Professional Documents
Culture Documents
Franklyn
Finance English
Class: 1
Introduction:-
Commerce has become one of the most sought after streams for the
youngsters. There is huge potential in the Banking and finance sectors
of our country. Commerce graduates and students who have a flair for
commercial and banking technicalities jump for this bandwagon.
The employments available in these sectors demand quality and
aptness from the candidates, thus making the bunch of competent and
eligible team of youngsters.
But, it is very obvious that in order to gain certain degree of eligibility a
solid base of communication is very much required.
Looking at this growing need of Commerce Franklyn has developed a
foundation course for you. The target is to make you aware of the
technical and non-technical components of this happening industry.
This course caters to all those aspirants who opt for commerce as their
mainstream subject, businessmen want to have a better grip over the
market and professionals in general who want to navigate in to the
world of commerce for practical and personal need.
Objectives:-
Fun learning
Feasibility
Benefits
- In-company accountants
- Bankers
- Internal auditors
- Finance managers
- Directors and divisional managers
- In-house counsel
- Fund managers, financial lawyers, accountants, auditors and any
other bank/financial staff who are increasingly required to use fluent
English in their job.
Quiz:
Example:
If you go abroad you don't have to take a lot of cash with you. Instead, you can take
...... cheques with you, which are accepted in most hotels, restaurants and shops all
over the world.
tourist
traveller's
travel
1. Here is a small ...... . You'll get the rest of the money after the job is finished.
benefit
advance
preview
money
currency
greenback
wealthy
solvent
thrifty
5. If you work longer than your usual working day you should be paid ......
outgoing
overdue
overtime
deposit
debt
account
7. The long-term loan you take from a bank to buy a house or flat is called a ......... .
mortgage
overdraft
arrears
stony broke
hand and fist
comfortably off
9. I need to ......... my belt, and cut down on the money I spend on luxuries.
loosen
tighten
do
10. I don't have any cash on me. Can I pay with my .......... card?
deposit
credit
expenditure
Topic Details:
Unit 1:
Class: 2
A banker or bank is a financial institution that acts as a payment agent for customers,
and borrows and lends money.
Banks acts as payment agents by conducting current accounts for customers, paying
cheques drawn by customers on the bank, and collecting cheques deposited to the
customer's current accounts. Banks also enable customer payments via other payment
methods such as telegraphic transfer, EFTPOS, and ATM.
Banks borrow money by accepting funds deposited on current account, accepting term
deposits and by issuing debt securities such as banknotes and bonds. Banks lend money
by making advances to customers on current account, by making installment loans, and
by investing in marketable debt securities and other forms of lending.
Banks provide almost all payment services, and a bank account is considered
indispensable by most businesses, individuals and governments. Non-banks that provide
payment services such as remittance companies are not normally considered an adequate
substitute for having a bank account.
Banks borrow most funds borrowed from households and non-financial businesses, and
lend most funds lent to households and non-financial businesses, but non-bank lenders
provide a significant and in many cases adequate substitute for bank loans, and money
market funds, cash management trusts and other non-bank financial institutions in many
cases provide an adequate substitute to banks for lending savings to.
1. issue of money, in the form of banknotes and current accounts subject to cheque
or payment at the customer's order. These claims on banks can act as money
because they are negotiable and/or repayable on demand, and hence valued at par
and effectively transferrable by mere delivery in the case of banknotes, or by
drawing a cheque, delivering it to the payee to bank or cash.
2. netting and settlement of payments -- banks act both as collection agent and
paying agents for customers, and participate in inter-bank clearing and settlement
systems to collect, present, be presented with, and pay payment instruments. This
enables banks to economise on reserves held for settlement of payments, since
inward and outward payments offset each other. It also enables payment flows
between geographical areas to offset, reducing the cost of settling payments
between geographical areas.
3. credit intermediation -- banks borrow and lend back-to-back on their own account
as middle men
4. credit quality improvement -- banks lend money to ordinary commercial and
personal borrowers (ordinary credit quality), but are high quality borrowers. The
improvement comes from diversification of the bank's assets and the bank's own
capital which provides a buffer to absorb losses without defaulting on its own
obligations.
5. maturity transformation -- banks borrow more on demand debt and short term
debt, but provide more long term loans. Bank can do this because they can
aggregate issues (e.g. accepting deposits and issuing banknotes) and redemptions
(e.g. withdrawals and redemptions of banknotes), maintain reserves of cash,
invest in marketable securities that can be readily sold if needed, and raise
replacement funding as needed from various sources (e.g. wholesale cash markets
and securities markets) because they have a high and more well known credit
quality than most other borrowers.
Law of Banking:
Banking law is based on a contractual analysis of the relationship between the bank and
the customer. The definition of bank is given above, and the definition of customer is
any person for whom the bank agrees to conduct an account.
The law implies rights and obligations into this relationship as follows:
1. The bank account balance is the financial position between the bank and the
customer, when the account is in credit, the bank owes the balance to the
customer, when the account is overdrawn, the customer owes the balance to the
bank.
2. The bank engages to pay the customer's cheques up to the amount standing to the
credit of the customer's account, plus any agreed overdraft limit.
3. The bank may not pay from the customer's account without a mandate from the
customer, e.g. a cheque drawn by the customer.
4. The bank engages to promptly collect the cheques deposited to the customer's
account as the customer's agent, and to credit the proceeds to the customer's
account.
5. The bank has a right to combine the customer's accounts
6. The bank has a lien on cheques deposited to the customer's account, to the extent
that the customer is indebted to the bank.
7. The bank must not disclose the details of the transactions going through the
customer's account unless the customer consents, there is a public duty to
disclose, the bank's interests require it, or under compulsion of law.
8. The bank must not close a customer's account without reasonable notice to the
customer, because cheques are outstanding in the ordinary course of business for
several days.
These implied contractual terms may be modified by express agreement between the
customer and the bank. The statutes and regulations in force in the jurisdiction may also
modify the above terms and/or create new rights, obligations or limitations relevant to the
bank-customer relationship.
Banking channels:
Banks offer many different channels to access their banking and other services:
Types of banks
Banks' activities can be divided into retail banking, dealing directly with individuals and
small businesses; business banking, providing services to mid-market business; corporate
banking, directed at large business entities; private banking, providing wealth
management services to High Net Worth Individuals and families; and investment
banking, relating to activities on the financial markets. Most banks are profit-making,
private enterprises. However, some are owned by government, or are non-profits.
Central banks are normally government owned banks, often charged with quasi-
regulatory responsibilities, e.g. supervising commercial banks, or controlling the cash
interest rate. They generally provide liquidity to the banking system and act as Lender of
last resort in event of a crisis.
Class: 3
Banking in India:
Structure of the organised banking sector in India. Number of banks are in brackets.
Banking in India originated in the first decade of 18th century with The General Bank of
India coming into existence in 1786. This was followed by Bank of Hindustan. Both
these banks are now defunct. The oldest bank in existence in India is the State Bank of
India being established as "The Bank of Bengal" in Calcutta in June 1806. A couple of
decades later, foreign banks like Credit Lyonnais started their Calcutta operations in the
1850s. At that point of time, Calcutta was the most active trading port, mainly due to the
trade of the British Empire, and due to which banking activity took roots there and
prospered. The first fully Indian owned bank was the Allahabad Bank, which was
established in 1865.
By the 1900s, the market expanded with the establishment of banks such as Punjab
National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which
were founded under private ownership. The Reserve Bank of India formally took on the
responsibility of regulating the Indian banking sector from 1935. After India's
independence in 1947, the Reserve Bank was nationalized and given broader powers.
Early history
At the end of late-18th century, there were hardly any banks in India in the modern sense
of the term. At the time of the American Civil War, a void was created as the supply of
cotton to Lancashire stopped from the Americas. Some banks were opened at that time
which functioned as entities to finance industry, including speculative trades in cotton.
With large exposure to speculative ventures, most of the banks opened in India during
that period could not survive and failed. The depositors lost money and lost interest in
keeping deposits with banks. Subsequently, banking in India remained the exclusive
domain of Europeans for next several decades until the beginning of the 20th century.
The Bank of Bengal, which later became the State Bank of India.
At the beginning of the 20th century, Indian economy was passing through a relative
period of stability. Around five decades have elapsed since the India's First war of
Independence, and the social, industrial and other infrastructure have developed. At that
time there were very small banks operated by Indians, and most of them were owned and
operated by particular communities. The banking in India was controlled and dominated
by the presidency banks, namely, the Bank of Bombay, the Bank of Bengal, and the Bank
of Madras - which later on merged to form the Imperial Bank of India, and Imperial Bank
of India, upon India's independence, was renamed the State Bank of India. There were
also some exchange banks, as also a number of Indian joint stock banks. All these banks
operated in different segments of the economy. The presidency banks were like the
central banks and discharged most of the functions of central banks. They were
established under charters from the British East India Company. The exchange banks,
mostly owned by the Europeans, concentrated on financing of foreign trade. Indian joint
stock banks were generally under capitalized and lacked the experience and maturity to
compete with the presidency banks, and the exchange banks. There was potential for
many new banks as the economy was growing. Lord Curzon had observed then in the
context of Indian banking: "In respect of banking it seems we are behind the times. We
are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate
and cumbersome compartments."
Under these circumstances, many Indians came forward to set up banks, and many banks
were set up at that time, a number of which have survived to the present such as Bank of
India and Corporation Bank, Indian Bank, Bank of Baroda, and Canara Bank.
Post-independence
The partition of India in 1947 had adversely impacted the economies of Punjab and West
Bengal, and banking activities had remained paralyzed for months. India's independence
marked the end of a regime of the Laissez-faire for the Indian banking. The Government
of India initiated measures to play an active role in the economic life of the nation, and
the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed
economy. This resulted into greater involvement of the state in different segments of the
economy including banking and finance. The major steps to regulate banking included:
• In 1948, the Reserve Bank of India, India's central banking authority, was
nationalized, and it became an institution owned by the Government of India.
• In 1949, the Banking Regulation Act was enacted which empowered the Reserve
Bank of India (RBI) "to regulate, control, and inspect the banks in India."
• The Banking Regulation Act also provided that no new bank or branch of an
existing bank may be opened without a licence from the RBI, and no two banks
could have common directors.
However, despite these provisions, control and regulations, banks in India except the
State Bank of India, continued to be owned and operated by private persons. This
changed with the nationalization of major banks in India on 19th July, 1969.
Nationalisation
By the 1960s, the Indian banking industry has become an important tool to facilitate the
development of the Indian economy. At the same time, it has emerged as a large
employer, and a debate has ensued about the possibility to nationalize the banking
industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the
GOI in the annual conference of the All India Congress Meeting in a paper entitled
"Stray thoughts on Bank Nationalisation." The paper was received with positive
enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance
and nationalised the 14 largest commercial banks with effect from the midnight of July
19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a
"masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the
Parliament passed the Banking Companies (Acquition and Transfer of Undertaking) Bill,
and it received the presidential approval on 9th August, 1969.
After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to
the average growth rate of the Indian economy.
Liberalisation
In the early 1990s the then Narasimha Rao government embarked on a policy of
liberalisation and gave licences to a small number of private banks, which came to be
known as New Generation tech-savvy banks, which included banks such as UTI Bank
(now re-named as Axis Bank) (the first of such new generation banks to be set up), ICICI
Bank and HDFC Bank. This move, along with the rapid growth in the economy of India,
kickstarted the banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government banks, private banks
and foreign banks.
The next stage for the Indian banking has been setup with the proposed relaxation in the
norms for Foreign Direct Investment, where all Foreign Investors in banks may be given
voting rights which could exceed the present cap of 10%,at present it has gone up to 49%
with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this time,
were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning.
The new wave ushered in a modern outlook and tech-savvy methods of working for
traditional banks. All this led to the retail boom in India. People not just demanded more
from their banks but also received more.
Current situation
Currently (2007), banking in India is generally fairly mature in terms of supply, product
range and reach-even though reach in rural India still remains a challenge for the private
sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks
are considered to have clean, strong and transparent balance sheets relative to other banks
in comparable economies in its region. The Reserve Bank of India is an autonomous
body, with minimal pressure from the government. The stated policy of the Bank on the
Indian Rupee is to manage volatility but without any fixed exchange rate-and this has
mostly been true.
With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail
banking, mortgages and investment services are expected to be strong. One may also
expect M&As, takeovers, and asset sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in
Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor
has been allowed to hold more than 5% in a private sector bank since the RBI announced
norms in 2005 that any stake exceeding 5% in the private sector banks would need to be
vetted by them.
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks
(that is with the Government of India holding a stake), 29 private banks (these do not
have government stake; they may be publicly listed and traded on stock exchanges) and
31 foreign banks. They have a combined network of over 53,000 branches and 17,000
ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and foreign
banks holding 18.2% and 6.5% respectively.
State Bank of India, with its seven associate banks commands the largest banking
resources in India. SBI and its associate banks are:
After the amalgamation of New Bank of India with Punjab National Bank, currently there
are 19 nationalised banks in India:
• Allahabad Bank
• Andhra Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Corporation Bank
• Dena Bank
• Indian Bank
• Indian Overseas Bank
• Oriental Bank of Commerce
• Punjab & Sind Bank
• Punjab National Bank
• Syndicate Bank
• Union Bank of India
• United Bank of India
• UCO Bank
• Vijaya Bank
Foreign banks
• ABN AMRO Bank N.V.
• Abu Dhabi Commercial Bank Ltd
• American Express Bank
• Antwerp Diamond Bank
• Arab Bangladesh Bank
• Bank International Indonesia
• Bank of America
• Bank of Bahrain & Kuwait
• Bank of Ceylon
• Bank of Nova Scotia
• Bank of Tokyo Mitsubishi UFJ
• Barclays Bank
• BNP Paribas
• Calyon Bank
• ChinaTrust Commercial Bank
• Cho Hung Bank
• Citibank
• DBS Bank
• Deutsche Bank
• HSBC (Hongkong & Shanghai Banking Corporation)
• JPMorgan Chase Bank
• Krung Thai Bank
• Mashreq Bank
• Mizuho Corporate Bank
• Oman International Bank
• Société Générale
• Standard Chartered Bank
• State Bank of Mauritius
• Taib Bank
Unit 2:
Class: 4
Financial Matters:-
Financial transaction
A financial transaction involves a change in the status of the finances of two or more
businesses or individuals.
Purchase
The most common type of financial transaction. An item or good is exchanged for money.
This transaction results in a decrease in the finances of the purchaser and an increase in
the finances of the seller.
Loan
A slightly more complicated transaction in which the lender gives a single large amount
of money to the borrower now in return for many smaller repayments of the borrower to
the lender over time, usually on a fixed schedule. The smaller delayed repayments usually
add up to more than the first large amount. The difference in payments is called interest.
Mortgage
A combination loan and purchase. A lender gives a large amount of money to a borrower
for the specific purpose of purchasing a very expensive item (most often a house). As part
of the transaction, the borrower usually agrees to give the item (or some other high value
item) to the lender if the loan is not paid back on time. This guarantee of repayment is
known as collateral. .
Account
A bank is a business that is based almost entirely on financial transactions. In addition to
acting as a lender for loans and mortgages, banks act as a borrower in a special type of
loan called an account. The lender is known as a customer and gives unspecified amounts
of money to the bank for unspecified amounts of time. The bank agrees to repay any
amount in the account at any time and will pay small amounts of interest on the amount
of money that the customer leaves in the account for a certain period of time. In addition,
the bank guarantees that the money will not be stolen while it is in the account, and will
reimburse the customer if it is. In return, the bank gets to use the money for other
financial transactions as long as they hold it.
Credit-card purchase
A special combination of purchase and loan. The seller gives the buyer the good or item
as normal, but the buyer pays the seller using a credit card. In this way, the buyer is
paying with a loan from the credit card company, usually a bank. The bank or other
financial institution issues credit cards to buyers that allow any number of loans up to a
certain cumulative amount. Repayment terms for credit card loans, or debts vary, but the
interest is often extremely high. An example of common repayment terms would be a
minimum payment of the greater of $10 or 3% every month, and a 15-20% interest
charge for any unpaid loan amount. In addition to interest, buyers are sometimes charged
a yearly fee to use the credit card.
In order to collect the money for their item, the seller must apply to the credit card
company with a signed receipt. Sellers usually apply for many payments at regular
intervals. The seller is also charged a fee by the credit card company for the privilege of
accepting that brand of credit card for purchases. The fee is normally 1-3% of the
purchase price.
Thus, in a credit card purchase, the transfer of the item is immediate, but all payments are
delayed.
Debit-card purchase
This is a special type of purchase. The item or good is transferred as normal, but the
purchaser uses a debit card instead of money to pay. A debit card contains an electronic
record of the purchaser's account with a bank. Using this card, the seller is able to send an
electronic signal to the buyer's bank for the amount of the purchase,and that amount of
money is simultaneously debited from the customer's account and credited to the account
of the seller. This is possible even if the buyer or seller use different financial institutions.
Currently, fees to both the buyer and seller for the use of debit cards are fairly low
because the banks want to encourage the use of debit cards. The seller must have a card
reader set up in order for such purchases to be made. Debit cards allow a buyer to have
access to all the funds in his account without having to carry the money around. It is more
difficult to steal such funds than cash, but is still done. See skimming and shoulder
surfing.
Maturity (finance)
Maturity refers to the final payment date of a loan or other financial instrument, at which
point all remaining interest and principal is due to be paid.
1, 3, 6 months maturity band can be calculated by using 30-day per month periods. For
maturity bands over a year it is acceptable to use 365 day per year.
For example with a Treasury Bond, its maturity is the date on which the principal is paid.
Inflation
Inflation is defined as a sustained increase in general price levels for some set of goods
and services in a given economy over a period of time. It is measured as the percentage
rate of change of a price index. A variety of inflation measures are in use, because there
are many different price indices, designed to measure different sets of prices that affect
different people. Two widely known indices for which inflation rates are commonly
reported are the Consumer Price Index (CPI), which measures nominal consumer prices,
and the GDP deflator, which measures the nominal prices of goods and services produced
by a given country or region.
Mainstream economists overwhelmingly agree that high rates of inflation are caused by
high rates of growth of the money supply. Views on the factors that determine moderate
rates of inflation, especially in the short run, are more varied: changes in inflation are
sometimes attributed mostly to changes in the real demand or supply of goods and
services, and sometimes to changes in the supply or demand for money. In the mid-
twentieth century, two camps disagreed strongly on the main causes of inflation (at
moderate rates): the "monetarists" argued that money supply dominated all other factors
in determining inflation, while "Keynesians" argued that real demand was often more
important than changes in the money supply.
Related concepts
Related economic and inflation concepts include: deflation, a general falling level of
prices; disinflation, the reduction of the rate of inflation; hyperinflation, an out-of-
control inflationary spiral; stagflation, a combination of inflation and rising
unemployment; and reflation, which is an attempt to raise prices to counteract
deflationary pressures.
In classical political economy, inflation meant increasing the money supply, while
deflation meant decreasing it (see Monetary inflation). Economists from some schools of
economic thought (including some Austrian economists) still retain this usage. In
contemporary economic terminology, these would usually be referred to as expansionary
and contractionary monetary policies.
TAX:
A tax is a financial charge or other levy imposed on an individual or a legal entity by a
state or a functional equivalent of a state (for example, secessionist movements or
revolutionary movements). Taxes could also be imposed by a sub national entity. Taxes
consist of direct tax or indirect tax, and may be paid in money or as unpaid labour. A tax
may be defined as a "pecuniary burden laid upon individuals or property to support the
government […] a payment exacted by legislative authority." A tax "is not a voluntary
payment or donation, but an enforced contribution, exacted pursuant to legislative
authority" and is "any contribution imposed by government […] whether under the name
of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other
name."
In modern taxation systems, taxes are levied in money, but in-kind and corvée taxation
are characteristic of traditional or pre-capitalist states and their functional equivalents.
The method of taxation and the government expenditure of taxes raised is often highly
debated in politics and economics. Tax collection is performed by a government agency
such as Canada Revenue Agency, the Internal Revenue Service (IRS) in the United
States, or Her Majesty's Revenue and Customs (HMRC) in the UK. When taxes are not
fully paid, civil penalties (such as fines or forfeiture) or criminal penalties (such as
incarceration) may be imposed on the non-paying entity or individual.
Cheque:
A cheque (or check - USA) is a negotiable instrument instructing a financial institution
to pay a specific amount of a specific currency from a specific demand account held in
the maker/depositor's name with that institution. Both the maker and payee may be
natural persons or legal entities.
Parts of a cheque
Cheques generally contain:
1. place of issue
2. cheque number
3. date of issue
4. payee
5. amount of currency
6. signature of the drawer
7. routing / account number in MICR format - in the U.S., the routing number is a
nine-digit number in which the first 4 digits identifies the U.S. Federal Reserve
Bank's cheque-processing center. This is followed by digits 5 through 8,
identifying the specific bank served by that cheque-processing center. Digit 9 is a
verification digit, computed using a complex algorithm of the previous 8 digits.
The account number is assigned independently by the various banks.
8. fractional routing number (U.S. only) - also known as the transit number, consists
of a denominator mirroring the first 4 digits of the routing number. And a
hyphenated numerator, also known as the ABA number, in which the first part is a
city code (1-49), if the account is in one of 49 specific cities, or a state code (50-
99) if it is not in one of those specific cities; the second part of the hyphenated
numerator mirrors the 5th through 8th digits of the routing number with leading
zeros removed.
A cheque is generally valid indefinitely or for six months after the date of issue unless
otherwise indicated; this varies depending on where the cheque is drawn. In Australia, for
example, it is fifteen months. Legal amount (amount in words) is also highly
recommended but not strictly required.
In the USA and some other countries, cheques contain a memo line where the purpose of
the cheque can be indicated as a convenience without affecting the official parts of the
cheque. This is not used in Britain where such notes are often written on the reverse side.
LOAN:
A loan is a type of debt. All material things can be lent but this article focuses exclusively
on monetary loans. Like all debt instruments, a loan entails the redistribution of financial
assets over time, between the lender and the borrower.
The borrower initially receives an amount of money from the lender, which they pay
back, usually but not always in regular installments, to the lender. This service is
generally provided at a cost, referred to as interest on the debt. A borrower may be subject
to certain restrictions known as loan covenants under the terms of the loan.
Acting as a provider of loans is one of the principal tasks for financial institutions. For
other institutions, issuing of debt contracts such as bonds is a typical source of funding.
Bank loans and credit are one way to increase the money supply.
Types
Secured
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property)
as collateral for the loan.
A mortgage loan is a very common type of debt instrument, used by many individuals to
purchase housing. In this arrangement, the money is used to purchase the property. The
financial institution, however, is given security - a lien on the title to the house - until the
mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the
legal right to repossess the house and sell it, to recover sums owing to it.
In some instances, a loan taken out to purchase a new or used car may be secured by the
car, in much the same way as a mortgage is secured by housing. The duration of the loan
period is considerably shorter - often corresponding to the useful life of the car. There are
two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the
loan directly to a consumer. An indirect auto loan is where a car dealership acts as an
intermediary between the bank or financial institution and the consumer.
A type of loan especially used in limited partnership agreements is the recourse note.
Unsecured
Unsecured loans are monetary loans that are not secured against the borrowers assets.
These may be available from financial institutions under many different guises or
marketing packages:
The interest rates applicable to these different forms may vary depending on the lender,
the borrower. These may or may not be regulated by law. In the United Kingdom, when
applied to individuals, these may come under the Consumer Credit Act 1974.
Class: 5
Share Market:
The income received from shares is called a dividend, and a person who owns shares is
called a shareholder.
A share is one of a finite number of equal portions in the capital of a company, entitling
the owner to a proportion of distributed, non-reinvested profits known as dividends and to
a portion of the value of the company in case of liquidation. Shares can be voting or non-
voting, meaning they either do or do not carry the right to vote on the board of directors
and corporate policy. Whether this right exists often affects the value of the share. Voting
and Non-Voting shares are also known as Class A and B shares.
Stock:
Common, Preferred and Convertible
A share (aka equity shares) of stock represents a share of ownership in a corporation and
typically take the form of shares of common stock. As a unit of ownership, common
stock typically carries voting rights that can be exercised in corporate decisions. Preferred
stock differs from common stock in that it typically does not carry voting rights but is
legally entitled to receive a certain level of dividend payments before any dividends can
be issued to other shareholders. Convertible preferred stock is preferred stock that
includes an option for the holder to convert the preferred shares into a fixed number of
common shares, usually anytime after a predetermined date. Shares of such stock are
called "convertible preferred shares" (or "convertible preference shares" in the UK).
Although there is a great deal of commonality between the stocks of different companies,
each new equity issue can have legal clauses attached to it that make it dynamically
different from the more general cases. Some shares of common stock may be issued
without the typical voting rights be included, for instance. Or some shares may have
special rights unique to them and issued only to certain parties. These case by case
variations in the specific form of stock issuance is beyond the scope of this article, except
to note that not all equity shares are the same.
Shareholder
A shareholder (or stockholder) is an individual or company (including a corporation)
that legally owns one or more shares of stock in a joint stock company. Companies listed
at the stock market are expected to strive to enhance shareholder value.
Shareholders are granted special privileges depending on the class of stock, including the
right to vote (usually one vote per share owned) on matters such as elections to the board
of directors, the right to share in distributions of the company's income, the right to
purchase new shares issued by the company, and the right to a company's assets during a
liquidation of the company. However, shareholder's rights to a company's assets are
subordinate to the rights of the company's creditors. This means that shareholders
typically receive nothing if a company is liquidated after bankruptcy (if the company had
had enough to pay its creditors, it would not have entered bankruptcy), although a stock
may have value after a bankruptcy if there is the possibility that the debts of the company
will be restructured.
Although directors and officers of a company are bound by fiduciary duties to act in the
best interest of the shareholders, the shareholders themselves normally do not have such
duties towards each other.
However, in a few unusual cases, some courts have been willing to imply such a duty
between shareholders. For example, in California, majority shareholders of closely held
corporations have a duty to not destroy the value of the shares held by minority
shareholders.
The largest shareholders (in terms of percentages of companies owned) are often mutual
funds, and especially passively managed exchange-traded funds.
Application
The owners of a company may want additional capital to invest in new projects within
the company. They may also simply wish to reduce their holding, freeing up capital for
their own private use.
By selling shares they can sell part or all of the company to many part-owners. The
purchase of one share entitles the owner of that share to literally share in the ownership of
the company, a fraction of the decision-making power, and potentially a fraction of the
profits, which the company may issue as dividends.
In the common case of a publicly traded corporation, where there may be thousands of
shareholders, it is impractical to have all of them making the daily decisions required to
run a company. Thus, the shareholders will use their shares as votes in the election of
members of the board of directors of the company.
In a typical case, each share constitutes one vote. Corporations may, however, issue
different classes of shares, which may have different voting rights. Owning the majority
of the shares allows other shareholders to be out-voted - effective control rests with the
majority shareholder (or shareholders acting in concert). In this way the original owners
of the company often still have control of the company.
Shareholder rights
In most countries, including the United States, boards of directors and company managers
have a fiduciary responsibility to run the company in the interests of its stockholders.
Nonetheless, as Martin Whitman writes:
"...it can safely be stated that there does not exist any publicly traded company
where management works exclusively in the best interests of OPMI [Outside
Passive Minority Investor] stockholders. Instead, there are both "communities of
interest" and "conflicts of interest" between stockholders (principal) and
management (agent). This conflict is referred to as the principal/agent problem. It
would be naive to think that any management would forgo management
compensation, and management entrenchment, just because some of these
management privileges might be perceived as giving rise to a conflict of interest
with OPMIs."
Even though the board of directors runs the company, the shareholder has some impact
on the company's policy, as the shareholders elect the board of directors. Each
shareholder typically has a percentage of votes equal to the percentage of shares he or she
owns. So as long as the shareholders agree that the management (agent) are performing
poorly they can elect a new board of directors which can then hire a new management
team. In practice, however, genuinely contested board elections are rare. Board
candidates are usually nominated by insiders or by the board of the directors themselves,
and a considerable amount of stock is held and voted by insiders.
Owning shares does not mean responsibility for liabilities. If a company goes broke and
has to default on loans, the shareholders are not liable in any way. However, all money
obtained by converting assets into cash will be used to repay loans and other debts first,
so that shareholders cannot receive any money unless and until creditors have been paid
(most often the shareholders end up with nothing).
Risk Management:
Class: 6
Risk management is the human activity which integrates recognition of risk, risk
assessment, developing strategies to manage it, and mitigation of risk using managerial
resources.
The strategies include transferring the risk to another party, avoiding the risk, reducing
the negative effect of the risk, and accepting some or all of the consequences of a
particular risk.
Some traditional risk managements are focused on risks stemming from physical or legal
causes (e.g. natural disasters or fires, accidents, death and lawsuits). Financial risk
management, on the other hand, focuses on risks that can be managed using traded
financial instruments.
Some Explanations
In ideal risk management, a prioritization process is followed whereby the risks with the
greatest loss and the greatest probability of occurring are handled first, and risks with
lower probability of occurrence and lower loss are handled in descending order. In
practice the process can be very difficult, and balancing between risks with a high
probability of occurrence but lower loss versus a risk with high loss but lower probability
of occurrence can often be mishandled.
Intangible risk management identifies a new type of risk - a risk that has a 100%
probability of occurring but is ignored by the organization due to a lack of identification
ability. For example, when deficient knowledge is applied to a situation, a knowledge risk
materialises. Relationship risk appears when ineffective collaboration occurs. Process-
engagement risk may be an issue when ineffective operational procedures are applied.
These risks directly reduce the productivity of knowledge workers, decrease cost
effectiveness, profitability, service, quality, reputation, brand value, and earnings quality.
Intangible risk management allows risk management to create immediate value from the
identification and reduction of risks that reduce productivity.
Risk management also faces difficulties allocating resources. This is the idea of
opportunity cost. Resources spent on risk management could have been spent on more
profitable activities. Again, ideal risk management minimizes spending while maximizing
the reduction of the negative effects of risks.
2. Mapping out the following: the social scope of risk management, the identity and
objectives of stakeholders, and the basis upon which risks will be evaluated, constraints.
Assessment
Once risks have been identified, they must then be assessed as to their potential severity
of loss and to the probability of occurrence. These quantities can be either simple to
measure, in the case of the value of a lost building, or impossible to know for sure in the
case of the probability of an unlikely event occurring. Therefore, in the assessment
process it is critical to make the best educated guesses possible in order to properly
prioritize the implementation of the risk management plan.
The fundamental difficulty in risk assessment is determining the rate of occurrence since
statistical information is not available on all kinds of past incidents. Furthermore,
evaluating the severity of the consequences (impact) is often quite difficult for immaterial
assets. Asset valuation is another question that needs to be addressed. Thus, best educated
opinions and available statistics are the primary sources of information. Nevertheless,
risk assessment should produce such information for the management of the organization
that the primary risks are easy to understand and that the risk management decisions may
be prioritized.
Class: 7
Once risks have been identified and assessed, all techniques to manage the risk fall into
one or more of these four major categories:
Ideal use of these strategies may not be possible. Some of them may involve trade-offs
that are not acceptable to the organization or person making the risk management
decisions. Another source, from the US Department of Defense, Defense Acquisition
University, calls these ACAT, for Avoid, Control, Accept, or Transfer. The ACAT
acronym is reminiscent of the term ACAT (for Acquisition Category) used in US Defense
industry procurements.
Risk avoidance
Includes not performing an activity that could carry risk. An example would be not
buying a property or business in order to not take on the liability that comes with it.
Another would be not flying in order to not take the risk that the airplane were to be
hijacked. Avoidance may seem the answer to all risks, but avoiding risks also means
losing out on the potential gain that accepting (retaining) the risk may have allowed. Not
entering a business to avoid the risk of loss also avoids the possibility of earning profits.
Risk reduction
Involves methods that reduce the severity of the loss. Examples include sprinklers
designed to put out a fire to reduce the risk of loss by fire. This method may cause a
greater loss by water damage and therefore may not be suitable. Halon fire suppression
systems may mitigate that risk, but the cost may be prohibitive as a strategy.
Risk retention
Involves accepting the loss when it occurs. True self insurance falls in this category. Risk
retention is a viable strategy for small risks where the cost of insuring against the risk
would be greater over time than the total losses sustained. All risks that are not avoided or
transferred are retained by default. This includes risks that are so large or catastrophic
that they either cannot be insured against or the premiums would be infeasible. War is an
example since most property and risks are not insured against war, so the loss attributed
by war is retained by the insured. Also any amounts of potential loss (risk) over the
amount insured is retained risk. This may also be acceptable if the chance of a very large
loss is small or if the cost to insure for greater coverage amounts is so great it would
hinder the goals of the organization too much.
Risk transfer
Means causing another party to accept the risk, typically by contract or by hedging.
Insurance is one type of risk transfer that uses contracts. Other times it may involve
contract language that transfers a risk to another party without the payment of an
insurance premium. Liability among construction or other contractors is very often
transferred this way. On the other hand, taking offsetting positions in derivatives is
typically how firms use hedging to financially manage risk.
Some ways of managing risk fall into multiple categories. Risk retention pools are
technically retaining the risk for the group, but spreading it over the whole group
involves transfer among individual members of the group. This is different from
traditional insurance, in that no premium is exchanged between members of the group up
front, but instead losses are assessed to all members of the group.
Outsourcing is another example of risk transfer.In this case companies outsource only
some of their departmental needs. For example, a company may outsource only its
software development, the manufacturing of hard goods, or customer support needs to
another company, while handling the business management itself. This way, the company
can concentrate more on business development without having to worry as much about
the manufacturing process, managing the development team, or finding a physical
location for a call center.
Unit 3:
Class: 8
-A-
Asset – any item of value that you own: house, land, gems,
stocks, bonds, money in savings, etc.
Auto Insurance – this insurance helps you pay for damage you
cause as a result of an accident to people or property, medical
expenses you may have and the cost of fixing your car. It will
also pay all these expenses if someone hurts you or your car
and they do not carry insurance themselves.
-B-
Bank Card – this plastic card looks like a credit card, but it is
used to withdraw money from a savings or checking account.
When you use a debit card at Automatic Teller Machines or in
stores to make purchases, money is immediately withdrawn
from your account. You cannot withdraw more money than you
have in the account.
-C-
Certificate of Deposit – a type of investment that requires you
to invest money for a certain length of time and guarantees the
same rate of return (interest) for that entire time. CDs usually
require a minimum deposit.
Class: 9
-D-
Debit Card – this plastic card looks like a credit card, but it is
used to withdraw money from a savings or checking account.
When you use a debit card at Automatic Teller Machines or in
stores to make purchases, money is immediately withdrawn
from your account. You cannot withdraw more money than you
have in the account.
-E-
Expenses – things you pay money for - both needs and wants.
-F-
Finance Charge – the fee you pay when you do not pay off the
entire credit card debt within a single payment period, usually
about 25-28 days.
-G-
Grace Period – the time, usually about 25-28 days, which you
have to pay a bill or a loan in full. If you pay within the grace
period, you do not have to pay a finance charge.
-H-
-I-
Interest Rate – the price paid for the use of someone else's
money expressed as an annual percentage rate, such as 6.5%.
-L-
-M-
Class: 10
-N-
-O-
-P-
-R-
-S-
Standard & Poor’s 500 – the S&P 500 is an index containing the
stocks of 500 corporations, most of which are American. This is
the most watched index, because many investors think that the
performance of this index indicates how well the economy is
doing overall.
-U-
-V-
-W-
Glossary: (ii)
Class: 11
Ideal for any business traveller, this glossary covers topics relating to banking and finance
- from office practice to stock market and accounting terminology.
The new Glossary covers the expanding and influential field of foreign exchange,
treasury, money and capital markets, sovereign and corporate debt, financial
futures and options, public sector borrowing, mortgage-backed assets, equities,
commodities, business loans and debt collecting, money supply, macro-
economic terms, technical analysis and derivatives, government & local finance,
central banking, and European finance. It is intended for students and
professionals in the field of finance as well as private investors and the readers of
the financial pages of newspapers.
Account agreement
An agreement which you sign and which lists your rights and responsibilities and the
bank's rights and responsibilities for the bank account. .
Accounts payable
Accounts receivable
Affinity Card
A credit card (usually Visa or MasterCard) that has a promotion arrangement with an
affiliated organization (often a charity or non-profit group). The logo of the group appears
on the card and the group usually gets a percentage of the sales made on the card.
Angels
Assets
Terminals that allow customers to perform many everyday banking tasks, e.g., deposits,
withdrawals, bill payments and transfers between accounts.
Balance
Balance sheet
Shows the assets and liabilities (legal responsibility of your company) at any particular
time. The assets on a balance sheet will always equal the liabilities plus the owner’s
equity.
Bank Act
Federal legislation governing how banks operate in Canada. The Bank Act was first
passed in 1871 and is updated periodically -- usually every five years. The last major
revision was completed in 2001.
Bank Card
A card issued by a financial institution that identifies the holder as a customer of the
institution and allows access to accounts through an ABM; also, a credit or debit card
issued by a financial institution.
The BIS is an international body that promotes the co-operation of central banks, fulfils
the function of a central banks' bank and acts as a clearing and settlement agent. It acts as
a forum for discussion of international monetary policy and conducts research into
international banking developments.
Bank of Canada
The country's central bank, which formulates and implements monetary policy. As the
federal government's fiscal agent, it also helps carry out the government's borrowing
program, provides banking services for the government and other clients and ensures that
the need for bank notes across the country is met.
Bank Rate
The interest rate paid by major financial institutions if they borrow from the Bank of
Canada. The Bank Rate influences the rates of interest major financial institutions charge
and pay their customers.
Blank cheque
Bonds
Offered by governments and corporations, bonds are investments in which you lend a
sum of money to the issuer for a set amount of time at a fixed rate of interest.
When stock prices are increasing and it’s a healthy market, this is known as a bull market.
When stock prices are decreasing, it’s a bear market.
Business Cycle
The ups and downs of the economy that follow a cyclical pattern over the course of time.
The difference between the price you paid for an investment and the price at which you
sell (in other words, the profit or loss you make). Investments that earn capital gains or
losses include equity and growth funds.
Capital investments
Money used to purchase permanent fixed assets for a business, such as machinery, land or
buildings as opposed to day-to-day operating expenses.
An estimate of when and how much money will be received and paid out of a business. It
usually records cash flow on a month-by-month basis for a period of two years.
Chartered Banks
Financial institutions regulated under the Bank Act. Chartered banks are designated as
Schedule I, Schedule II or III depending on their ownership.
Cheque
A written order from a financial institution for payment of a certain amount of money.
Cheque book
Cheque register
A book with space for you to note the details of every transaction in your chequing or
combination account.
Clearing and Settlement
The process whereby banks collect or pay out for items drawn on or paid into accounts in
their institution. This process enables banks to accept each other's cheques and bank
drafts for deposit. The Canadian Payments Association operates Canada's clearing
system.
Co-Branded Card
An alliance between a card issuer and a large non-deposit taking corporation which offers
discounts/rewards to cardholders for using the card which bears the corporation's name.
Collateral
Property (real, personal or otherwise) pledged as security for a loan. Also, any
supplementary promise of payment, such as a guarantee.
Combination account
An account that is part savings and part chequing. You may write cheques and you will be
paid interest if you have enough money in the account.
Commercial Banking
Compounding
Refers to earning income on your income. For example, on fixed income investments that
pay interest over time at periodic intervals, compounding means making interest on your
initial investment and also on the interest as it builds up (i.e., earning interest on your
interest).
An index that measures movements in the average price of products and services
typically consumed by Canadian families.
Contribution
Correspondent Bank
In a country where a bank does not have offices, it will often make arrangements with
another bank to act as its agent in that country. The correspondent bank carries out
financial transactions, such as making payments on behalf of the first bank in the foreign
country.
Credit Cards
Credit cards such as Visa and MasterCard allow the holder to charge purchases rather
than pay cash. Generally, no interest is charged as long as the monthly statement is paid
in full by the due date.
Credit Risk
The risk of loss one assumes under a financial contract that a borrower or a counterparty
to a loan or other credit-related contract may default or fail to perform its obligations.
Debit
Debit card
Another name for a bank card that allows you to access your deposit accounts
electronically. You can use it at banking machines or to pay for purchases at retailers
using the direct payment service.
Debt
Money owed.
Debt Issues
Debt/equity ratio
Demand Loan
Demographics
Deposit
Money put into an account. The deposit may be in the form of cash, cheque or electronic
transaction.
Deposit Insurance
Depreciation
You can deduct a specified amount of the purchase price of business equipment, for tax
purposes, to calculate your company’s taxable income. Your accountant can provide
details.
Depression
Derivatives
Financial contracts whose value is derived from the value of some underlying asset, rate
or index. Derivatives are used as risk-management tools by governments and
corporations to reduce exposure to risk, mainly related to fluctuations in foreign-
exchange and interest rates. Derivative instruments include swaps, options, futures and
forward contracts and are used by banks in two principal activities: sales/trading and
asset/liability management.
Direct Debit
Direct deposit
If you receive money on a regular basis (i.e. from a job, pension, allowance), your
employer, the government or person paying the allowance can deposit the money directly
into your account.
Disinflation
Dividends
Company earnings that may be paid out to shareholders according to the number of
shares or stocks they hold. Dividends can be earned on stocks and certain mutual funds.
Documentary Credit
Domestic Banks
Class: 12
Economic Growth
Statistics that help determine how the economy is faring. They include the Consumer
Price Index, housing starts, and unemployment rates, among others.
EFT/POS
Electronic funds transfer (EFT) at the point of sale (POS). A payment option which
allows consumers to pay for purchases by transferring funds directly from their accounts
to a merchant's accounts.
A federal statute that requires employers with 100 or more employees to eliminate any
practices in the workplace discriminating against four designated groups of people who
have historically been disadvantaged in the labour market: women; people who, by
reason of race or colour, are members of visible minority groups; aboriginal peoples; and
persons with disabilities.
Endorse
Entrepreneur
Equity
The value of a business after all debts and other claims are settled. Also the amount of
cash a business owner invests in a business and/or the difference between the price for
which a property could be sold and the total debts registered against it.
Exports
Fiscal Deficit
When the government spends more money than it receives in revenue over the course of
one year.
Fiscal Policy
The use of government spending and taxation policies to influence the economy.
Fiscal Surplus
When the government receives more in revenue than it spends over the course of the year.
Fixed assets
Assets like machinery, land, buildings, or property used in operating a business that will
not be consumed or converted into cash during the current accounting period.
Fixed expenses
Fixed business costs that do not change with the volume of business, such as rent for
business premises, insurance payments, utilities, etc.
Instruments that pay a fixed rate of interest for an agreed-upon length of time such as
term deposits, Treasury bills and Guaranteed Investment Certificates.
Foreign Currency
Foreign Exchange
A term used to describe the main types of financial institutions: banking, trust, insurance
and securities.
Franchise
The right to sell products or services under a corporate name or trade mark (established
by someone else). This right is usually purchased for cash in addition to a royalty fee on,
or a percentage of, all sales.
Futures
Contracts to buy something in the future at a price agreed upon in advance. They first
developed in the agriculture commodity markets but often involve foreign exchange,
Eurodollar deposits and government bonds.
The total value of all the goods and services produced by the Canadian economy in a
single year.
The value of all goods and services accruing to Canadians in a given year. It equals Gross
Domestic Product, plus income of Canadians from foreign production, less income from
Canadian production earned by non-residents (such as interest and dividends paid to
foreign lenders).
The difference between the sales your business generates and the costs you pay out for
goods.
An investment in which you deposit money, over a fixed period of time, and are paid a
set rate of interest.
Home Banking
A way to access bank accounts by phone and/or Internet. Typically customers can transfer
funds, pay bills and make account inquiries.
Imports
Income Statement
Also known as the profit & loss statement or P&L, enables you to calculate your
company’s pretax profits by subtracting total expenses from total revenues.
Income-splitting
A financial strategy for tax purposes. Splitting income refers to the process of shifting
income from the hands of one family member to another, who is in a lower tax bracket
and will therefore pay tax at a lower rate. This helps reduce your family’s overall tax
burden.
Inflation
Interac
Canada's largest shared network of ABMs. It allows cardholders to access their accounts
from any ABM on the network regardless of which financial institution owns the
machine.
A method of paying for goods and services electronically with the funds taken
immediately and directly from your bank account and transferred directly into the
merchant's account. You use your debit card to do this.
Interest
Interest rate
The area of banking business that includes the operation of bank branches and
subsidiaries located outside Canada, the supervision of correspondent banking
relationships, foreign exchange trading and trade finance.
A world business organization that brings business people and experts together to
formulate policies in such areas as banking, taxation and the environment.
Inventory
Stock on hand in the form of goods ready for sale. Also includes raw material in the
process of being manufactured or completed for sale.
Investment
Investment Banking
Bank operations that manage a bank's funding position, as well as its holdings of
Treasury bills, bonds and preferred and common stock.
Investment Income
This is income earned on investments you make. Investment income includes interest,
dividends and capital gains.
Lease
Line of Credit
Money that you owe over a period longer than 12 months, such as mortgages, bank loans
and other obligations.
Macroeconomics
Looking at the economy as a whole, particularly the interaction of its various components
with one another.
Microeconomics
Looking at the individual parts of the economy, with emphasis given to the market
process and how it works.
The least amount of money that has been in a bank account during the whole month.
Monetary Policy
The ability of the Bank of Canada to influence the economy through changes in short-
term interest rates and the money supply.
Money Laundering
Popular term used to describe the process whereby criminals conceal illicitly acquired
funds by converting them into seemingly legitimate income. While the term refers to the
proceeds of organized crime generally, it is now most often associated with financial
activities of drug dealers who seek to launder the large amounts of cash generated from
the sale of narcotics.
Money Markets
The part of the capital market where government Treasury bills, commercial paper,
bankers' acceptances and other short-term obligations are bought and sold.
Mutual Fund
An investment product in which your money is pooled with the money of many other
investors. A professional manager(s) uses the pooled money to buy a portfolio of
investments or securities, and monitors each of the investments on an ongoing basis.
There are many varieties of mutual funds, each with specific objectives. By investing in a
mutual fund, you purchase units of that fund. The value of your units can go up or down
depending on the type and performance of the mutual fund.
N.S.F. Cheque
N.S.F. means Not Sufficient Funds. If a cheque is returned for this reason, it means that
there was not enough money in your bank account to cover the amount of the cheque.
There is a fee to you if this situation occurs.
Net interest income (the difference between interest income and interest expense) as a
percentage of average total assets.
Netting
Operating Loan
A loan intended for short-term financing, supplying cash flow support or to cover day-to-
day operating expenses.
Option
A formal contract which grants the holder of the option the right to buy or sell a certian
quantity of an underlying interest or asset at a stipulated price within a specific period of
time.
Class: 13
Passbook
A book in which all the transactions in a bank account are noted. This book may list the
transaction codes and the customer's responsibilities.
Payee
Personal income minus personal income tax payments. Also called “take-home pay.”
A unique number or pass code entered by a customer when using an Automated Banking
Machine (ABM) or Interac Direct Payment, that gives the customer access to his or her
account.
Personal Savings
The difference between personal disposable income and personal consumption spending.
Personalized cheque
A cheque which has your name and account number printed on it.
Portfolio
A collection of investments.
The rate of interest charged on loans by chartered banks to their most creditworthy
customers.
The amount deducted from income equal to the amount by which a bank adjusts its loan
balances to reflect anticipated losses on them.
Ratio
Real property
Recession
When the Gross Domestic Product declines for at least two consecutive three-month
periods.
Reconciliation
Checking all bank account papers to make sure that the bank's records and your records
agree.
Education savings plans that grow tax free until a child is ready to pursue a post-
secondary education, at which time the money is withdrawn to help finance the costs.
Retail Banking
Those activities and services that a bank provides for individual customers such as
savings accounts, personal loans, cheque cashing and RRSPs.
Retained earnings
All the profits or losses that you’ve accumulated from prior years and from this year’s
income statement, less dividends paid to you.
Return
Schedule I Banks
Schedule I banks are domestic banks and are authorized under the Bank Act to accept
deposits, which may be eligible for deposit insurance provided by the Canadian Deposit
Insurance Corporation.
Schedule II Banks
Schedule II banks are foreign bank subsidiaries authorized under the Bank Act to accept
deposits, which may be eligible for deposit insurance provided by the Canada Deposit
and Insurance Corporation. Foreign bank subsidiaries are controlled by eligible foreign
institutions.
Schedule III
Schedule III banks are foreign bank branches of foreign institutions that have been
authorized under the Bank Act to do banking business in Canada. These branches have
certain restrictions.
Seasonal Unemployment
The loss of jobs due to changes in the climate and other conditions. Forestry, fishing and
construction are affected by climate, while retailing is affected by seasons and holidays.
For instance, at Christmas, retail employment is higher than in January.
Securities
Securities/Investment Dealer
One who acts as the agent for another party to buy and sell securities and other
investments; also an underwriter.
Service charge
Settlement Points
Regional collection points in the clearing and settlement system operated by the Canadian
Payments Association. Settlement points forward each bank's regional balance to the
Bank of Canada in Ottawa at the end of each day to allow the central bank to adjust the
banks' balances with the central bank.
Short-term liabilities
Money that you have to pay in less than 12 months, including wages, short-term loans,
taxes, credit card balances and long-term loans.
There are many definitions for this term. Banks define small businesses as those having
authorized credit limits of $500,000 or less, while medium-sized businesses have
authorization levels of up to $1 million.
Smart Card
A card with an imbedded computer chip which stores more information, performs more
functions and is more secure than a credit card or debit card.
Every person who has an income or pays taxes must apply for this number, which is
assigned by the Government of Canada. You must, by law, provide this number to
financial institutions with which you have an interest-bearing deposit account.
A co-operative owned by the international banking community that operates a global data
processing system for the transmission of financial messages.
A term in the Bank Act referring to an investment vehicle via which banks are permitted
to make venture capital investments.
Spread
The difference between the interest rate charged to borrowers and the interest rate paid to
depositors.
Stagflation
A period of time in which both the unemployment rate and the rate of inflation are
relatively high.
Statement
A computer printout which lists all the transactions in a bank account for a period of time.
Statements are usually given once a month.
Stocks
Traded on a stock exchange, these are shares in a company. Essentially, you purchase
shares in exchange for owning a part of that company.
Swap
Syndicated Loans
Loans to a company backed by a group of banks in order to share the risk in a large
transaction among several financial institutions. There is usually a lead bank and several
participating banks.
Tax-sheltered
Term
Term Deposit
An investment product in which you deposit a fixed sum of money for a set period of
time and are paid interest.
Term Loan
A loan intended for medium-term or long-term financing to supply cash to purchase fixed
assets such as machinery, land or buildings or to renovate business premises.
Transaction
Action in a bank account. It may be a deposit, withdrawal, debit card payment, service
charge or interest payment.
Travellers' cheques
These are a safe way to carry large amounts of money if you are going on a trip. They are
considered to be the same as cash, but can be replaced if they are lost or stolen. You can
buy them at your bank for a small fee. If you have a special service package, you may not
have to pay this fee.
Treasury Bills (T-Bills)
Short-term government obligations that are payable to the bearer and sold on a discount
basis; the difference between a T-bill's market or discounted price and its face or
redemption value is effectively interest if the T-bill is held to maturity.
Unemployment rate
The percentage of the labour force that is not employed but currently seeking work.
Variable expenses
Costs of doing business that vary with the volume of business, such as advertising costs,
manufacturing costs and bad debts.
Venture Capital
Commonly refers to funds that are invested by a third party in a start-up business either as
equity or as a form of secondary debt.
Withdrawal
Money taken out of an account. The withdrawal may be in cash, by cheque or debit card,
or by automatic withdrawal.
N.B: The Glossary may contain some of the terms discussed above. The complete list
consists of the probable terminologies most frequently used.
Conversations
Class: 14
Read the following conversations and you will get a practical touch of common
interaction in the Bank and Financial places. See the useful vocabulary listed below.
Jack: Hi Peter. Can you tell me a little bit about your current job?
Peter: Well, as I said, for part of my job I have to develop in-house programs for special company tasks.
Jack: Do you have to produce any reports?
Peter: No, I just have to make sure that everything is in good working order.
Jack: Do you ever attend meetings?
Useful Vocabulary
computer technician
day-to-day basis
glitch
good working order
in-house
need-to-know basis
organizational meeting
stressful
to be responsible for
to develop
to involve
to pay bills
to produce reports
to work as
Telephone Banking
Customer: Hello. I'd like some information on the telephone banking services offered at by your bank.
Representative: Certainly. What is your account number?
Customer: Can you tell me how the telephone banking services work?
Representative: You can do all your day-to-day banking over the telephone, 24 hours a day.
Customer: It all sounds very good to me. I'd like to sign up.
Representative: Alright, can you answer a few questions please?
Customer: Certainly...
Useful Vocabulary
24 hours a day
account number
automated answering machine
day-to-day banking
menu of options
telephone banking services
to access an account
to check your balance
to key in a PIN number
to order a statement
to pay bills
to sign up
to trade stocks and bonds
to transfer money
Match the verbs and nouns concerning banking. Click on the arrow to check your answer.
A. transfer A Cheque.
B. check A pin number.
C. order Money
D. pay An account.
E. follow Bills.
F. key in A statement.
G. sign Instructions
H. deposit A balance
I. make
J. pay into
Class: 15
International transfers
How long does it take?
Bank clerk: — Hello. Can I help you, ma´am?
You: — ...
Bank clerk: — Well, you can pay by mail, telegraphic or SWIFT transfer. Or you can have a banker´s draft and mail
it yourself to the beneficiary.
You: — ...
Bank clerk: — It depends on the amount and how fast you want that person to receive the money. A SWIFT
transfer is the fastest method but a banker´s draft is usually the cheapest. How much do you wanna
send?
You: — ...
Bank clerk: — Why don´t you send it by mail payment order?
You: — ...
Bank clerk: — About a week.
You: — ...
Bank clerk: — Sure. You can have a Telegraphic or a SWIFT transfer.
You: — ...
Bank clerk: — Both a Telegraphic Transfer and a SWIFT transfer will normally be credited to the payee´s account
within three or four working days, depending on whether the beneficiary´s bank is among our
correspondent banks or we have to route the transfer through a third bank.
You: — ...
Bank clerk: — You have to fill out this form, ma´am.
Bank drafts
I want to make a remittance to New Delhi.
Bank Clerk: — Good morning. May I help you, sir?
Bill Nichols: — Yes. I want to make a remittance to New Delhi.
Bank Clerk: — Do you want an international money order or a banker´s draft?
Bill Nichols: — I´d like a banker´s draft please. It´s not really urgent.
International transfers
How long does it take?
Bank clerk: — Hello. Can I help you, ma´am?
Mary Jones: — Yes. Could you tell me how to send some money to someone with an account with a
bank in Germany?
Bank clerk: — Well, you can pay by mail, telegraphic or SWIFT transfer. Or you can have a banker´s
draft and mail it yourself to the beneficiary.
Mary Jones: — Which is the best way?
Bank clerk: — It depends on the amount and how fast you want that person to receive the money. A
SWIFT transfer is the fastest method but a banker´s draft is usually the cheapest. How
much do you wanna send?
Mary Jones: — $800.
Bank clerk: — Why don´t you send it by mail payment order?
Mary Jones: — How long does it take?
Bank clerk: — About a week.
Mary Jones: — I don´t know. Can I send it more quickly?
Bank clerk: — Sure. You can have a Telegraphic or a SWIFT transfer.
Mary Jones: — And how long do those take?
Bank clerk: — Both a Telegraphic Transfer and a SWIFT transfer will normally be credited to the payee
´s account within three or four working days, depending on whether the beneficiary´s
bank is among our correspondent banks or we have to route the transfer through a third
bank.
Mary Jones: — I see. How can I pay by Telegraphic Transfer?
Bank clerk: — You have to fill out this form, ma´am.
More Conversations:
1. Jackie has a 20-dollar bill and wants to break it so that she may have some
smaller bills and change for the laundry.
Cashier: Well, I have some 5's, but I don't have enough 1's. Are quarters fine with you?
Jackie: Oh, that's even better! In that case, I won't have to worry about the small change
for the laundry.
The use of this lexical approach is essential for successful language acquisition for Banking and Financial
Sectors. However, we are often not equipped with the exact English terminology required in very specific
trade sectors.
These core vocabulary reference sheets provide between 150 and 240 key words and phrases for industry.