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Vidya Foundation Cochin

An educational charity to help poor students who are in need of support and motivation

Finance Terms

A  B  C  D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W  X  Y  Z

A

Accommodation Bill A Bill of Exchange without any consideration, or quid pro quo.
Adhoc bonds Bonds issued without formal regulations or standards.
ADR An acronym for American Depository Receipt. It is an instrument traded at U.S. exchanges representing a fixed number of shares of a foreign company that is traded in the foreign country.
Amortization Process of decreasing or accounting for an amount over a period of time
Arbitrage The simultaneous purchase and sale transactions in a security or a commodity, undertaken in different markets to profit from price differences.
Asset liability management It is the  practice of managing risks that arise due to mismatches between the assets and liabilities (debts and assets) of the bank.

Asset Management Company

A company set up for floating and managing schemes of a mutual fund
Authorised Capital The maximum equity capital a company can raise, which is mentioned in the Memorandum of Association and Articles of Association of the Company.

B

Bridge Loan A Bridge Loan is a loan that is used for a short duration of time until permanent financing is put in place.
Business Correspondent Use of identified institutional agents/organisations and other entities for supporting the bank in extending financial services.
Business Facilitator Use of intermediate entities/individuals to provide support services for non financial services of the bank.
Business process reengineering (BPR) It is the analysis and redesign of workflow within and between enterprises.
Buzz marketing Also known as word-of-mouth marketing and viral advertising, is a reference to the passing of information by verbal means, especially recommendations, but also general information, in an informal, person-to-person manner.
B@ncs24 An acronym for Bank’s Automation & Net working Control System for 24 hours. It is the name of the application software installed at Central Data Centre, at the back-end, which processes the data transmitted by the Branches throughout the day.
Bancassurance It is the function of banks extending insurance products to customers.
Bank Rate Bank rate is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply
Banker to an issue A scheduled bank carrying on all or any of the issue related activities namely acceptance of application and application monies; acceptance of allotment or call monies; refund of application monies; and payment of dividend or interest warrants.
Basel II An international accord on bank capital requirements to replace the earlier 1988 Basle Accord. The new principle stands on three pillars: Minimum Capital Requirement, Supervisory Review Process and Market Discipline.
Bonus Issues They are the shares issued to capitalize on the reserves and surplus of the company without charging the shareholders.
Book Value The depreciated value of a company’s assets (original cost less accumulated depreciation) less the outstanding liabilities.
C
D
E

F

Financial Engineering Financial Engineering is a multidisciplinary field involving financial theory, the methods of engineering, the tools of mathematics and the practice of programming. It is also a design of financial portfolios to achieve specified goals.
Financial Deepening It refers to the availability of financial services with a wider choice of products geared to all levels of society.
Financial inclusion Delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups.
Financial Planning It refers  to the means by which cash will be acquired to cover future expenses, for instance through earning, borrowing or using saved cash.
Float It is the time gap between the fund being comitted and actual transaction made in the account.
Floating-rate Bond Bonds whose interest rate varies with changes in a pre-specified market interest rate.
Foreign institutional investor An institution established or incorporated outside India which proposes to make investment in India in securities; provided that a domestic asset management company or domestic portfolio manager who manages funds raised or collected or brought from outside India for investment in India on behalf of a sub-account, shall be deemed to be a Foreign Institutional Investor.
Futures Contract This is an agreement that allows an investor to buy or sell a commodity, like gold or wheat, or a financial instrument, like a currency, at some time in future.

G

Ghost marketing It comprises the effort made by a company in terms of collation of data and formulation of strategies for its client in the background.
Global Depository Receipt (GDR) Global Depository Receipt (GDR) is a certificate issued by international bank, which can be subject of worldwide circulation on capital markets.

H

Hedge Any purchase or sale of a good or security, having as its purpose the elimination of possible profit or loss arising from price fluctuations.
Holding Companies A holding company is a company that owns part, all, or a majority of other companies’ outstanding stock.

I

Initial Public Offer Initial Public Offer (IPO) is a source of collecting money from the public for the first time in the market to fund its projects. In return, the company gives the share to the investors in the company
Islamic Banking Islamic banking is based on the main concept of outlawing fixed-interest returns and speculation, as well as forbidding investments in what Islam considers vices such as dealing in alcohol, pork or gambling.
Intervention Bonds Intervention bonds, better known as market stabilisation bonds, are instruments used by RBI to curb the excess liquidity in the market

J

Junk bond A bond which pays a high yield due to significant credit risk.

K

Kiting Illegally benefiting from float, for example by depositing and drawing cheques between accounts at two or more banks.

L

Liquidity Adjustment Facility Liquidity Adjustment Facility (LAF) is a facility by which the RBI adjusts the daily liquidity in the domestic markets (India) either by injecting funds or by withdrawing them out.

M

Malware Malicious software designed to deliberately harm the unsuspecting computer users viz. virus, worms, trojan horses etc.
Merchant banker Any person who is engaged in the business of issue management either by making arrangement regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or rendering corporate advisory service in relation to such issue management.
Mergers and Acquisitions It refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.
Meta data Also known as data about data is the information about the contents and uses of the data warehouse. Meta data is created by several components of the data warehouse and provides a business and technical view of the data warehouse solution.
Money Laundering Process of converting dirty money into legal money through Banking and other financial channels.
Money Mule Money mule is a person who transfers money and reships high value goods that have been fraudulently obtained in one country, usually via the internet, to another country, usually where the perpetrator of the fraud lives.
Municipal bonds Debt securities issued by state and local governments (municipal corporations).

N

NAV (Net Asset Value) The market value of a fund share, synonymous with a bid price.
National Securities Depository Limited (NSDL) This is an organization, which is an intermediary between the Registrar and the company for dematerialisation of shares.
Net Interest Margin The net interest margin takes the difference between interest income and interest expense and divides that by average earning assets.

O

Offshore Banking unit Offshore Banking Unit means a branch of a bank in India located in the Special Economic Zone
Operational risk Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.
Organisational communication It is the specific process through which information moves and is exchanged through out an organisation.

P

Participatory Notes Participatory Notes or P-Notes are derivative instruments that are issued by FIIs to foreign investors or hedge funds, which are not registered in India.
Paid Up capital The part of the issued capital of a company that has been paid up by the shareholders
Pension Fund Assets held in trust to cover the costs of pension benefits to participants.
Perpetual Bond A bond with no maturity; pays periodic coupon; the price is the coupon divided by the current yield
Portfolio Manager Any person who pursuant to a contract or agreement with a client ,advises or directs or undertakes on behalf of the client (whether as discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client as the case may be.
Preferential Shares These are the shares issued at a fixed coupon rate to investors which entails the foregoing of the right to participate in the management.
Profit Earning (P\E) ratio P/E is the ratio of a company’s share price to earnings per-share. It essentially shows the amount that an investor is willing to pay for every one rupee earned by the company.

R

Renaissance leadership It is a process involving leadership commitment, change definition & guidance, employee ownership and systems alignment.
Real-Time Gross Settlement (RTGS) An RTGS system is a gross settlement system in which both processing and final settlement of funds transfer instructions can take place continuously (i.e. in real time).
Red Herring Investment/finance industry jargon for a preliminary prospectus issued to gauge interest in a prospective security offering.
Registrar to issue The person appointed by a body corporate or any person or group of persons to carry on the activities of collecting applications from investors in respect of an issue; keeping a proper record of applications and monies received from investors or paid to the seller of the securities and assisting body corporate or person or group of persons in  determining the basis of allotment of securities in consultation with the stock exchange; finalising of the list of persons entitled to allotment of securities; processing and despatching allotment letters, refund orders or certificates and other related documents in respect of the issue.
Repo Repo means an instrument for borrowing funds by selling securities with an agreement to repurchase the said securities on a mutually agreed future date at an agreed price which includes interest for the fund borrowed.
Repo Rate It refers to the interest rate at which RBI lends to banks in short term or overnight basis. In other words, it is the rate at which RBI pumps in short term liquidity in to the market.
Reverse Repo Rate It is the interest rate earned by banks for lending money to the RBI in exchange for Government securities. In other words, it is the rate at which RBI squeezes in the excess liquidity from the market.
Reverse mortgage It allows senior citizens to borrow against the value of their property.
Rights Issue If a company wants to increase its subscribed capital by allotment of further shares, it has to offer to the existing shareholders first in proportion to the capital paid up on the shares held by them.
Road map for foreign banks RBI’s guidelines for entry of foreign banks in 2009.

S

Samurai bond They are yen-denominated bond issued by a foreign resident in Tokyo.
Sinking Fund A sinking fund is a method by which an organisation /company sets aside money over time to retire its indebtedness.
Special Economic Zone Special Economic Zone (SEZ) is a specifically delineated duty free enclave and is deemed to be foreign territory for the purposes of trade operations and duties and tariffs.
Special Mention Accounts Asset category for early identification of bad debts.
Special Purpose Vehicle A vehicle designed to insulate the issuer of debt from the sponsor, or originator of the assets.
Spread The difference between the bid and the ask price of a security or asset.
Stock Option The right to buy a stock at a specified price at a specified time in the future. Stock options are usually given to senior managers and executives as an incentive to continue with the company.
Sub prime lending It refers to the practice of giving loans at a higher rate to those who do not qualify for regular loans due to their poor credit history.

T

T-Bill (Treasury Bill) Debt issued by the RBI with maturity less than a year
Tier 1 capital Tier 1 capital includes common stock and retained bank earnings.
Tier 2 capital Tier 2 capital includes undisclosed reserves,general provisions against loan losses,subordinated term debt and hybrid capital instruments combining characteristics of debt and equity.
Transactional leadership Transactional leadership is based in contingency, in that reward or punishment is contingent upon performance.
Transformational leadership Transformational Leader seeks overtly to transform the organization through vision and passion.
Turnkey project Real estate development project in which the builder assumes all risk until a certain point has been reached.

U

U turn economy complete reversal of direction of economic plan
Underwriter The arrangement by which investment bankers undertake to acquire any unsubscribed portion of a primary issuance of a security.
Upselling Up-selling is a sales technique whereby a salesman attempts to have the consumer purchase more expensive items, upgrades, or other add-ons in an attempt to make a more profitable sale.
US GAAP Generally Accepted Accounting Principles in the United States.
USA PATRIOT Act Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
U-shaped recovery U-shaped recovery of the market, where prices decline gradually and recover slowly.

V

Value at risk Value at Risk (VaR) is the maximum loss not exceeded with a given probability defined as the confidence level, over a given period of time.
Venture Capital An important source of financing used to fund start-up companies that do not have access to capital markets. Venture Capital typically entails significant investment risk but offers the potential for above-average future returns.
Venture capital fund A fund established in the form of a trust or a company including a body corporate and registered under the SEBI venture capital fund regulations which – has a dedicated pool of capital, raised in a manner specified in the regulations and invests in venture capital undertaking in accordance with the regulations.
V-shaped recovery A V-shaped recovery is where a market experiences a sharp, fast decline but comes out strong once it hits bottom.
Vulture funds A vulture fund is a financial organization that specializes in buying securities in distressed environments, such as high-yield bonds in or near default, or equities that are in or near bankruptcy.

W

Wealth Management Wealth Management is an advanced type of financial planning that provides individuals and even families with private banking, estate planning, asset management, legal service resources, trust management, investment management, taxation advice, and portfolio management.
Window-dressing The use of temporary transactions designed to meet regulatory requirements or improve the look of a portfolio at the end of a reporting period.

Y

Yield The annual percentage rate of return earned on a security.
Yield to Maturity (YTM) The market interest rate on a bond. It is the yield an investor would receive if the bond is held to maturity.

Z

Zero Base Budgeting Zero base approach gives no base figure for a budget, budgeting starts from scratch or zero.
Zero Coupon Bond A bond that has no coupon payments. It pays only a single cash flow at maturity