Banking and Financial Terms: Banking Awareness Notes

Mentor for Bank Exams

Banking and Financial Terms for Bank Exams
American Deposit Receipt (ADR) – It is a negotiable certificate issued by a U.S. bank representing a specified number of shares in a foreign stock traded on U.S exchange. ADRs are denominated in U.S. dollars.
Anti Dated Cheque - If date mentioned on the cheque is earlier than the date it is presented to bank; it is called anti dated cheque. Anti Dated Cheque is valid up to 3 months. Earlier it was 6 months but now it reduced to 3 months.
Arbitrage - Arbitrage is a process in which simultaneous purchase and sale of securities is done in order to earn profits with the difference in prices.
Balance of Trade - Balance of Trade is a difference between country’s export and import for a given time period. It is the largest component of balance of payments.
Balance of Payments - A statement that summarizes an economy’s transactions with the rest of world for a specified period of time is known as balance of payments.
Bancassurance - It is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products.
Bank Account - The account which is maintained by a financial institution for the customer is known as bank account.
Bank Drafts - It is a negotiable instrument governed by the Negotiable Instrument Act 1881. It is a facility offered by the bank to its account holders only. A bank draft is a payment made by bank on the behalf of bank
Bank Rate - It is a rate of interest which a central bank charges on loans and advances to commercial banks without any collateral. It is a long term rate of interest. It implies penalty over banks not complying with RBI rules such as not maintaining CRR and SLR.
Banking Ombudsman - It is an authority to solve any complaints of the customer against the banks. If the customer is not satisfied with the compliant they can forward their complaint to governor of RBI.
Basel Norms - Basel Norms are the set of recommendations for regulating banking industry in world. Basel Committee on Banking Supervision issued Basel Accords
Bearer Cheque - A cheque which is payable to any person who present it for payment at the bank counter. Such cheques are risky as in case it lost, the finder may collect the payment from the bank.
Bonds - A bond is a debt investment in which an investor loans money to an entity which borrows a fund for a defined period of time at a variable or fixed rate interest. It is similar to debentures but the key difference is that it is issued by a government institute
Broker- Broker is a registered member of a Stock Exchange who buys or sells securities on behalf of his client and charges a commission such brokers are also known as commission brokers.
Bull Market - Bull Market is a market situation where a buyer buys shares in a hope that prices will increase in near future and he will resale in order to earn profits.
Call Money - The Call Money Market deals in short term finance repayable on demand. In this funds are lent and borrowed without collateral and maturity period of call loans varies from one day to fortnight.
Call Option - It is an agreement that gives the right to investor to buy bonds or shares at a specified price and within a specified period.
Capital Adequacy - It refers to the amount of capital the financial institution has to hold as required by its financial regulator. This ensures the protection of depositors and investors and financial soundness of the bank.
Capital Market - The segment of financial market of an economy from long term capital is raised via instruments such as securities, shares, bonds, debentures, mutual funds is known as securities market or capital market.
Capital Reserves- Capital Reserves are undistributed reserves which is the part of company’s profit which is not paid out as dividends to the shareholders.
Cash Reserve Ratio - It refers to certain percentage of total deposits the commercial banks are required to maintain in form of cash reserve with reserve bank in form of cash only.
Cheque - A cheque is a negotiable instrument that is used for payments and settlements in India. It is an agreement between two organizations to make payments
Cheque Truncation - Cheque Truncation is a system in which physical cheque is converted into electronic form in order to reduce physical movement of cheques.
Certificate of Deposit - Certificate Deposit are used by banks and issued to the depositors for a specified period less than one year.They are tradable and negotiable in the market
Commercial Paper- It is used by corporate houses of India which should be a listed company. These companies need to obtain a specified credit rating from an agency approved by the RBI such as CRISIL
Commercial Bills - Commercial Bills are issued by the All India Financial Institutions (AIFI), Non Banking Finance Companies (NBFCs), Scheduled Commercial Banks, Merchant Banks, Co-operative Banks and Mutual Funds. Maturity of these bills is 30 days, 60 days and 90 days.
Commercial Banks- It is a type of institution that provides services such as accepting deposits, making business loans and offering basic investment product.
Core Banking Solutions- Core Banking Solution is a system where banks and their branches interconnected for the fast communication.
Credit Rating- Credit rating is the process in which debtor is given a rate on the basis of paying back of debt in time. This service is basically provided to the large scale borrowers such as companies.
Current Account- Current Accounts are the accounts opened for the business transaction, on the name of firm or company. These are never used for the purpose of saving and investment.
Debentures- A debenture is an acknowledgement of a debt. It is a document under company’s seal which provide for the payment of principal sum and interest thereon.
Demat Account - Dematerialized Account is an account where shares and other securities are held in electronic form rather than physical form.
Derivative – A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. Derivative is itself a contract between two parties based upon the asset or assets.
Dishonor of Cheque- No payment of cheque by the paying banker with a return memo giving reasons for the nonpayment.
Double Financial Repression- It is the phenomenon when the bank faces financial repression on the both sides of the balance sheet. Repression on the asset side is a byproduct of SLR and on the liability side, continuing increase in inflation.
Drawer- the person who holds an account in a certain bank and draws a cheque to make payment.
Drawee- the person to whom the cheque has been drawn.

Escheat- When government acquires the property of a person having no nominee is termed as Escheat.
Escrow Account - Escrow Account is held by the third party on the behalf of the other two parties that are in the process of completing transaction.
Equity Shares- Equity shares represent the owner’s capital in the company. The holders are the real owners of the company.
Factoring- A factor is a financial institution which offers services relating to management and financing of debts arising out of credit sales.
Foreign Banks –A foreign branch bank is type of that is obliged to follow the regulations of both the home and host countries.
Fixed Deposit Account- In this account a fixed amount of money is paid for a specific period of time on which bank pays high rate of interest. It is also known as Term Deposit.
Green Bonds- Green Bonds are the bonds which are exempted from the tax and issued by qualified organizations for the development of Brownfield sites. Brownfield sites are the areas which are underutilized or underdeveloped.
Global Depository Receipt- Global Depository Receipt is a certificate issued by more than one country for shares in a foreign country. The shares are held by the international branch of foreign bank.
Hedge- Hedge is an investment to reduce the risk of adverse price movement in an asset.
Indigenous Bankers- Indigenous Bankers are the individuals and partnership firms performing banking functions. They are local bankers. They can be distinguished as professional money lenders whose primary business is not banking but money lending.
Interest Rate Swaps- It is the transfer of contractually agreed between two counterparties of their respective interest rate obligation.
Investment Institutions- It includes the institutions which mobilize savings of public at large through various schemes and invest these into corporate and government securities.
Internet Banking- Internet banking is also known as online banking, Virtual Bankingand web banking. Internet Banking allows its user to execute transactions with the help of internet.
Junk Bonds- Junk Bonds are kind of bonds which gives high yield at the very high rate of risk. These kinds of bonds are rated lower by credit rating agencies.
Leverage- it is a technique in which debt is used to finance firm’s assets in order to increase profitability of the company. The firm which has more debts than equity is highly leveraged firm and vice versa.
LIBOR (London Interbank Offered Rate) - It is a benchmark rate which some of the international banks charge for the short term loans.
Liquidity Adjustment Facility- It allows banks to borrow money through repurchase agreements.LAF is used to aid banks in adjusting the day to day mismatches in liquidity.
Masala Bonds- Masala Bonds are rupee denominated bonds i.e. bonds can be borrowed in Indian currency not in any foreign currency. These bonds can be issued by the Indian entities from overseas market.
Merchant Banking- In this service bank provides consultancy services to its clients for financial, marketing, managerial and legal matters.
MIBOR (Mumbai Interbank Offered Rate)- It is the rate at which bank can borrow funds from the other banks in Indian Interbank market. It is calculated everyday by the National Stock exchange
Monetary Policy- MonetaryPolicy is a process by which central bank of the country manage the supply of money which in turn effects on interest rates, inflation and growth of economy.
Money Lenders- A money lender is a person or a group who typically offers personal loans at a high rate of interest.
Money Market- The short term money market is known as Money Market.
Mobile Banking- Mobile Banking is a system that allows customers to perform a number of financial transactions through a mobile device
Multinational Banking- Multinational banks are those banks that physically operated in more than one country. It is also known as international bank. Narrow Banking involves mobilizing the larger part of the deposits in risk free assets such as government securities. In India narrow banking is implemented partially.
NPA (Non Performing Assets)- Non Performing Assets refers to the classification of loans in the books of financial institutions that are in arrears. The debt is considered non- performing when it is not paid for the period of 90 days.
Open Market Operations - It refers to buying and selling of government securities in open market in order to expand or contract the amount of money in banking system.
Open/ Uncrossed Cheque- The cheque which is not crossed is known as Open Cheque or Uncrossed Cheque. The payment of such cheques can be obtained on the counter of the bank.
Overdraft – With this facility a customer can withdraws more money from the bank account that has been deposited.

Preference Shares – Preference Shares are shares of company’s stock with dividends that are paid out to shareholders before common stock dividends are issued
Post Dated Cheque- If the cheque bears the any future date in the cheque that is known as Post Dated Cheque. Post dated cheque can be presented only on the future date which is written on the cheque.
POS (Point of Sale)- The place where sales are made. On a macro level, a point of sale may be a mall, market or city. On a micro level, retailers consider a point of sale to be area surrounding the counter where customers pay which is also known as “point of Purchase”
Primary Market- The market in which the instruments of security market are traded directly between the capital raiser and instrument purchaser is known as primary market.
Put Option- It is an agreement where investor has given a right to sell shares and bonds at a specified price and within a specified period.
Regional Rural Banks- Regional Rural Banks are local level banking organizations operating in different states of India. RRBs were established in 1975 on the recommendations of Narsimham Committee. It is followed by Regional Rural Banks Act 1976. RRBs are regulated by NABARD (National Bank for Agriculture and Rural Development) act 1981.
Retail Banking- Retail Banking refers to banking in which banking institutions execute transactions directly with consumers rather than corporate or other banks.
Recurring Deposit Account- This account is opened by those who want to save small amount of money for a certain period of time and earn higher rate of interest.
Scheduled banks- The banks which are included in Second Schedule of Reserve Bank of India Act 1934 are schedule banks.RBI includes only those banks under this schedule which fulfill the criteria laid down under section 42(6)(a) of RBI Act 1934.
Saving Account- Saving Accounts are the individual accounts for the personal purpose of saving. Most of the individuals save their investments with this account.
Secondary Market- The market where the instruments of security market are traded among the primary instrument holders is known as secondary market.
Self Help Group- It is a homogeneous group of micro entrepreneurs with affinity among themselves, voluntarily formed to save whatever amount they can convenientlysave out of their earnings and mutually agree to contribute to a common fund of the group from which small loans are given to the members of their meeting their productive and emergent credit needs at such rate of interest, period of loan and the other terms as the group may decide.
Stock Broking- Stock Broking is a function in which broker buys or sells securities on behalf of its client and charge commission on this transaction.
Statutory Liquidity Ratio - It refers to proportion of deposits the commercial bank is required to maintain with them in form of liquid assets such as gold or RBI approved securities.
Stale Cheque- If the cheque is presented after the 3 months of the date which is mentioned on the cheque is known as stale cheque. After the expiry of validity payment cannot be made.
Stressed Assets- Assets of banking company comprises of loans given and investments made by the bank. Quality of the assets indicates how much of the loans taken by the borrowers are repaid in the form of interest and principle. Hence stressed assets = NPA + Restructured Advances + Loan Write off
SWIFT Code- It is a standard format of the bank identifier code. This code is used particularly in international transfer of money between banks.
Treasury Bills- It is a short term debt instrument issued by government of India and is presently issued in three tenures i.e. 91 days, 182days and 364 days. Universal Banking is a combination of commercial banking, investment banking, development banking, insurance and many other financial activities. It is a place where all products are available.
Venture Capital - The term venture capital represents financial investment in highly risky project with the objective of earning a high rate of return.
Wholesale Banking- Wholesale Banking refers to conducting banking business with industrial and business entities. This includes corporate, trading houses, multinational companies and domestic companies.
Window Dressing- It is a strategy used by the mutual fund and other portfolio manager near the year or quarter end to improve the appearance of funds performance before presenting to clients.