option to buy is known as a ‘call option’ and is usually purchased in the expectation of a rising price; an option to sell is called a ‘put' option and is bought in the expectation of a falling price or to protect a profit on an investment.   Options, like futures, allow individuals and firms to hedge against the  risk  of  wide  fluctuations  in  prices;  they  also  allow speculators to gamble for large profits with limited liquidity.

Over-the-counter market (OTC market):  A market in which shares are bought

and sold outside the jurisdiction of a recognised stock exchange.

Pari passu (Latin: with equal step):  Ranking equally. When a new issue of shares is said to rank pari passu with existing shares, the new shares carry the same dividend rights and winding-up rights as  the  existing  shares.  A  pari  passu  bank  loan  is  a  new loan that ranks on level par with older loans.

Partly paid shares:  Shares on which the full par value has not been paid. They could always call on their shareholders for further funds if necessary.

Paying banker: The bank on which a bill of exchange (including a cheque) has been drawn and which is responsible for paying it if it is correctly drawn and correctly endorsed (if necessary).

per pro (per proc; p.p) : Abbreviation for per procurationem  (Latin: by

procuration); denoting an act by an agent, acting on the authority of a principal

(Power of Attorney holder).

Period of grace:  The time, usually three days, allowed for payment of a usance bill of exchange (except those payable at sight or on demand) after it matures (in some countries).

Personal Identification Number (PIN):  A number memorised by the holder of a

credit/ATM card, and used in automated teller machines.

Portfolio Management:  1) The list of holdings in shares and securities owned by an investor or institution. In building up an investment portfolio an institution will have its own investment analysts, while an individual may make use of the services of a merchant bank that offers portfolio management. The choice of portfolio will depend on the mix of income and capital growth its owner expects, some investments providing good income prospects while others provide good prospects for capital growth. 2) A list of the loans made by an organisation. Banks, for example, attempt to balance their portfolio of loans to limit the risks.

Post-date:  To insert a date on a document that is later than the date on which it is

signed, thus making it effective only from the later date. A post-dated (or forward-

dated) cheque cannot be negotiated/paid before the date written-on it, irrespective

of when it was signed.

Power of Attorney (PA):  1) A document, witnessed and acknowledged, authorising the person named in it to act as attorney in fact for the person signing the document. 2) The authority to act as an Agent. If the Agent is authorised to act for the principal in all matters, he or she has a general power of attorney. If he has

authority to do only certain specified things, he or she has a special power of

attorney. Generally, these are registered. An attorney can not delegate these powers unless specifically authorised to do so.

Preference Share:  A share in a company yielding a fixed rate of interest rather than a variable dividend. The fixed rate being payable on them before any sum is allotted to the ordinary shares of a company. A preference share is an intermediate form of security between an ordinary share and a debenture. Preference shares, like ordinary shares but unlike debentures, usually confer some degree of ownership of the company. However, in the event of liquidation, they are paid off after debt (including debentures) but before ordinary share capital. Preference shares may be redeemable at a fixed or variable date; alternatively they may be undated. Sometimes they are convertible. The rights of preference shareholders vary from company to company and are set out in the articles of association. Voting rights are normally restricted, often only being available if the interest payments are in arrears.

Price-Earnings Ratio (P/E ratio):  The current market price of a company share

divided by the earnings per share (EPS) of the company. The P/E ratio is one of the main indicators used by analysts to decide whether the shares in a company are expensive or cheap, relative to the market.

Prime rate A benchmark that a bank establishes from time to time and uses in

computing an appropriate rate of interest for a particular loan. The benchmark is

generally based on numerous considerations, including the bank’s supply of funds,

cost of funds, and administrative costs, and the competition from others. Factors

used in setting the prime rate and the circumstances in which it applies vary from

bank to bank. This benchmark however, is only one factor among several that banks use in pricing loans. For any specific loan, the interest rate actually charged may be above or below a bank’s benchmark rate (Prime lending Rate-PLR). The actual rate will be determined on the basis of several variables. including perceived risks, nature of collateral. length and size of loan, competition, and the overall relationship with, and the track record of the customer.

Private company:  A corporate entity which: i) limits the number of its members to

50, ii) does not invite public to subscribe to its capital and iii) restricts the members’ right to transfer shares.

Probate:  A certificate issued by the Court, on the application of executors appointed by a will, to the effect that the will is valid (last will and testament) and that the executors are authorised to administer the deceased’s estate. When there is no apparent doubt about the will’s validity, probate is granted in common form on the executors filing an affidavit. Probate granted in common form can be revoked by the court at any time on the application of an interested party who proves that the will is invalid.

Profit and Loss Account (P&L account): An account in the books of an organisation showing the profits (or losses) made on its business activities with the deduction of the appropriate expenses.

Profitability:  The capacity or potential of a project or an organisation to make a

profit. Measures of profitability include return on capital employed, positive net cash flows, and the ratio of net profit to sales.

Promissory Note:  A negotiable instrument that contains a promise to pay a certain

sum of money to a named person, to that person’s order, or to the bearer. It must

be unconditional, signed by the maker, and delivered to the payee or bearer.

proprietorship A business entity owned and operated by a single individual. The

owner is personally and fully liable for all debts incurred by the business.

protest A certificate signed by a notary public at the request of the holder of a bill of exchange that has been refused payment/acceptance stating that it was presented for payment/acceptance and payment/acceptance was refused. A protest states whether a notice of dishonour/non-acceptance has been given to the secondary parties. It is a legal requirement after noting the bill. The same procedure can also be used for a promissory note that has been dishonoured.

proximate cause The dominant and effective cause of an event or chain of events

that result in a claim on an insurance policy. The loss must be caused directly, or as a result of a chain of events initiated, by an insured peril. For example, a policy

covering storm damage would also pay for items in a freezer that deteriorate

because of a power cut caused by the storm, which is the proximate cause of the

deterioration of the frozen food.

Public Company:  A corporate body other than a  private company. In a Public

Company there is no upper limit on the number of shareholders and there is no

restriction on transfer of shares.

Put option:  An option to sell an asset within a specified time at a specified price.

quantitative trade restriction (Quota) A limitation on the nember of units of a

commodity that may enter a country during a period. The mechanisms, which are

many, may be progressive tariffs, or absolute volume limits, or import licensing.

quick assets Those assets of a business, exclusive of inventories, that could be

converted into cash within a short period, usually less than 1 year.

Quid Pro Quo (Latin: something for something) Something given as compensation for something received. Contracts require a quid pro quo; without a consideration they would become unilateral agreements, and not valid.

rate of exchange The price of one currency in terms of another. It is usually

expressed in terms of how many units of the home country’s currency are needed to buy one unit of the foreign currency (Direct Rate). However, in some cases, it is

expressed as the number of units of foreign currency that one unit of the home

currency will buy (Indirect Rate). Two rates are usually given, the buying and selling rate the difference is the profit or commission charged by the organisation carrying out the exchange.

Rate of Return:  The annual amount of income from an investment, expressed as a

percentage of the original investment. This rate is very important in assessing the

relative merits of different investments. It is therefore important to note whether a

quoted rate is before or after tax, since with most investments, the after-tax rate of

return is most relevant. Also, because some rates are payable more frequently than

annually. It may be important, in order to make true comparisons, to consider the

annual percentage rate (APR), which most investment institutions are required to

state.

Rating Agency:  An organisation that monitors the credit backing of bond issues and other forms of public borrowings. It may also give a rating of the risks involved in holding specific stocks. The two best known are Standard & Poor and Moody, both of which have been in existence for over 100 years.

Ratio:   This term refers to the various analyses, made by a money or credit lending agency, of the financial statements of the borrowing  company, to determine the feasibility of granting the requested credit. Some  ratios  used  are:  1)  Current  Assets to Current Liabilities, or Working Capital Ratio. (Current Ratio), 2) ‘Acid Test’ Ratio, 3) Fixed Assets to Fixed Liabilities, 4) Owned Capital to Borrowed Capital, 5) Capital to Fixed Assets, 6) Trade Creditors to Purchases, 7) Raw Material  to  Cost  of production, and 8) Finished Goods to the Cost of (Goods Sold) Sale. The ratios are one of the many tools used in the credit decision and the  type of credit considered best. Many other factors also are given consideration.

Ratio Analysis:  The use of ratios to evaluate a company’s operating performance and financial stability. A technique for analysing a financial statement that examines the relationship among certain key values reported in the statement. Ratios, such as return on capital employed, can be used to assess profitability. The current ratio can be used to examine solvency and gearing ratios to examine the financial structure of the company. In conducting an analysis comparisons will be made with other companies and with industry averages over a period of time.

Ratio Acid Test:  The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay its current liabilities when they come due with only quick assets. Quick assets are current assets that can be converted to cash within 90 days or in the short-term. Cash, cash equivalents, short-term investments or marketable securities, and current accounts receivable are considered quick assets.

Ratio, Debt-Asset:  A leverage measure defined as total debt divided by total assets.   ratio, debt-equity A ratio used to examine the financial structure or gearing of a business. The long-term debt, normally including preference shares, of a business is expressed as a percentage of its equity. A business may have entered into an agreement with a bank that it will maintain a certain debt-equity ratio; if it breaches this agreement the loan may have to be repaid. A highly geared company is one in which the debt is higher than the equity, compared to companies in a similar industry. A highly geared company offers higher returns to shareholders when it is performing well but should be regarded as a speculative investment.

Ratio, Financial Leverage:  The ratio of debt to assets (or to equity).

ratio, leverage 1) In financial analysis, leverage represents the influence of one

financial variable over some other related financial variable. 2) Relationships among balance sheet values that measure the extent to which owners rather than creditors finance a business.

Ratio, Margin of Safety:  The balance of income remaining after payment of fixed

charges, expressed as a percentage of gross revenue. This calculation is used to

approximate the percentage by which gross revenues can decline or operating

expenses can increase before viability is endangered. 

Ratio, Net-Profit:  The proportion that net profit bears to the total sales of an

organisation. This ratio is used in analysing the profitability of organisations and is an indicator of the extent to which sales have been profitable.

Ratio, Receivables Turnover:  The ratio is net sales to current value of receivables

calculated to evaluate the quality of a firm’s receivables. The resulting figure

indicates the average length of time that the firm’s receivables remain outstanding.

Ratio, Return on Assets (ROA):  A profitability ratio. Return on assets is net income divided by total assets. Return on assets indicate how efficiently assets are

employed. ratio, return on equity (ROE) A profitability ratio. Return on equity is net income divided by total equity. Return on equity  indicates how efficiently equity capital is invested.

Ratio, Return on Investment (ROI):  The rate of profit earned relative to the value

of a capital investment. The return on investment is usually expressed as a

percentage of comparability with the return on other investments.

Ratio, Sales-to-Inventory:  A turnover ratio (sales divided by inventory) that

approximates how many times per year a firm sells the equivalent of a complete

inventory.

Ratio, Sales-to-Net-worth:  A turnover ratio (sales divided by net worth) that

determines the owner’s investment in the business to generate sales.

Ratio, Sales-to-Total-Assets:  A turnover ratio (sales divided by total assets) that

indicates whether a business is generating an acceptable volume of sales, given its

investment in assets.

Ratio, Turnover:  1) An accounting ratio showing the number of times an item of

working capital has been replaced by others of the same class within a financial

period. 2) Also referred to as activity ratios or asset management ratios, to measure how efficiently the assets are employed by the firm.

Reasonable Care:  The care expected of a bank when dealing with bills of exchange, letters of credit, etc., to ensure that  all the relevant documents called for are produced and are authentic before payment is authorised. This legal requirement includes a responsibility on the part of the bank to inform the parties concerned if the documents are not produced or are not in order.

Recourse:  The right of the holder (endorsee or payee) in possession of a negotiable instrument to compel a prior endorser or other party to pay the amount of the instrument if it is dishonoured.

Red Clause:  An amendment to a letter of credit granting full payment to the exporter, often before the goods being bought have been delivered.

Red Herring:  Trade term for a preliminary prospectus (so called because of the red print around its borders) giving details of an expected share offering but subject to change, the definitive offering document being the final prospectus.

Redeemable Shares:  Shares (either ordinary shares or preference shares) that the

issuing company has the right to redeem, under terms specified in the issue.

Rediscounting:  The discounting (usually by a discount house) of a bill of exchange or promissory note that has already been discounted by someone else.

Reimbursement:  An arrangement by which a correspondent bank is repaid for

payments made to other parties, according to another bank’s instructions.

Reimbursement Arrangements:  An arrangement whereby a foreign correspondent

bank is reimbursed for payment made according to the instructions of the bank

issuing credit/instructions.

Reimbursement bank:  A bank used when there is no account relationship between

the ordering and paying bankers. A reimbursement bank provides the cover (that is,  replenishes the account) for the transactions.

Reimbursement method:  In funds transfers, instructions specifying how the other is to obtain reimbursement for the payment to be made. When previously agreed upon, these instructions may specify the reimbursement party.

Reinsurance:  The passing of all or part of an insurance risk that has been covered by an insurer to another insurer for a premium.

Relationship Banking:  The establishment of a long-term relationship between a

bank and its corporate customers, often in  the form of a bilateral bank agreement.

The main advantage is that it enables the bank to develop in-depth knowledge of the company’s business, which improves its ability to make informed decisions regarding loans to the company. The company expects to benefit by increased support during difficult times.

Repurchase Agreement (Repo):  A sale of securities with a simultaneous agreement to buy back the same securities at a stated price on a stated date.

resolution A formal document expressing the  intention of a company’s board of

directors.

Retained Earnings (retained profits; ploughed-back profits; retentions):  The

net profit available, less any dividends paid, i.e., the amount kept within the

company. Retained earnings are recorded in the profit and loss reserve (plough-back).

Retiring Bill:  The act of withdrawing a bill of exchange from circulation when it has been paid on or before its due date.

Revaluation of Assets : Either because they have increased in value since they were acquired or because inflation has made the balance-sheet values unrealistic.

Reverse Mortgage:  A type of mortgage in which a homeowners can borrow money against the value of his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan.  Often, the lender will require that there can be no other liens against the home. Any existing liens must be paid off with the proceeds of the reverse mortgage.  A reverse mortgage provides income that people can tap into for their

retirement. The advantage of a reverse mortgage is that the borrower's credit is not

relevant, and is often unchecked, because the borrower does not need to make any

payments. Because the home serves as collateral, it must be sold in order to repay

the mortgage when the borrower dies (in some cases, the heirs have the option of

repaying the mortgage without selling the  home).  These types of mortgages have

large origination costs relative to other  types of mortgages.  These costs become

part of the initial loan balance and accrue interest. Senior citizen borrowers with

good credit should carefully analyze the options of a more traditional mortgage, such as a home equity loan, against a reverse mortgage.  

Risk asset: As used by security analysts, all assets of a bank except cash, dues from banks.

Risk Capital (venture capital) Capital invested in a project in which there is a

substantial element of risk, especially money invested in a new venture or an

expanding business.

Risk Management: The control of an individual’s or company’s chances of losing on an investment. Managing the risk can involve taking out insurance against a loss, hedging a loan against interest-rate rises, and protecting an investment against a fall in interest rates. A bank will always try to manage the risks involved in lending by increasing the security and interest rates to compensate for a percentage of losses.

Safe custody:  A service offered by most commercial banks, in which the bank holds valuable items belonging to its customers in its strong room. These items are usually documents, such as house deeds and bearer bonds, but they may also include jewellery, etc. The bank is a bailee for these items and its liability will depend on whether or not it has charged the customer for the service.

Safe Deposit Locker:  A metal container owned by a bank, kept in the vault, and

rented to customers for their use. The bank usually charges the customer an annual

fee. The safe deposit locker has two keys, one held by the customer and the other by the bank, both of which are needed to open the locker.

Second Mortgage:  A second mortgage may be taken out on the same property,

provided that the value of the property is greater than  the amount of the previous

mortgage.

Secondary Market:  A market in which existing securities are traded, as opposed to a primary market, in which securities are  sold for the first time. In most cases a

stock exchange largely fulfils the role of a secondary market, with the flotation of

new issues representing only a small proportion of its total business. However, it is the existence of a flourishing secondary market, providing liquidity and the spreading of risks, that creates the conditions for a healthy primary market.

securities 1) Literally, things given, deposited, or pledged to assure the fulfillment of an obligation. In this narrow sense, a mortgage is a security. 2) Generally, in a

broader sense, securities now include stocks, bonds, notes and other evidences of

indebtedness.

Securitisation:  The process whereby similar debt  instruments/ assets are pooled

together and repackaged into marketable securities which can be sold to investors.

The process of loan securitisation is used by banks to move their assets off the

balance sheet in order to improve their capital asset ratios.

Semi-Variable Cost:  A cost which is partly fixed and partly variable.

Sensitivity Analysis:  A technique of risk analysis which studies the responsiveness of a criterion of merit like net present value or internal rate of return to variations in underlying factors like selling price, quantity sold, etc.

Set off:  An agreement between the parties involved to set off one debt against

another or one loss against a gain. A banker is empowered to set off a credit balance on one account against a debit balance on another if the accounts are in the same name. 

Sight Draft:  Any bill of exchange that is payable on sight, i.e. on presentation,

irrespective of when it was drawn.

Small and medium enterprises:  The size of the unit and technology employed for

firms to be globally competitive is now of a higher order. The  definition of Small

Scale Sector is revisited and the policy considered inclusion of services and trade

sectors within its ambit. In keeping with global practice, the current concept of the

sector broadened and the medium enterprises are included in a composite sector of

Small and Medium Enterprises (SMEs).

Smart Card:  A plastic card that contains electronically stored information enabling its user, usually for obtaining cash from an automated teller machine. It can also be used as an identification card that gains the bearer access to a computer system, hotel room, office, etc.

Society for Worldwide Interbank Financial Telecommunication (SWIFT):  A nonprofit, cooperative organisation of international banks formed to provide an

international telecommunication system for the exchange of computer processable

information among banks world-wide. Based in Brussles, the SWIFT network of

terminals links several banks world-wide. It is not a payment system, but an

information and instruction network. It began operations in 1977.

Sole Proprietorship:  A business owned and operated by one person.

Solvency:  1) The financial state of a person or company that is able to pay all debts as they fall due. 2) The amount by which the assets of a bank exceed its liabilities.

Sovereign Risk : 1) The risk to a lender that the servicing of its loans to a foreign

borrower may be abridged, frozen, or denied by acts of, or conditions in the nation

where the borrower is located. This risk, sometimes referred to as ‘country risk,’ is

unrelated to the actual borrower’s capacity to repay.  2) In a more limited sense, the term ‘sovereign risk’ refers to the risk that a foreign government (as distinct from a business in that country) may default on its borrowings.

Special Crossing:  A crossing on a cheque in which the name of a bank is written

between the crossing lines.  A cheque so  crossed can only be paid into the named

bank.

Special Drawing Rights (SDRs): An international reserve asset created by the

International Monetary Fund (IMF). Its  value is based since 1974 on a basket of

currencies. In 1970 members of the IMF were allocated SDRs in proportion to the

quotas of currency that they had subscribed to the fund on its formation. There have since been further allocations. SDRs can be used to settle international trade

balances and to repay debts to the IMF itself. The value of SDRs was originally

expressed in terms of gold (hence their  former name paper gold). SDRs provide a

credit facility for IMF members in addition to their existing credit facilities (hence the name).

Spot Currency Market:  A market in which currencies are traded for delivery within two days, as opposed to the forward dealing exchange market in which deliveries are arranged for named months in the future. The rate of exchange for spot currency is the spot rate.

Spot Rate:  Exchange rate which applies to on the spot delivery of the currency; in

practice it means delivery two days after the day of trade.

Spread:  The difference between the buying and selling price (rates).

Stale cheque:  A cheque that has not been presented for payment within three months of its date. The bank will return it marked ‘out of date’/’stale’.

Standby Credit:   A  letter  of  credit  that  guarantees  a  loan  or  other  form  of  credit facility. The bank that issues it promises to refund the amount borrowed if the borrower defaults on repayment. It calls for a certificate of default by the applicant.  A standby credit is third-party guarantee  to honour an investor promise who may have a low credit rating.

State Financial Corporations:  State level financial institutions catering mainly to the needs of the small and medium scale industries.

Statute of limitation:  Statute that bars suits upon valid claims after the expiration

of a specified period.  For Example in the case of promissory notes three years from the date of execution.

Stock Exchange:  1) An organised, regulated marketplace, where officials of

brokerage firms meet physically to buy and sell shares/securities as directed by their customers, the investors. 2) The association of brokerage firms and broker-dealers that provides such a marketplace and whose officials trade in it.

Stock Option:  A document that gives the bearer the right to buy a specific stock at a stated price during a specified period, regardless of the prevailing market price.

Stock options are traded in the same manner as other securities.

Subordinated Debt:  Debt obligations not in the first (senior) (secured) tier of

obligations. In the event of default, subordinated debt holders are paid after all

senior obligations have been discharged.

subpoena (Latin: under penalty) : An order made by a court instructing a person to

appear in court on a specific date to  give evidence, or to produce specified

documents. The party calling for the witness must pay any reasonable expenses.

Failure to comply with a subpoena is contempt of court.

Subsidy:  A payment by a government to producers of certain goods to enable them to sell the goods to the public at a low price, to compete with foreign competition, to avoid making redundancies and creating  unemployment, making available to the consumer cheaper, etc. In general, subsidies distort trade and are unpopular.

Sunk Capital:  The amount of an organisation’s  funds that has been spent and is

therefore no longer available to the organisation, frequently because it has been

spent on either unrealisable or valueless assets.

Surrender Value:  The amount of a life insurance policy paid to a policy holder when he or she surrenders the policy. The surrender value is also the maximum amount of loan that will be given against the policy.

SWAP:  The purchase of foreign exchange for  spot delivery, with the simultaneous sale of the equivalent exchange for forward delivery, vice versa.

Syndicated loan:  A very large loan made to one borrower by a group of banks

headed by one lead bank, which usually takes a percentage of the loan itself,

syndicating the rest to other banks and financial institutions.

Take-out Finance:  Take-out finance structure is essentially a mechanism designed to enable to avoid asset-liability maturity mismatches that may arise out of extending long tenor loans to infrastructure projects. Under the arrangements, banks financing the infrastructure projects will have an arrangement with any other financial institution for transferring to the latter  the outstandings in their books on a predetermined basis.

Tangible Net Worth:  Ordinarily, the total capital (owned capital) less intangibles.

(Total Net Worth).

Tax Haven : A country or independent area that has a low rate of tax and therefore

offers advantages to retired wealthy individuals or to companies that can arrange

their affairs so that their tax liability falls at least partly in the low-tax haven. In the case of individuals, the cost of the tax saving is usually residence in the tax haven for a major part of the year.

Telephone Banking:  A facility enabling customers to use banking services by means of telephoning rather than by visiting  the bank’s premises. Enquiries and cerain transactions can be made this way, often on a 24-hour, 7 day service. Oral

instructions for payments, account movements, and other operations can be made

using a personal identification number (PIN).

Teller: One who actually handles reasonable cash  transactions of depositors and other bank customers. The teller receives deposits, pays out withdrawals, issues drafts, etc., within specified limits.

Term Liabilities:  The liabilities that will not mature during the next accounting period.

Term Loan:  Usually a long-term loan with a tenure running up to ten years. These

loans are made generally by financial institutions, commercial banks and insurance companies to well-established business enterprise for capital expenditures such as plant, equipment, etc. An amortisation programme is worked out in the loan agreement for the liquidation of the loan over its tenure, based on the cash profits and the debt/service coverage be maintained at an agreed-upon level.

Test Key:  A code customarily established between banks and affixed, authenticating  for transferring funds by cable, telex,  or telephone so that the recipient may authenticate the message and act.

Testate:   Having made and left a valid will. Compare with Intestate. (A person dies without executing a will)

Testator:  A person who makes a will. The feminine form is testatrix.

tom next Literally, tomorrow next, Banks use this term for foreign exchange

transactions to mean delivery on the next business day.

Trading Profit:  The profit of an organisation before deductions for such items as

interest, directors’ fees, auditors’ remuneration, etc.

Transferable:  Denoting a deed or other document the ownership of which can be

transferred freely, e.g. a negotiable instrument.

Traveller’s Cheque:  A special fixed amount cheque issued by a well-known bank,

travel agent, etc., and sold at many franchise locations. It enables travellers to carry money without threat of loss or theft. The purchaser of these cheques pays a fee for the convenience of guaranteed rapid replacement in the event of loss or theft. They may be encashed at banks, exchange bureaux, authorised restaurants, hotels, shops, on proof of identity. The traveller has to sign the cheque twice, once in presence of the issuer and again in the presence of the paying bank, agent, etc.

trust 1) An arrangement enabling property to be held by a person or persons (the

trustees) in a fiduciary capacity for the benefit of some other person or persons (the beneficiaries). The trustee is the legal owner of the property but the beneficiary has an equitable interest in it. A trust may be intentionally created or it may be imposed by law.  Trusts are commonly used to provide for the families, philanthropy and in commercial situations (e.g. pensions trusts). 2) A trustee is subject to an obligation, enforceable in a court, to keep or use the property for the benefit of the beneficiary.

Trustees:  Trustees may be personally liable to beneficiaries for loss of Trust property.

Trust Deed: The document creating and setting out the terms of a trust, it will usually contain the names of the trustees, the identity of the beneficiaries, and the nature of the trust property, as well as the powers and duties of the trustees.

Trustee Investments: Investments in which trustees are authorised to invest the

trust property. The Indian Trust Act,  1882, regulate the investments of trust

property that may be made by trustees. The Act applies unless excluded by a trust

deed executed after the Act was passed.

Ultra Vires (Latin: beyond the powers) Denoting an act of an official or a company for which there is no authority. The powers of officials exercising administrative duties and of companies are limited by the instrument from which their powers are derived. If they act outside these powers, their action is ultra vires, may be challenged in the courts. A company’s powers are limited by the objects clause in its memorandum of association. If it enters into an agreement outside these objects, the agreement may be unenforceable, although a third party may have a legal remedy, if acted in good faith.

Unclaimed Balances:  Account balances that have not been legally debited or

credited for a specific period.

Underwriter:  A financial institution, usually merchant bank, that guarantees to buy a proportion of any unsold shares when  a new issue is offered to the public.

Underwriters usually work for a commission.

Uniform Customs and Practice for Documentary Credits: (UCPDC) A standard code issued by the International Chamber of Commerce. This code is the primary guide used in handling documentary letters of credit.

Unincorporated business:  A privately owned business, that is not legally registered or recognised as a company. The owner has unlimited liability for any debts he or she may incur.

Unit Trust: A trust formed to manage a portfolio of stock exchange securities, in

which small investors can buy units. This gives the small investor access to a

diversified portfolio of securities, chosen and managed by professional fund

managers, who seek either high capital gains or high yields, within the parameters of reasonable security. Unit trusts are called mutual funds. 

Unit Trust of India (UTI):  An investment company, UTI aims at mobilising the

savings of the public and channelises them into productive corporate investments.

Now it stands spilt into two. UTI and Axis Bank.

Unlisted security : Security/share which is not listed on a recognised Stock

Exchange.

Unquoted Securities:  Securities/shares that are not dealt in on any stock exchange.

Usury:  1) An excessively higher  rate of  interest  than  is allowed by  law. 2) The act of charging a higher rate of interest for the use of funds than is legally allowed.

Utmost good faith (uberrima fide): The fundamental principal of insurance

practice, requiring that a person wishing to take out an insurance cover must provide all the information the insurer needs to calculate the correct premium for the risk involved. Nothing must be withheld from the insurers, even if they do not actually ask for the information on an application form. The principle is essential because an insurer usually has no knowledge of the facts involved in the risk they are being asked to cover; the only source of information is the person requiring the insurance.   If an insured person is found to have withheld information or given false information, the insurer can treat the policy as void.

Value date: 1) The date on which specified funds become available for use. 2) The

date on which a transaction actually takes place.  3) The date on which foreign

exchange is due to be delivered.

Visibles:  Earnings from exports and payments  for imports of goods, as opposed to services (such as banking and insurance). The balance of trade is made up of visibles and is sometimes called the visible balance.

Warranty : A statement made clearly in a contract (express warranty) or, if not

stated clearly, understood between the parties to the contract (implied warranty). An unfulfilled warranty does not invalidate the  contract (as it would in the case of an unfulfilled condition) but could lead to the payment of damages.

Weighed Average (weighed mean):  An arithmetic average that takes into account

the importance of the items making up the average. For example, if a person buys a commodity on three occasions, 100 tonnes at Rs.70/- per tonne, 300 tonnes at

Rs.80/- per tonne, and 50 tonnes at Rs.95/- per tonne, he purchases total 450

tonnes; the simple average price would be (70+80+95)/3 = Rs.81.70. The weighted average taking into account the amount purchased on each occasion, would be [(100x70) + (300x80) + (50x95)]/450=Rs.79.40 per tonne.

Will:  A legally enforceable document in writing giving directions as to the disposal of, usually, but not always, a person’s property after death. It has no effect until death and may be altered many times (by means of  codocil)  as  the  person  (the  testator) wishes until, the testator’s death and applies to the situation that exists when the death of the testator. To be binding, it must be executed in accordance with statutory formalities. It must be in writing, signed by the testator or at the testator’s direction and in the testator’s presence.  It must appear that the signature was intended to give effect to the will (usually it is signed close to the last words dealing with the property). The will must be witnessed by two persons, who must also sign the will. The witnesses must not be beneficiaries.

Window Dressing:  An attempt to improve the appearance of a company’s financial position or operating results by using such techniques as not accounting for all expenses, anticipating sales, concealing liabilities, delaying write-offs, or under providing for depreciation. In a bank, window dressing might also include soliciting deposits just before year end.

With Recourse:  A bill of exchange that does not have a without recourse

endorsement or that specifically states that it is ‘with recourse’. Such a bill gives the bank a right to claim the full value of the bill from the customer who has asked the bank to discount it, if it is not paid.

Without recourse (sans recourse):  Words that appear on a bill of exchange to

indicate that the holder has no recourse to the person from whom it was bought, if it is not paid. It may be written on the face of the bill or as an endorsement. If these words do not appear, the holder does have recourse to the drawer or endorser if the bill is dishonoured.

Work in Progress (WIP): Partly manufactured goods (goods-in-process/semi-finished goods) or partly completed contracts. For accounting purposes, work in

progress is normally valued at its cost (cost of the materials and labour), together

with some estimated percentage of overheads.

Working Capital:  The difference between a firm’s current assets and current

liabilities. Working capital represents the  amount of money available for operating the firm. The ability of a firm to meet its obligations, expand its volume, and take advantage of favourable business opportunities depends partially on its volume of working capital.

Working Capital Loan:  A short-term loan to provide money to purchase income generating assets, such as inventory.

World Trade Organisation (WTO):  The world trading system founded at the

Uruguay round of the General Agreement on Tariffs and Trade (GATT) in 1994, to

supersede GATT and to implement the measures agreed at the Uruguay round.

WTO’s aims are to continue the work of GATT in agreeing international trading rules and furthering the liberalisation of international trade. WTO has wider and more permanent powers than GATT and extends its jurisdiction into such aspects of trading as intellectual property rights. The highest authority of WTO is Ministerial Conference, held at least every two years. Almost all the major countries are members.

Write-off:  The removal of a bad debt or worthless asset from the books by reducing its value to zero. A write-off is usually debited to a reserve for bad debts or written off from earned profit.

Yield to Maturity:  The rate of return, including all interest payments and the

difference between current market price and the face value of an asset, on a loan or a debt security if held to maturity. Yield to maturity is the discounted present value of the sum of future interest payments and capital gains by holding a debt security.  In other words, the yield earned on a bond at a given price if held to maturity.

Zero Coupons:  Securities (Bonds) with no interest payments. Zero coupons are

offered initially by the issuer at a deep discount from face value. The final repayment at maturity covers principal and all interest payments for the life of the security. The discount is taxable as though it were explicit interest payments.

zero-based budgeting A budgeting procedure whereby all expenditures are

justified annually before being included in a budget. Zero-base budgeting strives to eliminate annual budget increases made habitually without considering whether a program, should be continued. Budgeting in which figures are developed from

scratch every year.

SECTION-B

GLOSSARY - INTERNET BANKING

Access Products  - products that allow consumers to access traditional payment

instruments electronically, generally from remote locations.

American National Standards Institute (ANSI)  - a standard-setting

organization; it is the U.S. representative to the International Standards

Organization (ISO).

American Standard Code for Information Interchange (ASCII)  - a standard

code for representing characters and numbers that is used on most microcomputers, computer terminals, and printers.

Applet - a small application program that is designed to do a small, specific job.

Application - a computer program or set of programs that perform the processing

of records for a specific function.

Asynchronous Transfer Mode (ATM)  - method of transmitting bits of data one

after another with a start bit and a stop bit to mark the beginning and end of each

data unit.

Auditability - the degree to which transactions can be traced and audited through a

system.

Authentication - the process of proving the claimed  identity of an individual user,

machine, software component or any other entity.

Authorization  - the process of determining what types of activities are permitted.

Usually, authorization is in the context of authentication: once you have

authenticated a user, they may be authorized different types of access or activity.

Bandwidth  - the transmission capacity of a  computer channel or communications

line .

Bastion Host  - a system that has been hardened to resist attack, and which is

installed on a network in such  a  way  that  it  is  expected  to  potentially  come  under attack. Bastion hosts are often components of firewalls, or may be "outside" web servers or public access systems.

Biometrics  - a method of verifying an individual’s identity by analyzing a unique

physical attribute.

Browser  - a computer program that enables the  user to retrieve information that

has been made publicly available on the Internet; also permits multimedia (graphics) applications on the World Wide Web.

Chip - an electronic device consisting of circuit elements on a single silicon chip. The most complex circuits are microprocessors, which are single chips that contain the complete arithmetic and logic units of computers.

Chip Card - also known as an integrated circuit (IC) card. A card containing one or more computer chips or integrated circuits for identification, data storage or special purpose processing used to validate personal identification numbers, authorize purchases, verify account balances and store personal records.

Client-Server Network - a method of allocating resources in a local area network

so that computing power is distributed among computer workstations in the network but some shared resources are centralized in a file server.

Closed Network - a telecommunications network that is used for a specific purpose, such as a payment system, and to which access is restricted (also referred to as a private network).

Closed Stored Value System - a system in which value is issued and accepted by

either a relatively small group of merchants, or in which the system is limited

geographically (i.e., university programs and fare cards for mass transit systems).

Code  - computer programs, written in machine language (object code) or

programming language (source code).

Computer Emergency Response Team (CERT)  - located at Carnegie-Mellon

University, this incident response team  offers advisories, which contain enormous

amounts of useful, specific security information.

Cracker - a computer operator who breaks through a system’s security. This can be

legitimate activity, such as to test system security measures.

Cryptography  - the principles, means, and methods for rendering information

unintelligible and for restoring encrypted information to intelligible form (i.e.,

scrambling a message).

Cyber Mall - a set of electronic or digital storefronts linked through a common website.

Database Administrator (DBA) - the individual with authority to control the data

base management system.

Data Encryption Standard (DES) - U.S. government standard for data encryption

method published by the National Institute of Standards and Technology for the

encryption of sensitive U.S. government data which does not fall under the category of national security related information. The DES uses a 64-bit key.

Data Integrity - the property that data meet with a priority expectation of quality.

Dedicated - assigned to only one function.

Dial-up  - the ability of a remote user to access a system by using private or

common carrier telephone lines.

Digital - referring to communications processors, techniques, and equipment where information is encoded as a binary "1" or "0".

Digital Certification  - a process to authenticate (or certify) a party’s digital

signature; carried out by trusted third parties.

Digital Signatures - a mathematical encryption technique that associates a specific

person with a given computer file and indicates that the file has not been altered

since that person signed it; should not be confused with making an electronic

representation of a written signature.

Distributed Transaction Processing - application processing that involves multiple

users requiring concurrent access to a single shared resource.

Domain Name - an alphanumeric name for a web site that includes both the online

address and online name.

Download  - to transmit a file or program from a central computer to a smaller

computer or a remote site.

Electronic Cash  - the digital equivalent of dollars and cents (also referred to as

digital cash).

Electronic Data Interchange (EDI)  - the transfer of information between

organizations in machine-readable form.

Electronic Document - the digital or computer equivalent of paper documents. 54

Electronic Money - monetary value measured in currency units stored in electronic form on an electronic device in the consumer’s possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.

Electronic Purse - a stored value device that can be used to make purchases from

more than one vendor.

E-mail - messages people send to one another electronically from one computer to

another.

Encryption (Cryptography)  - the process of scrambling data by a device or

encoding principle (mathematical algorithms) so that the data cannot be read

without the proper codes for unscrambling the data.

End-to-end Encryption  - the protection of information passed in a

telecommunications system by cryptographic means, from point of origin to point of destination.

Ethernet  - a type of local area network originally developed by Xerox,

communication takes place by means of radio frequency signals carried over coaxial cable.

File Transfer Protocol (FTP)  - a standard way of transferring files from one

computer to another on the Internet.

Firewall - a system or combination of hardware and software solutions that enforces a boundary between two or more networks.

Flowchart -  a programming tool to graphically present a procedure by using

symbols to designate the logic of how a problem is solved.

Gateway - a computer that performs protocol conversion between different types of networks or applications.

Graphical User Interface (GUI)  - a way of communicating with a computer by

manipulating icons (pictures) and windows with a mouse.

Groupware  - software that allows a group of people to work on the same data

through a network, by facilitating file sharing and other forms of communication.

Hacker  - a computer operator who breaks into a computer without authorization,

either for malicious reasons or just to prove it can be done.

Home Banking - banking services that allow a customer to interact with a financial institution from a remote location by using a telephone, television set, terminal, personal computer, or other device to access a telecommunication system which links to the institution’s computer center.

Home Page - a screen of information made available to users through the Internet

or a private intranet; it is the "main page"  that users are expected to read first in

order to access the other pages that comprise the web site.

Host - also known as a host computer that is the primary or controlling computer in a computer network, generally involving data communications or a local area

network.

Hypertext  - electronic documents that present  information that can be connected

together in many different ways, instead of sequentially.

Hypertext Markup Language (HTML)  - a set of codes that can be inserted into

text files to indicate special typefaces, inserted images, and links to other hypertext documents.

Hypertext Transfer Protocol (HTTP)  - a standard method of publishing

information as hypertext in HTML format on the Internet.

Incident Response Team  - a team of computer experts (internal or external)

organized to protect an organization’s data, systems, and other assets from attack

by hackers, viruses, or other compromise.

Integrated Circuit Card (IC Card) - a plastic card in which one or more integrated

circuits are embedded (also called a chip card).

Integrated Services Digital Network (ISDN)  - a type of all-digital telephone

service. ISDN lines provide a connection that can transmit digital data as well as

voice, without a modem.

International Organization for  Standardization/Open Systems

Interconnection (ISO/OSI) – an international standard-setting organization. ANSI

is the U.S. representative.

Internet - a worldwide network of computer networks (commonly referred to as the Information Superhighway).

Internet Service Provider (ISP)  - an entity that provides access to the Internet

and related services, generally for a fee.

Interoperability - the compatibility of distinct applications, networks, or systems.

Intranet  - a private network that uses the infrastructure and standards of the

Internet and World Wide Web, but is cordoned off from the public Internet through firewall barriers.

Issuer  - in a stored value or similar prepaid electronic money system, the entity

which receives payment in exchange for value distributed in the system and which is obligated to pay or redeem transactions or balances presented to it.

Key - A secret value or code used in an encrypting algorithm known by one or both of the communicating parties.

Local Area Network (LAN) - a network that connects several computers that are

located nearby (in the same  room  or  building),  allowing  them  to  share  files  and devices such as printers.

Lock and Key Protection System - a protection system that involves matching a

key or password with a specific access requirement.

Logging  - the storing of information about events that occurred on the firewall or

network.

Magnetic Stripe  - used on debit, credit, and identification cards to store encoded

information read by card readers; less secure than computer chip cards.

Memory Card - an integrated circuit (IC) card capable of storing information only.

Middleware  - facilitates the client/server connections over a network and allows

client applications to access and update remote databases and mainframe files.

National Institute for Standards and Technology (NIST)  – an established US

agency, within the Department of Commerce to develop technical, management,

physical and administrative standards and guidelines for the cost effective security

and privacy of sensitive information in Federal computer systems. NIST issues the

Federal Information Processing Standards (FIPS).

Navigation - moving through a complex system of menus or help files.

Network  - a group of computers connected by cables or other means and using

software that enables them to share equipment and exchange information. A system of software and hardware connected in a manner to support data transmission.

Node  - any device, including servers and workstations, connected to a network.

Also, the point where devices are connected.

Non-repudiable Transactions - transactions that cannot be denied after the fact.

Offline - equipment or devices that are not in direct communication with the central processor of a computer system, or connected only intermittently.

Online  - equipment or devices that communicate with a computer network.

Connections can be direct (as in a LAN using dedicated connections) or indirect (as in using the Internet).

Online Scrip - debit accounts on the Internet or other major computer network.

Online Service Providers (OSP) - closed network services that provide access to

various computer sites or networks for a fee.

Open Network - a telecommunications network to which access is not restricted.

Open Stored Value System  - a system that may be comprised of one or more

electronic cash issuers of stored value that is accepted by multiple merchants or

entities.

Operating System - a program that controls a computer and makes it possible for

users to enter and run their own programs.

Packet Switching - a data transmission method that routes packets along the most

efficient path and allows  a communication channel to  be shared by multiple

connections.

Password  - a unique word or string of characters that a programmer, computer

operator, or user must supply to satisfy security requirements before gaining access to the system or data.

Password Cracker - a software program designed  to conduct an automated brute

force attack on the password security controls of an information system by

"guessing" user passwords.

Password Sniffer  - a software program that is illicitly inserted somewhere on a

network to capture user passwords as they pass through the system.

Payment System  - a financial system that establishes the means for transferring

money between suppliers and users of funds, usually by exchanging debits or credits between financial institutions.

Personal Identification Number (PIN)  - a sequence of digits used to verify the

identity of a device holder.

Piggyback (Between-the-lines Entry)  - a means of gaining unauthorized access

to a system via another user’s legitimate connection.

Point of Sale (POS)  - a system of terminals that debits or charges a customer’s

account and credits or pays a merchant’s account to effect payment for purchases at retail establishments.

Prepaid Card - a card on which value is stored, and for which the holder has paid

the issuer in advance.

Privacy  - in the context of a payment system, the property that no information

which might permit determination of transactions may be collected without the

consent of the counterparties involved.

Protocols - a standardized set of rules that define how computers communicate with each other.

Proximity Cards  - cards that can be read from a  short distance; mainly used for

security and vehicle identification.

Public Key Cryptography - type of cryptography in which the encryption process is publicly available and unprotected, but in which a part of the decryption key is

protected so that only a party with knowledge of both parts of the decryption process can decrypt the cipher text.

Remote Payment - a payment carried out through the sending of payment orders

or payment instruments.

Repudiation - the denial by one of the parties to a transaction of participation in all

or part of that transaction or of the content of the communication.

Router  - a computer system in a network that stores and forwards data packets

between local area networks and wide area networks.

Scattering  - the process of mixing the integrated circuit (IC) chip components so

that they cannot be analyzed easily.

Search Engines  - software programs that are  capable of locating specified

information or web sites on the Internet.

Secure Electronic Transaction (SET)  - a set of standards jointly developed by

Visa, MasterCard, and several technologies companies to facilitate secure credit card transactions over the Internet.

Secure Hypertext Transfer Protocol (SHTTP)  - provides secure communication

mechanisms between an HTTP client-server pair.

Secure Socket Layer (SSL)  - a protocol for providing data security during

transmission using data encryption, server authentication, and message integrity.

Server - a computer that provides services to another computer (the client).

Settlement  - an act that discharges obligations with respect to funds or securities

transfers between two or more parties.

Settlement system  - a system used to facilitate the settlement of transfers of

funds.

Simple Mail Transfer Protocol (SMTP)  - a protocol used to transfer electronic

mail between computers on the Internet. 

Smart Card  - a card with a computer chip embedded, on which financial, health,

educational, and security information can be stored and processed.

Specification - documents that contain basic detailed data.

Spoofing - an attempt to gain access to a system by posing as an authorized user.

Standards  - the rules under which analysts, programmers, operators, and other

personnel in an information service organization work.

Stored Value Card  - a card that stores prepaid  value via magnetic stripe or

computer chip.

Structured Query Language (SQL)  - a query language used to manipulate large

databases.

System Integrity  - the quality that a system has when it performs its intended

function in an unimpaired manner, free from deliberate or inadvertent manipulation of the system.

System Specification  - a baseline specification containing all the essential

computer-based business system documentation. It is completed at the end of the

Development Phase.

Systemic Risk  - the risk that the failure of one participant in a funds transfer

system, or in financial markets generally, to meet its required obligations will cause other participants or financial institutions to be unable to meet their obligations when due.

Systems Analysis - the performance, management, and documentation of the four

phases of the life cycle of a business system: study, design, development, and

operation.

Tamper-evident - the capacity of devices to show evidence of physical attack.

Tamper-proof - the proven capacity of devices to resist all attacks.

Tamper resistant - the capacity of devices to resist physical attack up to a certain

point.

Telecommunications  - data transmission between a computing system and

remotely located devices via telephone lines, cable, or wireless technology.

Telnet  - a protocol that permits users to  access a remote terminal or another

computer through a network; widely used on the Internet.

Threat Monitoring - the analysis, assessment, and review of audit trails and other

data collected for the purpose of searching out system events that may constitute

violations or attempted violations of system security.

Throughput  - the total amount of useful work performed by a data processing

system during a given period of time.

Topology  - the arrangement of nodes usually  forming a star, ring, tree, or bus

pattern.

Traceability  - the degree to which transactions can be traced to the originator or

recipient (also referred to as auditability).

Transferability  - in electronic money systems, the degree to which an electronic

balance can be transferred between devices without interaction with a central

authority.

Transmission Control Protocol/Internet Protocol (TCP/IP) - a standard format

for transmitting data in packets from one computer to another, on the Internet and

within other networks. TCP deals with the construction of the data packets while IP routes them from machine to machine.

Trap Door  - a concealed and unauthorized entrance into a computer operating

system, designed by the programmer.

Trojan Horse - a program that appears to perform a useful function and sometimes

does so quite well but also includes an  unadvertised feature, which is usually

malicious in nature. Truncation  - dropping off part of a character string either to conserve space or because of limited space.

Trusted Computer System - a system that employs sufficient assurance measures

to allow its use for simultaneous processing of a range of sensitive or classified

information.

Trusted Third Party - a reputable entity that authenticates one or more parties to

an electronic transaction. The authentication process generally involves the issuance and administration of digital certificates.

Uniform Resource Locator or Universal Resource Locator (URL)  - a way of

specifying the location of available information on the Internet.

Upload  - to transmit a file to a central computer from a smaller computer or a

remote location.

Usenet - a set of many newsgroups distributed via the Internet.

Virtual Corporations - corporations that have no official physical site presence and

are made up of diverse geographically dispersed or mobile employees.

Virus  - a program with the ability to reproduce by modifying other programs to

include a copy of itself. It may contain destructive code that can move into multiple programs, data files, or devices on a system and spread through multiple systems in a network.

Vulnerability  - a weakness in system security procedures, system design,

implementation, internal controls, etc., that could be exploited to violate system

security.

Web Page - a screen of information supporting the home page of a web site.

Web Site  - the collection of an entity’s home page and other proprietary pages

located on the World Wide Web.

Wide Area Network (WAN)  - a communications network that covers a wide

geographic area, such as state or country,  using high speed long distance lines or

satellites provided by a common carrier.

World Wide Web (web, www)  - a sub network of the Internet through which

information is exchanged via text, graphics, audio, and video.

Worm - a program that scans a system or an entire network for available, unused

space in which to run. Worms tend to tie up all computing resources in a system or

on a network and effectively shut it down.

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