FS001

FS001
Introduction to the Banking Industry

SAP for Industries - SAP for Banking
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Participant Handbook
Course Version: 74
Course Duration: 2 Days
Material Number: 50087983
An SAP course - use it to learn, reference it for work

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About This Handbook
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2008 © 2008 SAP AG. All rights reserved. iii

About This Handbook FS001
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iv © 2008 SAP AG. All rights reserved. 2008

Contents
Course Overview ............ ............... ............... ............... ............... ..... vii
Course Goals.................................................................................vii
Course Objectives ...........................................................................vii
Unit 1: Fundamentals....... ............... ............... ............... ............... ....... 1

Dimension of a bank ......................................................................... 3
Financial institutions.......................................................................... 8
Legal Conditions ............................................................................ 18
Structure of the banking system .......................................................... 34
Unit 2: Deposit banking, credit transactions and payment transactions... ..... 61

Deposit banking............................................................................. 63
Credit transactions.......................................................................... 71
Payment transactions ...................................................................... 81
Glossary ........ ............... ............... ............... ............... ............... ..... 99
2008 © 2008 SAP AG. All rights reserved. v

Contents FS001
vi © 2008 SAP AG. All rights reserved. 2008

Course Overview
This course provides an introduction to the basics of banking.
Target Audience
This course is intended for the following audiences:
• Consultants and IT employees who want to familarize themselves with banking
Course Prerequisites
Required Knowledge
• Basic knowledge of business
Course Goals
This course will prepare you to:
• familiarize yourself with banking

• understand basic financial terms
• learn about the main banking products, banking services and processes
Course Objectives
After completing this course, you will be able to:

• classify banking products and services
• understand the basic banking processes
2008 © 2008 SAP AG. All rights reserved. vii

Course Overview FS001
viii © 2008 SAP AG. All rights reserved. 2008

Unit 1
Fundamentals
Unit Overview
The aim of the chapter "Fundamentals" is to provide an introduction to banking which
is characterized by abstract business processes. This chapter explains the business
tasks for banking and, in particular, its role as intermediator between borrowers and
lenders. It explains the basic transaction types and services. Building on this, we will
use the law in Germany to go into detail about the legal conditions, in order to explain
particular key terms such as regulatory stockholders' equity, liquidity and monitoring
credit transactions, large-scale and multimillion loans, loans to managers and duties of
disclosure. We will describe the structure of the European banking system and the
German banking system.
Unit Objectives
After completing this unit, you will be able to:
• Explain the financial requirements and the investment requirements

• Describe the role of banking as an intermediary between the lender and borrower
• List the key functions and services in banking
• List the business partners of a bank
• List the typical distribution channels of the bank
• Distinguish between the various types of financial services and institutions
• List the macroeconomic tasks of banks
• Understand the basics of the financial markets (money and capital markets)
• Name and describe the institutions that monitor banking
• Describe approval procedures
• Recognize the relevant regulations regarding equity and liquidity
• Describe how the institutions monitor the credit business
• Describe the European System of Central Banks
• List and explain the monetary instruments
• Describe universal banks
2008 © 2008 SAP AG. All rights reserved. 1

Unit 1: Fundamentals FS001
• Describe specialized commercial banks

• Describe bancassurance
• List and describe new distribution channels
Unit Contents
Lesson: Dimension of a bank ........................................................ 3
Lesson: Financial institutions......................................................... 8
Lesson: Legal Conditions ........................................................... 18
Lesson: Structure of the banking system . ........................................ 34

FS001 Lesson: Dimension of a bank
Lesson: Dimension of a bank
Lesson Overview
This lesson provides an initial insight into banking, the economical tasks, business
partners and channels that you use to operate your business.
Lesson Objectives
After completing this lesson, you will be able to:
Business Example
[Enter a business example that helps the learner understand the practical business
use of this lesson.]
Figure 1: Cash and service flow in an economy based on division of labour

The above diagram shows a simplified economic system without banks. It is based
on the swap relationships “work in exchange for wages”, “goods in exchange for
payment”, “tax in exchange for infrastructure”. To make things simpler, the work
relationships for country and trading were omitted, as well as cash flows, funding,
investments, raw materials and services. Imagine that payments had to be processed
in cash without banks and then you can understand the first economic function of the
banking system, the payment transactions.
Financial and investment requirements
• Borrowers are economic agents who, in a period, want to spend more money
than they have available to them from their regular income and outcome. They
have a financial requirement.
• Investors are economic agents who, in a period, want to take in more money
than they spend and to collect capital with the intention of making a profit.
They have an investment requirement.
A company, an individual or a public corporation will always try to maintain a
balance between the periodic income and outcome so that they remain solvent and
credit-worthy. However, in reality, at some point in the economic cycle, every
participant needs to spend more money in a period than they have at their disposal.
This means that they require financing for an investment, whether for a single family
home, a new car or a factory. These types of participants are called borrowers.
Other participants operate so successfully in the economic cycle that they manage,
in one period, to make more money than they spend. These participants are called
investors. These participants can either save their additional revenue and therefore
build capital, or they can provide the monthly surplus or the collected capital to
borrowers in order to make a profit. In this case, the methods of financing may take
various forms. It could be as credit, investment, securities or bonds.
Figure 2: Main functions of the banking system

Deposit, credit and payment transaction services are the underlying transactions of
universal banking and are all closely related.
Banks fund themselves using, on the one hand, customer deposits and, on the other
hand, using the capital market.
Figure 3: Transformation activities of banks between customers, partners and

financial markets
The left side shows the bank's customers - retail clients (people and smaller businesses)
and commercial clients (larger companies). These clients receive banking services
through various distribution channels. The far right shows the bank's other business
partners (for example, other banks, exchanges and markets, clearing houses and credit
card providers). Banks use electronic networks to communicate and conduct business
with these partners: Swift and Target for payment transactions, Boss Cube and GL
Net as trading platforms. In addition, the bank is dependent on their shareholders and
supervisory bodies, BaFin, Bundesbank and the European Central Bank.

Figure 4: Typical banking services

Lesson Summary
You should now be able to:
Related Information
• Enter an optional reference using the URL or CrossReference tag to additional
information that the learner may find useful. Examples include websites or
white papers. Delete if not used.

Lesson: Financial institutions
Lesson Overview
In this lesson, we will review
• the definitions of the financial institutions and their services
• the functions of banks and
• the markets of banks
Lesson Objectives
Business Example
Figure 5: Financial institutions: Classification of terms
Figure 6: Financial institutions: Classification of terms

FS001 Lesson: Financial institutions
Figure 7: Financial institutions: Transactions of the credit institutions
Credit institutions require permission from the Federal Supervisory Office
Figure 8: Financial institutions: Transactions of the credit institutions
Credit institutions require permission from the Federal Supervisory Office

Figure 9: Financial institutions: Banking transactions in accordance with 1

German Banking Act
1. Deposit business: the acceptance of funds from others as deposits or of other

repayable funds from the public unless the claim to repayment is securitized in the
form of bearer or order debt certificates, irrespective of whether or not interest is
paid (deposit business).
1a Transaction in bonds: the issue of covered bonds, for example, mortgage bonds.
2. Lending business: The granting of money loans and acceptance credits.
3. Discount business: The purchase of bills of exchange and cheques.
4. Principal broking services: The purchase and sale of financial instruments in the
credit institution's own name for the account of others. (Financial instruments are
securities, money market securities, foreign exchange and derivatives.)
5. Safe custody business: The safe custody and administration of securities for the
account of others. (This should not be confused with the rental of safe deposit boxes.)
6. Investment fund business: Administration of the capacity to invest and the
provision of services and non-core services.
7. Revolving business: The incurrence of the obligation to acquire claims in respect
of loans prior to their maturity.
8. Guarantee business: The assumption of guarantees and other warranties on behalf
of others (this is mostly off-balance-sheet).
9. Giro business: The execution of cashless payment and clearing operations.

10. Underwriting business: The purchase of financial instruments at the credit

institution's own risk for placing in the market or the assumption of equivalent
guarantees.
11. E-money business: Issue and administration of electronic money.
12. Working as a counterparty: Working as a counterparty is also a banking transaction
in accordance with 1 section 31 of the German Banking Act. For sales contracts
within one or several financial markets, a counterparty is a company that operates
between the buyer and the seller and works as a contract partner for both parties. The
counterparty's receivables from counterparty credit risks are sufficiently secured on a
daily basis against all participants in their systems.
Figure 10: Financial institutions: Financial services in accordance with the

German Banking Act
Figure 11: Financial institutions: Macroeconomic tasks

Figure 12: Macroeconomic tasks: Intermediation functions
Intermediation is the brokerage between two or more parties.
Figure 13: Macroeconomic tasks: Intermediation functions
Term transformation is possible only because deposits that are legally short-term are
actually available to the banks for longer. In most cases, money that is deducted is
replaced by new assets.
From a bank's perspective, the advantage of term transformation is that the interest for
short-term funds is usually lower than for deposits that have a long-term fixed-rate
period. The long-term investor renounces short-term availability of funds and
therefore receives an interest rate that is higher than the maturity premium. (so-called
“normal interest rate structure”)
If the short-term interest is higher than the long-term interest, this is known as an
“inverse interest rate structure”. This may occur in a period of high interest if the
market participant expects falling interest rates.

An inverse interest rate structure poses risks for the transaction that uses term
transformation: falling margins since the short-term deposits must be given higher
interest rates and there is also a risk of refinancing in the case of considerable outflows
of cash.
Figure 14: Macroeconomic tasks: Disintermediation
Securitization is the issuing of securities to receivables or payables. Companies and

public authorities issue bonds and obtain capital directly from the investors.
Competition with non-banks. Example: Corporate groups finance investments for
their subsidiaries (in-house banking), industry enterprises finance investments for
their suppliers and retail chains finance investments for their retailers. On the investor
side: Insurance and investment companies.
Figure 15: Macroeconomic tasks: Market intermediation

Figure 16: Macroeconomic tasks: Cash generation
Figure 17: Macroeconomic tasks: Cash generation
Credit creation: Banks grant credit to customers. The customers use this credit and
transfer it to accounts in other banks (checkable deposits). This results in additional
deposits that can again be (partially) issued as credit. This may increase the central
bank's money supply.
This increase is limited by
• Cash deduction quota: only part of the loan amount goes to other bank accounts.
• Minimum reserve that the financial institutions must store in the central bank
• and liquidity reserves that the financial institutions voluntarily create.
The non-cash payment transactions are an essential prerequisite for the credit creation.
For the procurement, production and sale of goods and services, payment transactions
must be fast and secure. Therefore, executing and further developing payment
transactions is a fundamental macroeconomic task in banking.

Figure 18: Financial markets: Classification
Figure 19: Financial markets: Money market
Figure 20: Financial markets: Capital Market

Companies obtain equity capital by issuing stocks and receivables. These are
securitized in securities. The share is generally known as the stock. Securities in this
case are variable and fixed-interest-rate bonds. These securities are generally handled
in a public stock exchange.
Non-securitized investments: these are investments in companies that are not able to
issue shares. The demand for such transactions is high, but the market is intransparent.
In this case, stockbrokers play an important role, as do the Mergers & Acquisitions
departments of the banks.
Unsecuritized credit. The most important lenders are banks and insurance companies.
Parties that may be seeking capital are private parties, companies, public authorities
and banks (for long-term financial requirements).

Lesson Summary
Related Information

Lesson: Legal Conditions
Lesson Overview
In this section, we will review the regulations for credit institutions that are based in
Germany. We will also look at the supervisory institutions and their organization in
general, as well as the most important legal requirements. In addition, we will provide
an insight into the supervision of banking.
Lesson Objectives
Business Example
Figure 21: Laws regarding the German banking industry

FS001 Lesson: Legal Conditions
The banking sector plays an important role in the market economy system:
• It manages the largest part of the monetary assets and provides capital to
companies, private and public authorities.
• The banks broker, consult, deliver information and assume risks.
• The behavior of banks heavily influences the money circulation, investments
and demand for goods.
Due to these economic factors, the trust towards credit institutions must be particularly
protected. Banks are responsible for ensuring that there is reliable trust from the
public. The legislators also provide a legal framework that covers the above figure.
The Banking Act of the Federal Republic of Germany (KWG) is considered to be the
“fundamental law regarding banking”. It represents the legal basis for the supervision
of banking and has three aims:
• Ensure general order in the banking industry,
• Maintain efficiency in the banking industry and
• Protect the bank's creditors from financial loss.
In pursuing these aims, the banks should maintain their corporate freedoms. For this
reason, the supervision of banking is restricted to continued monitoring. Therefore,
the bank supervision intervenes only if the general regulations are violated.
According to 1 KWG, all credit financial services institutions must adhere to the
regulations of the KWG.
Figure 22: Organizations for banking supervision in Germany
The two organizations for banking supervision in Germany are the German Federal
Financial Supervisory Authority (BaFin) and the Deutsche Bundesbank (German
Central Bank). Their cooperation occurs at an international level. BaFin and the
Bundesbank work together with the authorities in the EU member states and exchange
information with these authorities. In addition, BaFin and the Bundesbank represent
German interests in European and international committees.
BaFin is the central organization for the integrated monitoring of financial markets
in Germany.

It was founded on May 1, 2002 based on the law regarding the German Federal
Financial Supervisory Authority and represents the standardized, state monitoring of
credit institutions, insurance companies, financial services institutions and securities
trading.
Their main aim is ensure the efficiency, stability and integrity of the German financial
system and this leads to two tasks.
• Solvency monitoring - ensuring that credit and financial services institutions
and insurance companies are solvent,
• Market monitoring - using standards of behavior to protect customers and
investors (these standards of behavior preserve the trust in the market) and
combatting illegal trading.
• The Deutsche Bundesbank participates in the continuous monitoring of the
institutions and must therefore adhere to the guidelines from BaFin (7 KWG).
Examples of their tasks are:
– analyzing the reports and declarations presented by the institutions,
– checking that there is a sufficient amount of equity available and
– checking the procedures for controlling risk.
The collaboration of BaFin and the Bundesbank is necessary because the
monetary and bank supervisory areas often overlap and because the Bundesbank
is highly competent and, due to its branches, is close to the market.
Figure 23: German Federal Financial Supervisory Authority

The organization of BaFin is identified by three pillars, which closely correspond

to the tasks it provides.
• banking supervision
• supervising the insurance industry and
• monitoring the securities trading and asset management.
The decision-making powers are divided into two phases:
Figure 24: The decision-making powers of BaFin
• Companies that want to provide banking and financial services transactions

require the written authorization of BaFin. Once the company has the
authorization, BaFin monitors the business activities of the institute,
particularly the amount of credit available and the lending transactions.
Figure 25: Approval for the business operations
In accordance with trade law, in principle, anybody can operate banking and financial
services institutions. However, due to their special status, the above written approval
from BaFin is required (32 KWG).

The subsequent procedure for approving the business operations of a bank follows
defined guidelines. Therefore, approval is not given if the following prerequisites are
not met:
• Sufficient funds are available for the business operations
– depending on the type of institutions, this should be between €50,000
and €5,000,000.
• The applicants are reliable
– applicants and managers must not have committed any offences against
property or any other commercial or private offences.
• The companies that invest in the bank must be reliable
– In the case of companies having a significant investment in the institution,
the management of the investing company must also meet the requirements.
• The owners or managers must be experienced in managing a bank
– Minimum prerequisite: three years experience in managing an institution
of similar size and business type
• At least two managers preside over the bank
– This is to adhere to the principle of duel control.
– This does not apply to financial service providers that do not have the
authority to supply their customers with property or assets.
• The head office of the bank must be located in the home country
• The business is operated in accordance with the regulations
– This mainly affects the organizational prerequisites for operating
transactions in accordance with the regulations.
• Approved foundation of a subsidiary
– Subsidiaries of foreign banks require approval from the supervisory
authorities in the country of the parent company.
Furthermore, BaFin can refuse approval if the following prerequisites are not fulfilled:
• Effective supervision is possible
– Approval may be rejected if the institution is part of a group of companies
and, as a result, effective supervision is not possible.
• The request for approval must contain sufficient information and documentation.

Figure 26: Equity and liquidity
The KWG regulations require that credit institutions and financial service providers
must have a sufficient amount of equity and a willingness to pay (10 to 10b KWG). In
individual cases, to check the compliance, the German Ministry of Finance (BMF)
compiles basic principles. It does this in consultation with the Bundesbank. These
principles indicate that, to protect creditors and the system, credit institutions and
financial service providers must have a sufficient basic amount of equity. Sufficient
equity acts as a buffer against losses and makes the financial system more stable. In
this context, we distinguish between three equity capital concepts:
• Total equity: The equity that is reported on the liabilities side of the balance
sheet basically covers the capital stock, the capital reserve, the revenue reserve
and the retained earnings.
• Regulatory stockholders' equity: More specifically, this is the elements of
the equity according to 10 KWG. In other words, the liable capital and the
third-tier equity.
• Economic equity: This is the bank's internal equity that the bank views as
necessary for risk management. Depending on the institutions, the economic
capital may also contain more or fewer elements.
Figure 27: Regulatory stockholders' equity
The equity that is affected by the regulation (Regulatory stockholders' equity) is

composed of the liable capital and the third-tier equity.

Core capital is equity that is available to the institutions to cover risks. It is unrestricted
and available immediately. On the other hand, supplementary capital is not the same
as the core capital and, depending on the type, is also subject to interest and must
be paid back. Third-tier equity consists of the net profit of the account books and
short-term subordinated payables.
Figure 28: Liquidity
The existence of banks is also under threat if they can no longer fulfill the authorized
payment requirements each time and in full. Therefore, 11 KWG requires that
institutions generate funds in such a way that ensures that there is always sufficient
willingness to pay. In principle, banks are liable to an increased liquidity risk because
they accept deposits with various terms, they grant credit with varying maturities and
payments in block from derivative transactions are the result.
Note: Due to a change in regulation on December 14, 2006, Grundsatz I (in English:
Provision I) was replaced by the Solvability Decree on January 1, 2007. The following
text refers to the time before January 1, 2007.
Grundsatz I (also: the regulation regarding equity solvability) is a development of
the right of supervision for banks by BaFin and is an important part of the capital
adequacy requirements for the credit institutions. Grundsatz I states 10 and 10a of
the Banking Act of the Federal Republic of Germany more precisely by defining a
risk limitation standard. Grundsatz I comprehensively sets out the standard criteria for
assessing whether there is a sufficient amount of equity.

Figure 29: Principles regarding equity and liquidity
Figure 30: Monitoring the credit business
The credit business continues to be an important factor for success for most banks and
savings banks. Since each credit that is granted is coupled with risks, the legislators
attempt to limit this threat (see 13-33 KWG). Therefore, the KWG covers regulations
regarding
• large-scale and multimillion loans,
• loans to directors, senior executives and auditors,
• duties of disclosure.

Figure 31: Large-scale and multi-million loans
As part of KWG, credit institutions must adhere to the Regulations Governing Large
Exposures and Million Loans Reporting (Groß- und Millionenkreditverordnung
(GroMiKV)). These regulate, in particular,
• the measurement of risk-bearing assets,
• weighting of addresses,
• inclusion of securities,
• underlaying credit that exceeds the maximum limit for large-scale loans,
• derivatives, with the exception of option writer's position of option contracts and
warranties that are transferred for these.
The GroMiKV require that, once every quarter, borrowers report which of the defined
maximum limits they have exceeded with their liabilities. As we will see later, these
maximum limits vary, depending on whether it is a trading book institution or a
non-trading-book institution.
To differentiate between a trading book institution and a non-trading-book institution,
you must determine whether an institution operates own-account trading on a large
scale, irrespective of whether the own-account trading is performed as a service
to others or not. To be recognized as a non-trading-book institution, there is a
prerequisite that the proportion of the trading book in the balance-sheet and off
balance sheet transactions
• is no more than 5% or €15 million,
• even in exceptional circumstances, is no more than 6% or €20 million.

Figure 32: Definition of large-scale loan (large exposure)
The standards for large-scale loans are important regulations since if the limits are
exceeded in the short-term, this poses a threat to a bank and therefore the assets that
are committed to the bank. A large-scale loan is available for a non-trading-book
institution if the credit to this borrower exceeds 10% of the liable capital. Banks
and financial service providers must grant this credit only with the approval of all
managers and they must report this credit to the Bundesbank at the end of the quarter.
The credit institutions and financial service providers must also adhere to these
regulations. However, it varies between
• Non-trading-book institutions (13 KWG)
• Trading book institutions (13a KWG)
• Groups of Institutions and Financial Holding Groups (13b KWG)
• Group-internal transactions with assorted companies (13c KWG)
Figure 33: Why are large exposures monitored?

Figure 34: Maximum exposure limit for non-trading-book institutions
Large exposures are available to non-trading-book companies if credit to a borrower

reaches or exceeds 10% of the liable capital of the institution that is granting the
credit. The institutions must grant these transactions only with the approval of all of
the managers and they must report these transactions to the Bundesbank in a collective
report at the end of the quarter.
Without the consent of BaFin, the individual large exposure must not exceed 25% or,
for affiliated companies, 20% of the liable capital (individual large exposure limit).
All large exposures together must not exceed 800% of the liable capital (overall large
exposure limit). With approval from BaFin, these maximum limits can be exceeded.
However, this must be reported to BaFin and the Bundesbank and must be underlayed
with 100% of the liable capital. If an institution exceeds both the individual large
exposure limit and the overall large exposure limit, it must back only the larger
amount by which the respective limit is exceeded by liable capital.

Figure 35: Maximum limit for trading book institutions (1/2)
Trading book institutions must also allocate large exposures only with the complete
approval of all managers. The activities of the trading book institutions can be split
into two categories:
• Banking book transactions
• Trading book transactions

This produces the individual total position from overall business from the sum of the
individual total position from banking book business and the individual total position
from trading book business.
• In this case, you must note that a large exposure from banking book business
consists of all of the loans to a borrower, without taking into account the
individual total position from trading book business. The individual total
position from trading book business comprises all exposures to a single borrower
that are assigned to the trading book. This means that there are two exposure
definition limits for trading book institutions:
– Banking book exposure: Position from banking book = 10% of the liable
capital
– Overall business exposure: Total position from overall business of the
borrower = 10% of equity
• Without the approval of BaFin, the large exposure from banking book business
must not exceed 25% of the liable capital (see banking book individual large
exposure limit). In the case of affiliated companies, this limit is 20%. In total, all
large exposures from banking book business must not exceed 800% of the liable
capital (see banking book individual large exposure limit). The same quotas
apply for the large exposure from overall business. However, the equity is used
as a reference base. This should also explain the following figure again.
Figure 36: Maximum limit for trading book institutions (2/2)
An institution must determine the amount by which the banking book exceeds the
limit separately from the amount by which the trading book exceeds the limit. It must
also report these amounts to BaFin and the Bundesbank. If an institution exceeds the

limit in the banking book business, it must underlay this with 100% of the liable
capital. If the individual limit and the overall limit are exceeded, only the higher
amount by which a limit was exceeded is liable to collateral. Further limits apply,
however, these will not be described here in detail.
Figure 37: Definition of multimillion loans
According to 14 KWG, credit institutions and financial service providers that operate
own-account trading on behalf of third parties must report multimillion loans to the
Bundesbank. This also includes multimillion loans that are granted to companies that
belong to a group of institutions. At the end of the quarter, borrowers that exceeded the
limit of €1.5 million in the three months previously must report this. The institution
must report the amount claimed on the reporting key date, even if this is less than €1.5
million. The Bundesbank is required to inform the reporting company if a borrower
was granted multimillion loans from several companies.
Figure 38: Why are multimillion loans monitored?

Figure 39: Loans to managers and disclosure requirements
Loans to managers are loans to individuals and companies that have a close
relationship to the bank (managers, shareholders, supervisory bodies). Loans to
managers must be granted only if all managers vote unanimously in favour of it
and with the explicit approval of the supervisory authorities. The purpose of these
regulations is to avoid conflicts of interest that may result from these loans because
loans are assigned to individuals and companies that have a close relationship with
the bank. Any violations of the regulations regarding loans to managers may have
serious consequences for the members of the board of directors. If the regulations are
breached, the institution or the creditors are liable for the damage resulting from this.
When granting a loan that exceeds €750,000 or 10% of the liable capital, it is essential
that the bank discloses its economic relationship with the borrower throughout the
entire transaction (disclosure requirements). This should ensure that the banks check
the creditworthiness of their customers sufficiently.

Lesson Summary
Related Information

Lesson: Structure of the banking system
Lesson Overview
This lesson will focus on the European and German banking systems. We will provide
an overview of the German environment and the different banking types that are used,
and we will distinguish between these.
Lesson Objectives
Business Example
Figure 40: Elements of the German banking system
The elements of the banking system that are relevant only for the German banking
market are the European System of Central Banks (ESCB)/Eurosystem and the
commercial banks. The term commercial banks encompasses all credit institutions that
do not administer the functions of a central bank. This therefore includes, for example,
savings banks, cooperative banks and, for example, the five major German banks
(Deutsche Bank, Commerzbank, Dresdner Bank, Postbank and HypoVereinsbank).

FS001 Lesson: Structure of the banking system
Figure 41: ESCB and Eurosystem
Since not all EU member states are part of the eurozone, a difference was made
between ESCB and Eurosystem. Therefore, the ESCB incorporates the European
Central Bank and the central banks of the EU member states and all of the central
banks for the states that have not introduced the euro. The Eurosystem, however, is
made up of the European Central Bank and the national central banks of the states
that have introduced the euro. In this course, both terms will be used to describe
the same thing.
Eurosystem/ESCB perform many different tasks:
• Determining and implementing monetary policy,
• Performing foreign exchange transactions,
• Maintaining and managing the official currency reserves of the member states,
• Stipulating that the payment systems run smoothly,
• Issuing bank notes as legal tender for the eurozone and
• Approving the amount of euro coins that is issued through the states in the
eurozone.

Figure 42: The European Central Bank
The European Central Bank (ECB) is the joint monetary authority for the member
states of the European Monetary Union and, with the national central banks (NCB)
of the member states, forms the European System of Central Banks (ESCB). It is
a supranational institution that has a legal personality. Its capital amounts to the
statutory amount of €5 billion and this is underwritten by the national central banks of
the states that are part of the eurozone. In addition, the national central banks provide
the European Central Bank with currency reserves of up to a value equivalent to 50
billion euro. The ECB is authorized to maintain and manage these reserves and to
use them for the aims that are mentioned in the statutes.
The ESCB/Eurosystem is an independent system. This means that its members and
the members of the decision-making bodies do not have to not obtain or accept any
instructions from external sources when they carry out their tasks.
Figure 43: Organization of the ECB
The Governing Counsel and the General Counsel are the two decision-making bodies
of the ECB and the Executive Board is the executive body. The ECB Governing
Counsel is the highest-level decision-making body of the ECB.

The ECB Governing Counsel comprises all of the members of the Executive Board
and all of the presidents of the national central banks from the states that are in the
eurozone. It determines the regulations regarding monetary policy and the leading
interest rates, and provides the central bank funds.
The Executive Board performs the business of the ECB, implements the decisions of
the ECB Governing Counsel and forwards the required instructions to the national
central banks, which must implement these decisions in the member states. The
committee is made up of the president, one vice-president and four other members. A
member of the Executive Board is appointed as the Chief Economist by the committee
itself. The term of office for a member of the Executive Board is eight years. A
member cannot be reelected.
The General Counsel consists of the president and the vice-president of the ECB and
the presidents of the central banks of all of the EU member states. In the General
Counsel, for example, the presidents of the national banks in states that do not have
the euro are officially informed about the decisions of the ECB Governing Counsel.
It participates in the collection of statistical data and has a consulting role regarding
the inclusion of other countries in the monetary union.
Figure 44: Two-pillar strategy of the ECB
The ECB uses its monetary instruments to reach the target for a stable level of prices
as set out in the EC contract.

Price level stability is a growth of the Harmonised Index of Consumer Prices (HICP)
in the eurozone. This growth should be below 2% but should remain close to this
figure. The Governing Counsel defined the monetary strategy in October 1998. To
reach the target for price stability, the ECB follows a two-pillar concept.
The first pillar (economic analysis) monitors the development of inflation itself and
the factors that affect inflation, for example
• wages and salaries,
• exchange rate development,
• long-term interest rates,
• measures for economic activity,
• fiscal policy indicators,
• price and cost indexes and
• enterprise and consumer surveys.
The second pillar (monetary analysis) monitors the development of the money supply
M3, since excessively high growth in money supply indicates that there are long-term
inflation risks. As a reference value, the ECB aims for a yearly average increase
of the money supply by 4.5%.
Figure 45: Money supply aggregates
The individual money supply aggregates consist of liabilities from the Monetary
Financial Institutions (MFIs). The ECB, national central banks, credit institutions
and other financial institutions (mainly money market funds) are examples of MFIs
(money issuing sector). These include only liabilities to the private authorities,
non-financial companies, countries, municipalities and social insurance agencies
(money-holding sector).
Depending on which components flow with which degree of liquidity, we distinguish
between three money supply aggregates - M1, M2, M3 (narrowly defined aggregate,
medium-defined aggregate and broadly defined aggregate).

Figure 46: The Deutsche Bundesbank
As a result of the law regarding the Deutsche Bundesbank on July 26, 1957, a central
national bank was created for the area of the Federal Republic of Germany. This
means that the state central banks, the Berlin central bank and the bank for the German
states were consolidated to make one bank. Since transitioning to the Eurosystem, the
organizational structure and the tasks of the Bundesbank have changed.
The executive board (Vorstand) is the supreme governing body of the Bundesbank. It
comprises the president, the vice president and six additional board members. The
executive board of the Bundesbank advises the Bundesbank president in his role as a
member of the ECB Governing Counsel.
The Bundesbank has nine head offices. The presidents of these offices report to the
Executive Board of the Bundesbank. The head offices run business with the credit
institutions and government agencies that are in their relevant area of responsibility
(usually one or several states). In the larger cities, a large number of branches are
affiliated to these head offices.
Figure 47: The duties of the Deutsche Bundesbank
When exercising its power, the Deutsche Bundesbank is independent from the orders
of the federal government. However, it supports the general economic policy of the
federal government as much as is possible within its role in the ESCB. Its primary aim

is to implement the common economic policy of the Eurosystem as a national central

bank in Germany. In line with historical development, the Deutsche Bundesbank
continues to perform five functions:
• Central bank:As a note-issuing bank, the Bundesbank provides the economy
with cash, and ensures the physical circulation of cash. It checks the cash
delivered by banks and money transport companies, removes counterfeit money
from circulation and hands it to the police. It changes D-Mark holdings still in
circulation, without any time limit and replaces damaged or mutilated notes
(National Analysis Centre for Counterfeit and Damaged Banknotes and Coins).
It also issues information on the safety mechanisms for notes and coins and
issues a weekly bulletin on the volume of cash in circulation.
• The Bundesbank as the banks' banker: In relation to the commercial
banking system, the Bundesbank has two functions: Firstly, the Bundesbank
is a refinancing source and clearing house for the commercial banks. The
commercial banks can use what are known as "refinancing instruments" to cover
their needs for central bank money through the Bundesbank and the ECB. Up
until the end of 1998, the control of the money supply by this method was one of
the main tasks of the Bundesbank. Since January 1, 1999, one of the principal
aims of the ECB has been to maintain price stability by means of its monetary
strategy. Commercial banks can deposit money that is temporarily surplus to
requirements with the Bundesbank/ECB (known as a deposit facility). The
Bundesbank supports cross-border payments between domestic and foreign
commercial banks, for instance by means of the German real time gross transfer
system RTGSplus, TARGET and, in future, TARGET2. This means that
amounts reaching billions of euros could be transferred between banks across the
EU in realtime.
• The Bundesbank as the state's banker: As the state's banker, the Bundesbank
provides accounts and performs normal banking services for federal, state (Land)
and local authorities, as well as for the statutory social security organizations.
All such accounts are required to have a positive balance. This means that the
Bundesbank is not allowed to grant credits to the public sector. This is due to
negative historical precedents in connection with the financing of two world
wars by the Deutsche Reichsbank. It also carries out securities transactions for
the federal government (Bundesfinanzagentur).
• Banking supervision: On the other hand, the Bundesbank participates in the
supervision of banks. The bank works in close cooperation with BaFin. This
mainly involves securing the stability of the financial system. In this case,
the Bundesbank performs the continuous monitoring of banks. In this role, it
analyzes the annual financial reports of the institutions and performs checks in
accordance with 44 KWG (see the Banking Act of the Federal Republic of

Germany (KWG)). It provides statistical data regarding the economic situation

of the credit institutions. BaFin issues decrees, tax audit notices and circulars,
mostly in agreement with BaFin.
• The Bundesbank as the keeper of the currency reserves: Currency reserves
are all the assets of the Bundesbank that are not specified in euro. These include
gold reserves, securities in foreign currency, credit with foreign banks, foreign
exchange and foreign notes and coins. Currency reserves therefore are an
equivalent value to a state's own currency. Currency reserves can be invested for
profit and also provide a possibility of intervening in the market if the exchange
rate fluctuates strongly. The gold reserves of the Bundesbank are the second
largest in the world (after the U.S Federal Reserve). At present, the Bundesbank
has gold reserves of 3,427 tonnes, with a market value about €65.4 billion.
(November 17, 2007). However, the largest part of the German gold reserves is
not stored in Germany. Instead, it is stored in the treasury of the Federal Reserve
Bank in New York City or in London.
Figure 48: Monetary instruments of the Eurosystem
As mentioned before, the main aim, and therefore the monetary policy, of the
Eurosystem is to ensure price stability. Business partners of the ECB and the NCBs
that execute the monetary policy according to the instructions of the ECB locally are
mainly credit institutions. Monetary instruments include open-market transactions,
standing facilities, exchange market interventions and minimum reserves. They are
briefly described below.

Open market policy: The most important open-market business of the ECB is the main
refinancing instrument (main tender). This is an instrument of open-market policy
in which the commercial banks receive money from the ECB for interest payments.
Due to its significance, the interest rate of these transactions (main refinancing rate) is
often also called the key interest rate of the ECB. The transactions occur once a week.
The term for these transactions is a week.
The three other open-market transactions of the ECB are long-term refinancing
transactions (term is three months), microcontrol operations and structural operations.
However, these transactions are not used for monetary aims. Instead, the aim of these
transactions is to provide commercial banks with the required liquidity.
Standing facilities: These are the marginal lending facility and the deposit facility.
Commercial banks can use the marginal lending facility to provide money in the
short-term (overnight) and use the deposit facility to generate money in the short-term
(overnight). The interest rate of the marginal lending facility creates the upper limit
for the call money rate EONIA (Euro OverNight Index Average). The deposit facility
creates the lower limit for the call money rate.
Exchange market interventions: The ECB sporadically intervenes in the exchange
market in order to stabilize the monetary exchange rate and swap rate policies
However, the ECB only rarely uses the instrument of intervention (it did not use this
instrument at all in 2004). It must be used after assessment by the ECB only if large
incorrect exchange rate valuations occur that pose a risk either to the ECB's inflation
target (as the most important monetary target) or to the economic stability in the
eurozone (this is the second most important target).
Minimum reserves: The ECB requires that commercial banks hold minimum reserves
on clearing accounts with the national central banks. These reserves currently amount
to 2% of the deposits and bonds of the bank. However, in contrast to the main
refinancing instrument, standing facilities and exchange market interventions, the
minimum reserve is more of a regulatory instrument than a monetary instrument since
it delivers only the framework for the other instruments but has never been changed by
ECB. In contrast to the minimum reserve of the former Deutsche Bank, the minimum
reserve of the ECB is subject to interest.

Figure 49: The banking environment in Germany
The banking environment in Germany is characterized by a universal banking system.

A bank is a universal bank if the tasks of the bank include at least
• deposit and credit transactions and, at the same time,
• securities transactions (the purchase and sale of securities for others).
• In addition, a large number of specialized commercial banks are still located

in the Federal Republic of Germany. These banks perform only some of the
potential bank transactions. However, the universal banks generally dominate
(as shown in figure 49). The item “Other banks” includes mortgage banks,
building and loan associations and banks that have specific functions.
•
• (The term mortgage bank is a collective term for public and private mortgage
banks. These are specialized commercial banks for financing long-term
investments for the public sector and from companies and private clients).

Figure 50: Universal banks (1/2)
In practice, in addition to deposit, credit and securities transactions, universal banks

offer a wide-range of other services. In this case, depending on the universal bank
group, various priorities have emerged. Lending banks mainly work according to the
business principle meaning that profit and profitability are their main goals. However,
for savings banks, the principle of common public interest is relevant while the main
goal for cooperative banks is to assist their members financially.
Big banks: Deutsche Bank AG, Dresdner Bank AG, Commerzbank AG, Deutsche
Postbank AG, Bayrische Hypo- und Vereinsbank AG. These banks trade as typical
universal banks under private law in the form of the public limited company and they
offer almost all of the banking services to all of the customer groups. They frequently
have a large network of branches.
Regional banks and other banks operate only in a limited geographical area. Larger
banks have expanded to several federal states and even abroad.
Branches of foreign banks: If a credit institution has its head office abroad, the
German branch is run as a dependent legal entity, but operates its own business.
The institutions of the saving bank sector are mostly public law companies owned
by public authorities (municipalities, administrative bodies, administrative districts,
administrative unions). In addition, there are several free saving banks that trade

as private partnerships or public limited companies. The credit institutions of the

German saving bank sector are savings banks, the federal state banks/clearing centres
and Dekabank:
• Savings banks are credit institutions that are orientated towards common welfare
and that encourage people to save. They ensure the supply of credit to the
population and the medium-sized businesses. They assist in supplying credit to
their guarantors (for example, the local authority).
• Federal State banks/clearing centres look after the bank transactions for the
federal states and municipalities, and they are a central source of clearing and
refinancing for savings banks.
• The Dekabank is mainly the central funds service provider for the savings bank
sector. Its shareholders are the Federal State banks and savings banks.
• The credit cooperatives sector is organized in two tiers in Germany. The
cooperative banks (primary banks) are located at a local level, while the second
tier is made up of the cooperative central banks.
• Credit cooperatives are banks that can legally be classified as a cooperative.
The main aim of the cooperative primary banks is to support members due to
a common business. Membership is acquired by purchasing at least one share
in the cooperative. In addition, non-members can be customers of cooperative
banks and take advantage of any of the services on offer. In addition to the
KWG, credit cooperatives must adhere to the law regarding cooperative banks
(in German, Genossenschaftsgesetz or GenG).
• In the cooperative sector, the tasks of regional controlling institutions are
administered by the two central banks WGZ and DZ. Its shareholders are usually
the connected credit cooperatives. Beyond the cooperative sector, the cooperative
central banks are available to large and mid-size customers in all areas of the
credit business - money market and foreign exchange; securities, derivative and
syndicate businesses, in financial assets management and in foreign business.

Figure 51: Specialized commercial bank
“Financial supermarket” and “all financial services under one roof” are the most
frequently used keywords with a focus on private clients. Bancassurance is the offer
of various financial products when financial institutions of different branches work
together at the same time:
• commercial banks,
• insurance companies,
• building and loan associations,
• mortgage banks,
• capital investment companies,
• leasing companies
• and so on.

Figure 52: New distribution channels

Lesson Summary
Related Information

FS001 Unit Summary
Unit Summary
Related Information
• [Enter an optional reference using the URL or CrossReference tag to additional
information that the learner may find useful. Examples include websites or white
papers. Delete this if it is not relevant.]

Unit Summary FS001

FS001 Test Your Knowledge
Test Your Knowledge

1. What are the main functions of banks in the economy?
2. Provide a detailed explanation of the terms “investor and borrower”.
3. Where do the banks get the money that they loan out?
4. Which channels can normal customers (retail and commercial) use to process
their bank transactions?
5. Which channels do the banks use to conduct business with other banks and
markets?

Test Your Knowledge FS001
6. Give some examples of the bank's lending and deposit businesses.
7. What is the fundamental legal regulation for banking in Germany?
8. Which transformation activities does the bank perform between borrowers and
investors?
9. What are the differences between a money market and a capital market?
10. What is cash generation and how does it occur?
11. Which meaning and tasks are assigned to banks in an economic system?

12. Name the laws to which the German banking industry is subject.
13. List the aims of the Banking Act of the Federal Republic of Germany (KWG)
and provide a short explanation of the law.
14. What role does equity and liquidity play in banking?
15. What is a multimillion loan?
16. What is the aim of the GroMiKV?
17. List the elements of the German banking system.

18. In what way do the Eurosystem and ESCB vary?
19. What is the highest-level decision-making body of the ECB? List the others.
20. What tasks does the Deutsche Bundesbank perform?
21. Name and briefly explain the monetary instruments of the ESCB.
22. Which banking system characterizes the German banking environment?
23. Which types of bank exist in Germany?

Answers
1. What are the main functions of banks in the economy?
Answer: Payment transactions, investment and financing.
2. Provide a detailed explanation of the terms “investor and borrower”.
Answer: Investors are economic agents who, in a period, want to take in more
money than they spend and to collect capital with the intention of making a
profit. They have an investment requirement.
Borrowers are economic agents who, in a period, want to spend more money
than they have available to them due to their regular income and outcome. They
have a financial requirement.
3. Where do the banks get the money that they loan out?
Answer: From deposits and from the money and capital markets.
4. Which channels can normal customers (retail and commercial) use to process
their bank transactions?
Answer: Using branches, using the internet and using call centers.
5. Which channels do the banks use to conduct business with other banks and
markets?
Answer: Swift, Target, GL Net, Boss Cube
6. Give some examples of the bank's lending and deposit businesses.
Answer: Lending business: Loans

Deposit busines: Savings deposits
7. What is the fundamental legal regulation for banking in Germany?
Answer: KWG - Kreditwesengesetz (Banking Act of the Federal Republic

of Germany)

8. Which transformation activities does the bank perform between borrowers and
investors?
Answer: Lot size transformation, term transformation and credit risk

transformation.
9. What are the differences between a money market and a capital market?
Answer: The money market is for short-term liquidity management. The capital
market is for medium to long-term corporate financing.
10. What is cash generation and how does it occur?
Answer: Cash generation is the increase in the money supply that is in

circulation.
The central bank can generate cash by granting credit to banks and by purchasing
securities and other assets.
Corporate banks can generate cash. As a result of this, the main proportion of
monetary amounts from credit given and received returns to clearing accounts
(in other banks), and this can then be loaned out again.
11. Which meaning and tasks are assigned to banks in an economic system?
Answer: The banking sector plays an important role in the market economy
system: It manages the largest part of the monetary assets, provides capital to
companies, private and public authorities, brokers, consults, delivers information
and assumes risks. The behavior of banks heavily influences the money
circulation, investments and demand for goods. Due to these economic factors,
the trust towards credit institutions must be particularly protected.
12. Name the laws to which the German banking industry is subject.
Answer: See the figure “Laws regarding the German banking industry”.

13. List the aims of the Banking Act of the Federal Republic of Germany (KWG)
and provide a short explanation of the law.
Answer: The Banking Act of the Federal Republic of Germany (KWG) is

considered to be the “fundamental law regarding banking”. It represents the
legal basis for the supervision of banking and has three aims:
• Ensure general order in the banking industry,
• Maintain efficiency in the banking industry and
• Protect the bank's creditors from financial loss.
In pursuing these aims, the banks should maintain their corporate freedoms. For
this reason, the supervision of banking is restricted to continued monitoring.
Therefore, the bank supervision intervenes only if the general regulations are
violated.
14. What role does equity and liquidity play in banking?
Answer: The existence of banks is also under threat if they can no longer fulfill
the authorized payment requirements each time and in full. Therefore, § 11
KWG requires that institutions generate funds in such a way that ensures that
there is always sufficient willingness to pay. In principle, banks are liable to an
increased liquidity risk because they accept deposits with various terms, they
grant credit with varying maturities and payments in block from derivative
transactions are the result.
15. What is a multimillion loan?
Answer: Multimillion loans are loans of 1,500,000 euro or more.
16. What is the aim of the GroMiKV?
Answer: See the figures “Why are large exposures monitored?” and “Why
are multimillion loans monitored?”
17. List the elements of the German banking system.
Answer: European System of Central Banks (ESCB) and commercial banks.
18. In what way do the Eurosystem and ESCB vary?
Answer: See the figure “ESCB and Eurosystem”

19. What is the highest-level decision-making body of the ECB? List the others.
Answer: The Governing Counsel and the General Counsel are the two
decision-making bodies of the ECB and the Executive Board is the executive
body. The ECB Governing Counsel is the highest-level decision-making body
of the ECB.
20. What tasks does the Deutsche Bundesbank perform?
Answer: Note-issuing bank, banks' banker, state's banker, banking supervision,

keeper of the currency reserves.

21. Name and briefly explain the monetary instruments of the ESCB.
Answer: Open market policy: The most important open-market business of the
ECB is the main refinancing instrument (main tender). This is an instrument
of open-market policy in which the commercial banks receive money from the
ECB for interest payments. Due to its significance, the interest rate of these
transactions (main refinancing rate) is often also called the key interest rate of
the ECB. The transactions occur once a week. The term for these transactions
is a week. The three other open-market transactions of the ECB are long-term
refinancing transactions (term is three months), microcontrol operations and
structural operations. However, these transactions are not used for monetary
aims. Instead, the aim of these transactions is to provide commercial banks with
the required liquidity.
Standing facilities: These are the marginal lending facility and the deposit
facility. Commercial banks can use the marginal lending facilities to provide
money in the short-term (overnight) and use the deposit facility to generate
money in the short-term (overnight). The interest rate of the marginal lending
facility creates the upper limit for the call money rate EONIA (Euro OverNight
Index Average). The deposit facility creates the lower limit for the call money
rate.
Exchange market interventions: The ECB sporadically intervenes in the
exchange market in order to stabilize the monetary exchange rate and swap rate
policies However, the ECB only rarely uses the instrument of intervention (it did
not use this instrument at all in 2004). It must be used after assessment by the
ECB only if large incorrect exchange rate valuations occur that pose a risk either
to the ECB's inflation target (as the most important monetary target) or to the
economic stability in the eurozone (this is the second most important target).
Minimum reserves: The ECB requires that commercial banks hold minimum
reserves in clearing accounts with the national central banks. These reserves
currently amount to 2% of the deposits and bonds of the bank. However, in
contrast to the main refinancing instrument, standing facilities and exchange
market interventions, the minimum reserve is more of a regulatory instrument
than a monetary instrument since it delivers only the framework for the other
instruments but has never been changed by ECB. In contrast to the minimum
reserve of the former Deutsche Bank, the minimum reserve of the ECB is
subject to interest.

22. Which banking system characterizes the German banking environment?
Answer: The banking environment in Germany is characterized by a universal

banking system. A bank is a universal bank if the tasks of the bank include at
least deposit and credit transactions and, at the same time, securities transactions
(the purchase and sale of securities for others).
23. Which types of bank exist in Germany?
Answer: Universal banks:

• Lending banks
– Big banks
– Regional banks and other banks
– Branches of foreign banks
• Savings bank sector
– Savings banks
– Federal State banks/clearing centres
– Dekabank
• Cooperative sector
– Credit cooperative banks
– Cooperative central banks
Specialized commercial banks:
• Building and loan associations
• Capital investment companies
• Guarantee banks
• Banks with specific functions
– AKA Ausfuhrkredit-Gesellschaft mbH
– IKB Deutsche Industriebank AG
– Liquiditäts-Konsortialbank AG
– Kreditanstalt für Wiederaufbau
– Landwirtschaftliche Rentenbank

Unit 2
Deposit banking, credit transactions
and payment transactions
Unit Overview
Deposit, credit and payment transaction services are the underlying transactions of
universal banking and are all closely related. This chapter provides an insight into
the various types of deposit, their application and their conditions. This chapter
describes the credit business and the key conditions and definition proportions,
particularly the maturity of the credit business to the special advance forms such as
leasing or factoring. We will explain basic terms for the payment transactions and
we will describe the key processes of the non-cash payment transactions, including
card payment.
Unit Objectives
After completing this unit, you will be able to:
• name the most important types of deposit and distinguish these types from each
other
• understand their relevant application
• list and rate the main conditions
• Use examples to differentiate between the most important terms of credit
transactions
• Understand special advance forms of credit
• Explain the function of foreign trade financing
• Explain methods of payment and payment transaction types
• Describe how the national and international non-cash payment transactions
function
• Describe electronic funds transfer
• Describe the aims of the new European payment transactions “SEPA”

Unit 2: Deposit banking, credit transactions and payment transactions FS001
Unit Contents
Lesson: Deposit banking............................................................ 63
Lesson: Credit transactions ........................................................ 71
Lesson: Payment transactions ..................................................... 81

FS001 Lesson: Deposit banking
Lesson: Deposit banking
Lesson Overview
This lesson describes deposit banking, types of deposit and their main conditions.
Lesson Objectives
other
Business Example
Figure 53: Deposit banking: Basic principles I
Deposit, credit and payment transaction services are the underlying transactions
of universal banking and are all closely related. Without functioning payment
transactions, it is impossible to process credit and deposits. On the other hand, you
cannot perform payment transactions without the legal and practical framework for
accepting and issuing credit.
Banks fund themselves using, on the one hand, customer deposits and, on the other
hand, using the capital market.

Figure 54: Deposit banking: Basic principles II
The liabilities side of the balance sheet contains deposits that reflect the funding
of a bank.
For German banks, the deposits from banks and non-banks constitute the largest
items on the liabilities side (about 2/3).
The other third mainly consists of equity or bearer bonds.
Figure 55: Deposit banking: Demand deposits

Figure 56: Deposit banking: Time deposits
Figure 57: Deposit banking: Time deposits
Figure 58: Deposit banking: Conditions of time deposits

Figure 59: Deposit banking: Conditions for fixed deposits
It is widely accepted that interest rates are usually higher as the term is longer.
However, this does not have to be the case.
Figure 60: Deposit banking: Certificate of deposit

Figure 61: Deposit banking: Savings deposits
Figure 62: Deposit banking: Conditions of savings deposits

Figure 63: Deposit banking: Savings schemes and savings agreements
Figure 64: Deposit banking: Savings certificates

Legal and voluntary deposit guarantee schemes

For the investor, the security of their deposit is key. If a bank becomes insolvent
(something that used to be a rare occurrence in Germany), there are legal and
voluntary deposit guarantee schemes from various bank groupings.
• Legal requirements for protection:

– limited to private individuals and smaller non-banks
– Amount of compensation is limited to 90% of the receivable or €20,000.
• Voluntary safeguarding systems for bank groupings:
– Savings banks organization
– Cooperatives and local rural credit cooperatives (Volks- und
Raiffeisenbanken)
– Big banks
The aim of these safeguarding systems is not only to compensate investors in the event
of insolvency, but to preserve the institution.
The provisions of the voluntary safeguarding systems go significantly beyond the
legal requirements.

Lesson Summary
other
Related Information

FS001 Lesson: Credit transactions
Lesson: Credit transactions
Lesson Overview
[Enter a brief overview of the lesson.]
Lesson Objectives
transactions
Business Example
Figure 65: Systematizing the credit business (01/07)


Figure 72: Short-term loans (01/06)


Figure 78: Medium and long-term loans (01/08)



Figure 86: Leasing (01/04)

Figure 90: Foreign trade financing (01/02)
Figure 91: Foreign trade financing (02/02)

Lesson Summary
transactions
Related Information

FS001 Lesson: Payment transactions
Lesson: Payment transactions
Lesson Overview
This lesson explains the basic terms for payment transactions and provides information
about cashless payment processes, including using cards.
Lesson Objectives
function
Business Example
Figure 92: Methods of payment and forms of payment

Figure 93: Methods of payment and forms of payment: Methods of payment
Figure 94: Methods of payment and forms of payment

Figure 95: Methods of payment and forms of payment: Network money
Figure 96: Methods of payment and forms of payment: Alternative means of

payment
Figure 97: Methods of payment and forms of payment: Forms of payment

Figure 98: Cashless payment transactions: Transfers
Figure 99: Cashless payment transactions: Transfers
Figure 100: Cashless payment transactions: Direct debit transactions

Figure 101: Cashless payment transactions: Direct debit
Automatic debit authorization: The payer grants the payee authorization to collect
funds from their account using direct debit. The bank does not have to check whether
the payer has an automatic debit authorization. The payer has the option to cancel
this debit from their account without having to provide a reason. This mostly occurs
within six weeks.
Figure 102: Cashless payment transactions: Direct debit order
Standing order: In this case, the payer authorizes the bank (the paying bank) to pay an
amount from their account. This amount is specified by the payee. Standing orders
are not usually granted only for one debit, but they are granted for the period up until
they are cancelled. Before the paying bank debits the payer's account, it must check
whether the payer approves this debit. This procedure is not as common these days.

Figure 103: Cashless payment transactions: Cards
The Eurocheque card is a debit card. They can be used for cash withdrawals and for
making payments at points of sale. All withdrawals are immediately made from
the relevant checking account.
With credit cards, there is a difference between charge cards and credit cards.
With charge cards, all the transactions for a month are usually debited in one amount
at the end of the month.
Credit cards grant an individually agreed interest-bearing credit that is repaid in
installments.
Figure 104: Cashless payment transactions: Credit card

Figure 105: Payment transaction networks and systems
The following giro networks exist in Germany and these networks are linked:
• The giro network of the Deutsche Bundesbank with the state central banks and
branches
• The giro network of the Postbank with central offices and branches
• The giro network of the savings banks with individual savings banks, Federal
State banks/clearing centers and the Dekabank.
• The giro network of the cooperative banks and the DZ bank
• The giro networks of the big banks (Deutsche Bank, Dresdner Bank and
Commerzbank)
S.W.I.F.T. (Society for Worldwide Interbank Financial Communication) has a
worldwide communication network for its member institutions: banks, brokers,
securities firms, investment companies, clearing companies and markets. The focus of
S.W.I.F.T. is foreign payment transactions that can be processed quickly, reliably and
economically within a closed network between members.
EAF is a payment system for the Deutsche Bundesbank and is primarily used for
the large payment transactions.

Figure 106: Payment transaction networks and systems: TARGET
Figure 107: Instruments for payment transactions: SEPA
The SEPA directive “EU directive for payment services in single European market”
should be implemented in national law by the end of 2008.
After implementing SEPA, the previous payment instruments will continue to be used
in parallel to SEPA. The market will decide whether to accept the new instruments.

Lesson Summary
function
Related Information

Unit Summary FS001
Unit Summary
other
transactions
function

Test Your Knowledge

1. Which side of the balance sheet contains the deposits?
2. Name the various types of deposit.
3. Explain the types of deposit.
4. What are the main conditions for a deposit transaction?
5. What are the risks with deposit banking and how can you limit these risks?

6. List at least three criteria that can be used to systematize the credit business.
7. Provide three examples of short-term loans.
8. Define leasing.
9. What structure does leasing follow?
10. What are methods of payment and forms of payment?
11. Which methods of cashless payments do you know?

12. Which network is used for non-cash payment transactions in Germany?
13. What is SEPA?
14. How do the different types of cards vary?

Answers
1. Which side of the balance sheet contains the deposits?
Answer: The deposits are located on the liabilities side.
2. Name the various types of deposit.
Answer: Demand deposits, time deposits, savings deposits.
3. Explain the types of deposit.
Answer: Demand deposits are credits in banks that are kept in checking
accounts.
Time deposits are short-term investments and are kept in fixed deposit accounts.
Savings deposits are credit to savings accounts that are opened for an unspecified
duration.
4. What are the main conditions for a deposit transaction?
Answer: The term, the interest rate, fixed or variable interest.
5. What are the risks with deposit banking and how can you limit these risks?
Answer: The bank may become insolvent. The risks are limited through deposit
protection schemes.

6. List at least three criteria that can be used to systematize the credit business.
Answer: You can name any three of the following 10 criteria:

• Term of the financial contract (period of notice)
• Creditor
• Purpose of the financial contract
• Money or credit loan
• Transferability of the claims
• Disbursement options
• Repayment options
• Interest calculation options
• Notice options
• Collateral options
7. Provide three examples of short-term loans.
Answer: You can name any three of the following six examples:
• Current account credit
• Discount credit
• Collateral loan
• Acceptance credit
• Surety credit
• Factoring
8. Define leasing.
Answer: You must include the following key points in the definition:
• A contract party receives the right to use a certain leased object.
• A purchase price is not paid.
• When leasing, the lessee does not really "invest", but they use the capacity
that the lessor has bought.
9. What structure does leasing follow?
Answer: Leasing involves the separation of user and owner.

10. What are methods of payment and forms of payment?
Answer: Money or alternative means of payment are methods of payment.

Cash payment, cash deposit and cashless payment.
11. Which methods of cashless payments do you know?
Answer: Transfers, direct debit, cards, account-only checks.
12. Which network is used for non-cash payment transactions in Germany?
Answer: Giro networks of the Deutsche Bundesbank, the Postbank, savings

banks, cooperative banks and the big banks.
13. What is SEPA?
Answer: Single European Payments Area. The aim of this is European payment
transactions in the single European market.
14. How do the different types of cards vary?
Answer: Debit cards (pay now), credit cards (pay later), cash cards (pay before).

FS001 Course Summary
Course Summary

• classify banking products and services
• understand the basic banking processes
Related Information
Literature:
• Grill, W. and Perczynski, H: “Wirtschaftslehre des Kreditwesens” Bildungsverlag
EINS, Troisdorf 2007
• Hartmann-Wendels, T.; Pfingsten, A.; Weber, M. (HW/Pf/We):
Bankbetriebslehre. 4. Edition, Springer, Berlin et al., 2006.
• Becker, H.P.; Peppmeier, A.: Bankbetriebslehre, 6. Edition, Kiehl,
Ludwigshafen, 2006.

Course Summary FS001

Glossary
Numerics/Symbols
(1) garantir (2) repay/abdecken
(1) To provide collateral for an unsecured debt(2) To repay a loan.
(1) scrip certificate (2) delivery note/Lieferschein
(1) Written obligation on the part of the bank acting as paying agent to hand over
the definitive certificates to the subscriber as soon as they have been issued. (2)
Type of waybill accompanying merchandise shipments.
(1) value date (2) value/Wert
(1) Synonym of Valuta (1).(2) General expression for securities (for example,
chemical securities, fixed-interest securities).
(1) Value date/Valuta
(1) Also: The date on which a sum of money is credited or debited, or from
which interest begins to accrue.
90 days deposit/Dreimonatsgeld
Bank deposit from clients or other banks fixed for a term of 90 days.
AAA/AAA
Highest debt grade in the rating system used by Standard & Poor's for securities
in the international financial markets.
ABS/ABS
Abbreviation for Asset-Backed Security
Acceptance credit/Akzeptkredit
Short-term loan under which the bank permits the customer to draw bills up
to a certain amount (credit line). The bills are then accepted and usually also
discounted by the bank as agreed.
Acceptance/Akzept
(1) Written declaration on a bill of exchange that the latter is accepted.
Acceptance of the bill of exchange must be declared, although it can also be
limited to just part of the amount of the bill of exchange. The drawee of the
bill of exchange is bound through acceptance to pay the latter on expiry. (2)
Accepted bill of exchange. Opposite: Draft. 3) Acceptance of a contract tender.
Account
Synonym of bank account.

Glossary FS001
Account card/Kontokarte
Plastic card issued to bank customers for the efficient handling of transactions
carried out over the counter or using ATMs. The necessary control data, such as
the customer's PIN, are stored in the magnetic strip.
Account statement/Kontoauszug
A written summary of all account transactions within a given period. Depending
on the type of account, interest is calculated on a monthly to yearly basis.
Account statements can also be accessed online.
Account-only check/Verrechnungscheck
Also: Cheque bearing the endorsement "for clearing only" or "for crediting only"
or similar. Such cheques may not be paid out in cash but can only be credited to
the beneficiary. The endorsement cannot be cancelled by crossing it out.
Accounting standards/Rechnungslegungsvorschriften
Legally defined procedures to be followed when compiling company accounts
and consolidated accounts.
Accruals and deferrals/Rechnungsabgrenzung
Balance sheet item covering expenses and income attributable to a different
reporting period to that in which they were paid.
Accrued expenses and deferred income/transitorische Passiven
Accounting apportionment items entered on the liabilities side of the balance
sheet, such as income already received during the past financial year but
relating to the new financial year, or expenses incurred during the past year but
not payable until the following year. Opposite: Accrued income and prepaid
expenses.
Accrued income and prepaid expenses/transitorische Aktiven
Accounting apportionment items listed on the assets side of the balance sheet,
such as expenses paid during the past financial year, but relating to the new fiscal
year. Opposite: Accrued expenses and deferred income.
Accrued interest
Synonym of Marchzins.
Addendum/Allonge
A supplement or appendix attached to a document (deed, bill of exchange,
registered share) which can be used for endorsements.
After-sight bill/Nachsichtwechsel
Bill of exchange which becomes payable at a certain date after presentation for
acceptance (for example, after one month).
Aircraft mortgage/Flugzeughypothek
Loan that is secured by a right of lien to an aircraft. This right of lien is entered
in the aircraft register.

FS001 Glossary
Allfinanz/Allfinanz
Combination of banking and insurance services in one financial institution, or the
contractual or capital-related integration of financial institutions from different
divisions. The most important part is the offers from banking and insurance
products. Sometimes used to refer to the full range of financial services.
Allocation/Zuteilung
Also: (1) Synonym of subscribed allotment.(2) Allocation of securities reduced
on a pro rata basis if supply and demand cannot be matched at a certain price.
Amortization/Amortisation
(1) The reduction of a debt by means of payments in installments. We therefore
speak of amortization loans or installment mortgages if repayments occur
periodically.(2) Cancellation of securities.(3) Obsolete term for depreciation.
Annual financial statements/Jahresrechnung
Part of a company's annual report consisting of the balance sheet, the profit and
loss account and the notes. Banks with total assets of CHF 100 million or more
which transact a significant amount of balance sheet business are also required
to produce a cash flow statement. Annual financial statements are intended to
enable as reliable an assessment as possible of the company's asset and earnings
situation.
Annualized/annualisiert
Extrapolated for part of a year to reflect a hypothetical full year.
Annuity bond
In a broader sense, this is a synonym of bond. In a narrower sense, it is a
synonym of perpetual annuity.
Application for letter of credit/Akkreditiv-Auftrag
Written request addressed by a customer (buyer) to his bank to open a letter of
credit. Notification usually takes place via a correspondent bank.
Appurtenance lien/Zugehörpfandrecht
A lien on real property which encumbers the land and all movables on it needed
to fulfil the purpose of that property. To avoid subsequent disputes, the pledgor
must as a rule submit a list of appurtenances to the land register office.
Asset
Synonym of investment.
Asset allocation
Synonym of Asset-Allocation.
Asset backed security/Asset-Backed Security
Abbreviation: ABS: Bond-like instrument backed by a pool of financial claims
such as mortgages or credit-card receivables. The pool of receivables is held in
trust by a finance company, which, in turn, uses the cashflow of the pool to
supply the investors.

Glossary FS001
Asset class/Anlageklasse
Any collection of assets that reacts in a unique way to the fundamental drivers
of the economy. The most important asset classes are equity, fixed income,
money market investment, and real estate.
Asset management mandate/Verwaltungsvollmacht
Limited power of attorney empowering the authorized agent to perform
management and administrative acts, but not conferring any authority with
regard to disposal.
Asset management/Asset-Management
Range of services offered by banks for the active management of a client's
assets under a portfolio management mandate. Asset management is essentially
synonymous with portfolio management or wealth management but in practice
often refers to the service provided to institutional investors.
Assignee/Zessionar
The acquirer of title or interest transferred by an assignor.
Assignment credit/Zessionskredit
Book credit secured against the fiduciary assignment of existing receivables.
Assignment in blank/Blankozession
Assignment or detailed specification of assignee. With a separate assignment in
blank, the assignment is entered on a separate form.
Assignment/Zession
Also: The transfer of a claim by written contract between the creditor (assignor)
and the party acquiring the claim (assignee).
Assignor/Zedent
The person who transfers title or interest to a third party.
Associated company/Beteiligungsgesellschaft
Company in which another company has a minority holding. The name
"associated company" is therefore misleading.
At par/pari
Indicates that the price of the instrument is equal to its face or nominal value.
Authentification/amtliche Beglaubigung
Confirmation of the authenticity of a document, photocopy or signature by an
authority or notary, without making any statement on the content.
Authorized bank/ermächtigte Bank
Bank which, in addition to the central paying agency, has been given permission
by public authorities or agencies to process decentralized international payment
transfers.
Automated cash deposit machine/Geldeinzahlungsautomat
Machine that accepts banknote deposits for payment into a customer's account.

FS001 Glossary
Automated teller machine

See Bancomat International
Average rate
Synonym of middle rate.
Average term/mittlere Laufzeit
Maturity of a bond based on the average of the earliest and the latest possible
redemption date.
Averaging method
Synonym of averaging.
Back-to-back credit.
Synonym of Back-to-Back-Akkreditiv.
Back-to-back documentary credit/Back-to-back-Akkreditiv
Also: Back-to-back credit. Documentary credit which is granted to another
beneficiary on the basis of an existing, non-transferrable documentary credit
(prime/master/original letter of credit). Back-to-back credits are commonly used
by middlemen when the original credit cannot be transferred and/or the terms
of the two credits are not the same.
Bad debt risk/Delkredererisiko
Risk that a debtor may be unwilling or unable to repay. The credit risk is
particularly high in the area of foreign trade due to legislative differences
between countries.
Balance an account/saldieren
Also: Close an account. To calculate the balance of an account accrued up to the
closing date, including interest and expenses.
Balance brought forward/Saldovortrag
Balance brought (carried) forward from one accounting period to the next.
Balance of payments/Zahlungsbilanz
Balance-sheet-like record of all cross-border payments of a country during a
given period. The balance of payments includes current transactions in respect
of goods (foreign trade) and services (including income on investments) on the
one hand, and capital transactions (direct and portfolio investments, and so on)
on the other. Not a balance sheet in the strict accounting sense, it is instead
more akin to a current account.
Balance of trade/Handelsbilanz
The net difference between the value of a country's exports and imports of
merchandise, with exports listed on the assets side and imports on the liabilities
side. The balance of trade is positive (in surplus) if exports exceed imports, and
negative (in deficit) if the reverse is the case.

Glossary FS001
Balance sheet analysis/Bilanzanalyse

Assessment of the figures and ratios in the balance sheet and income statement
(profit and loss account) in order to appraise the standing and creditworthiness of
a company or to evaluate the securities it has issued for investment purposes.
Balance sheet/Bilanz
A statement of the assets and liabilities of a business at a given time. The assets
side of the balance sheet provides information on the use of funds whereas the
liabilities side details the procurement of funds (financing).
Balance/Saldo
The difference between the sum of all credit items and all debit items in an
account.
Bancomat International/Bancomat
International cash dispenser chain created to enable bank customers to withdraw
cash up to a certain amount at anytime of the day or night. To do this, clients
require a customer card or Maestro card and PIN code. Bancomats can also be
used to load electronic purses using the CASH facility.
Bank account/Bankkonto
Also: Account Also: account. Record of all incoming and outgoing payments
maintained by a bank for its clients. Interest rates, charges, credit and withdrawal
limits and additional facilities will vary according to the type of account.
Bank balance sheet/Bankbilanz
Balance sheet for a bank.
Bank bill; bankers' acceptance/Bankakzept
Bill of exchange accepted by the drawee bank. Bankers' acceptances play an
important role as money market instruments.
Bank clearing system/Bankenclearing
Settlement of mutual payments between banks.
Bank commission/Bankprovision
Fee levied for banking services.
Bank deposit/Bankeinlage
Deposit with a bank.
Bank for International Settlements/Bank für Internationalen
Zahlungsausgleich
Abbreviation: BIS. International financial institution domiciled in Basel. The
BIS promotes cooperation between central banks as well as advocating the
standardization of banking regulations by issuing recommendations for capital
adequacy, risk management and derivatives. Website: http://www.bis.org.

FS001 Glossary
Bank guarantee/Bankgarantie
Irrevocable commitment of a bank to make payment if a third party fails to supply
specific goods or services. Main types of bank guarantee: bid bond, performance
bond, advance payment guarantee, payment guarantee and credit guarantee.
Bank guaranty/Bankbürgschaft
Legally binding document signed by the bank of a client guaranteeing payment of
a sum up to a given amount to a specified third party if the client fails to meet his
payment obligations. The bank guaranty gives the seller maximum security that
he will receive his money. The client bears the costs of issuing the bank guaranty.
Bank money
Synonym of Giralgeld.
Bank payment slip with reference number/Bankeinzahlungsschein mit
Referenznummer
Abbreviation: BESR. Payment slip for the efficient, low-cost invoicing of
domestic business transactions. Funds paid into the account are notified to
the client (on data carriers or by file transfer) for automatic reconciliation of
accounts receivable.
Bank/Bank
Organization which conducts banking transactions (mainly in the areas of
financing, investment and payment operations) together with all accompanying
services. Depending on business policy, company size and legal limitations, a
bank may operate as a full-service bank or a specialized, regional, national or
international institution. In most countries banks are subject to strict monitoring
and controls.
Banker/Bankier
Person who performs brokerage services in his capacity as owner of a banking
institution or as an executive employee of a bank.
Banker's draft/Bankcheck
Also: Bank check. A draft issued by a bank which may be drawn on the issuing
bank itself or on a third bank. Readily negotiable means of cashless payment.
Banking center/Bankenplatz
Place where banks are domiciled or are represented by business offices.
Banking operations/Bankgeschäfte
Legal transactions carried out by the bank when executing its specific functions.
Banking operations can be categorised according to different criteria, for
example, in terms of returns as in interest-differential business, fee and
commission business, own-account transactions and trading business; or in
line with organisational or marketing criteria as follows: deposit transactions,
loan transactions, securities transactions, money market transactions, payment
transactions.

Glossary FS001
Banking secrecy/Bankgeheimnis
An obligation on the part of banks and their employees to keep customer data
confidential.
Banking supervision/Bankenaufsicht
Various bodies supervise banking activities: General supervision, the external
statutory auditors and the internal auditors.
Banknote trading/Notenhandel
Also: Banknote dealing, change. The exchange of cash in one's own currency
into a foreign currency. Where cheques, bills of exchange or bank deposits are
converted into a foreign country, the term foreign exchange trading or currency
trading is used.
Banknote/Banknote
Note issued by a central bank as a means of currency. A banknote does not
embody any rights and as such does not constitute a security. Banknotes are
legal tender.
Bankruptcy/Konkurs
Inability to meet payment obligations leading to the enforced liquidation of
the assets of a debtor entered in the Commercial Register. The proceeds of the
liquidation are distributed among the creditors.
Basel Committee on Banking Supervision/Basler Ausschuss für
Bankenaufsicht
Committee of banking supervisory authorities that coordinates banking
supervision in the individual member countries. The Basel Committee on
Banking Supervision was founded in 1974 by the governors of the central
banks of the Group of Ten (G10) countries. It is made up of high-ranking
representatives of the banking supervisory authorities and central banks of
a range of European and non-European countries. The committee generally
convenes at the Bank for International Settlements in Basel, where it has its
permanent secretariat. The guidelines on the Capital Accord (Basel I and Basel
II) were drawn up by the Basel Committee on Banking Supervision. The
committee does not, however, have any legislative powers.
Basel I/Basel I
Set of guidelines issued by the Basel Committee on Banking Supervision in 1988
covering capital adequacy and risk management by banks.
Basel II/Basel II
Revised version of the guidelines drawn up by the Basel Committee on Banking
Supervision covering risk management, the powers of the supervisory bodies
to monitor risk management and the extended duty of disclosure and market
discipline of the banks.

FS001 Glossary
Basic analysis/Fundamentalanalyse
Subarea of securities analysis. Method of determining the true or intrinsic value
of a share on the basis of fundamental factors (for example, balance sheet,
income statement, management record, overall industry). Used as a gauge
of future profit and dividend growth. A share trading lower than its estimated
intrinsic value is classed as underpriced.
Below par/unter pari
Term that indicates that the price of a security is lower than its nominal value.
Opposite: Above par.
Benchmark
Synonym of Benchmark.
Benchmark/Benchmark
Reference parameter, for example, a share index or a representative bond price or
yield, used to help measure the performance of a portfolio. A benchmark that is
an index is also called a reference index.
Bid or ask spread/Geld/Brief-Spanne
Spread applied by banks, determined by transaction costs plus a profit margin.
Bid price/Geldkurs
Price which a buyer offers for the purchase of securities, foreign exchange or
foreign banknotes. The indicator for the price is the additional G or g or bid.
Opposite: Ask price.
Big banks/Grossbanken
Term customarily applied in many countries to the category of large banks
operating on an international scale.
Bill for collection/Inkassowechsel
Bill of exchange presented to a bank for collection (and not for discounting).
The countervalue of the bill is credited to the account of the customer either
immediately "on the due date" or only "after collection".
Bill guarantee
Synonym of Wechselbürgschaft.
Bill guarantee/Wechselbürgschaft
Also: Aval. Undertaking of joint and several liability by the endorser (by signing
the bill) to settle a bill of exchange in the event of the failure of the actual drawee
of the bill to do so.
Bill of exchange/gezogener Wechsel
Payment order written by one person (the drawer) directing another person (the
drawee) to pay a certain amount of money.

Glossary FS001
Bill of exchange/Wechsel
Payment order written by one person (the drawer) directing another person (the
drawee) to pay a certain amount of money at a specified future date to a third
party. It designates a named beneficiary but is transferable by endorsement.
Discount credit when sold to a bank.
Bill of lading/Konnossement
A document issued in ocean traffic, the bill of lading confirms that the goods
have been received for shipment, the terms under which shipping is to take place
and that they are to be surrendered to the legitimate owner of the bill of lading at
the port of destination. The shipment document is the most important document
used in documentary credits.
Bill portfolio/Wechselportefeuille
Discounted bills deposited with a bank.
Bill renewal/Wechselprolongation
Prolonging the validity of a bill by postponing the expiry date. This is usually
done by adding a notation on the front of the bill: "Prolonged until...".
BIS/BIZ
Abbr. for Bank for International Settlements.
Blank check/Blankocheck
Also: Blankoscheck. A cheque signed by the drawer with no amount specified.
This is inserted by the payee on pre-agreed terms. Liability remains with the
drawer.
Blank draft/Blankowechsel
A draft passed on by the drawer with certain details left blank. The recipient is
entitled to complete the draft himself on pre-agreed terms. Liability remains
with the drawer.
Blank endorsement/Blankoindossament
Endorsement not bearing the name of the endorsee. The instrument merely
contains the signature of the endorser.
Blanket assignment/Globalzession
The assignment of all present and future claims of the debtor to third parties.
Blanket credit line/Rahmenkredit
General credit available under an open-end lending agreement for a specified
period. An example would be a credit line agreed between an import and an
export country for granting long-term export or investment loans.
Blocked period/Sperrfrist
Banking: period during which certain securities are not placed freely at the
owner's disposal (for example, securities or employee shares deposited as
collateral).

FS001 Glossary
Blue chip/Blue Chip

Share of a company of prime borrower standing. Original meaning of word:
fragment of a diamond.
Bond
Synonym of Obligation.
Bond floor/Obligationenwert
Price at which a convertible bond would have to sell as a conventional bond
relative to yields of other bonds of similar maturity, size and quality.
Bond fund/Obligationenfonds
Investment fund that invests at least two-thirds of its assets in bonds. A maximum
of 10% may be invested in equities and 25% in convertible bonds.
Bond issue
See also Anleihe.
Bond issue in default/notleidende Anleihe
A bond issue whose interest or planned repayments of principal are not made as
scheduled under the terms of the issue.
Bond market/Obligationenmarkt
Market for fixed-interest securities that are medium to long-term and have
a fixed maturity.
Bond/Obligation
Also: Unsecured general debt obligation in the form of a security usually with a
fixed interest rate or no interest (zero-coupon bond). With few exceptions (such
as perpetual bonds), these instruments have a fixed maturity, for example, bond
issues, medium-term notes.
Bonus
Synonym of Bonus.
Book loss/Buchverlust
A profit which derives from assigning a higher value to assets or a lower value
to liabilities (for example, provisions or reserves) and is equal to the difference
between the old and the new (higher) book value. Opposite: Book profit.
Book profit/Buchgewinn
A profit which derives from assigning a higher value to assets or a lower value
to liabilities (for example, provisions or reserves) and is equal to the difference
between the old and the new (higher) book value. Opposite: Book loss.
Book value/Buchwert
The value at which assets are carried on the books of account. Generally, fixed
assets are shown at cost less normal depreciation while inventories may be
carried at cost or market value, whichever is lower. The book value of a share is
the company's net worth divided by the number of shares outstanding.

Glossary FS001
Book-entry securities/Wertrecht
Uncertificated rights stemming from standardized and dematerialized securities.
Boom/Boom
A rapid expansion in the volume of business activity, frequently accompanied
by price inflation and increased speculation in securities, commodities, and so
on. Different from prosperity in that boom refers to a stormy rise in the pace and
volume of activity rather than an actual increase in production and consumption.
Opposite: Crisis, depression.
Borrower's note/Schuldschein
A written acknowledgement of debt.
Bridge loan/ Überbrückungskredit
A short-term loan made to enable a borrower to complete a purchase before he
receives funds from another source (for example, seasonal loan).
Broker
Short form of stock broker.
Budget deficit/Haushaltsdefizit
Economic and fiscal situation in which a government's spending exceeds its
income. Opposite: Budget surplus.
Budget surplus
Economic and fiscal situation in which a government's income exceeds its
spending. Opposite: Budget deficit.
Budget/Budget
Also: Estimate. A plan of future income and expenses during a specified period,
for example, one year (commitment budget). In an operating budget, the planned
future costs and revenue or the planned income and expenses are compared.
Bull
Synonym of Haussier. Bull is the opposite of bear.
Bund/Bund
German government bond with a maturity of up to 30 years. The 10-year Bund
serves as the benchmark for the German and other European bond markets.
Call money/Callgeld
Also: Overnight money. Funds lent by the banks to one another at interest in
large, round amounts which the lending bank can call for repayment on a daily
basis and which can be repaid by the borrower at any time without notice.
Callable/kündbar
Descriptive term applied to a loan or to securities that can be repaid ahead of
schedule at the request of the borrower.
Cancellation/Storno
Also: Annulling an entry or reversing it as of the pertinent value date.

FS001 Glossary
Capital adequacy requirements

Synonym of Eigenmittelanforderungen.
Capital adequacy requirements/Eigenmittelanforderungen
Detailed paragraphs of banking laws and the regulation contained here
concerning the underlaying of assets, off-balance-sheet operations and open
items using equity capital. For each item, depending on the assigned risk, an
underlying rate of between 10% and 100% is set.
Capital appreciation fund/thesaurierender Fonds
Investment fund that reinvests most of its income. The continuous reinvestment
of income further enhances performance thanks to the compound interest effect.
Capital export/Kapitalexport
Flows of capital from one country to another, mainly in the form of credit, direct
investments and portfolio investments. In the case of remunerative capital
exports, the exporting company acquires legal claims or participation rights
abroad. Unrequited capital exports can take the form of non-returnable transfers
to developing countries.
Capital gain/loss/Kapitalgewinn/-verlust
Positive/negative difference between the price at which an investment is
purchased and the price at which it is sold. Profit or loss on the realization of a
long-term investment.
Capital investment loan/Investitionskredit
Credit granted for the financing of fixed assets, in other words, property, plant,
machines, equipment, and so on. Current assets are financed with a working
capital credit.
Capital market rate/Kapitalmarktsatz
Interest rate prevailing in the capital market.
Capital market/Kapitalmarkt
Market for medium- and long-term capital funds can be met (usually more than
12 months). In contrast, the money market is the market for short-term financing.
Capital protection/Kapitalschutz
Component of certain derivatives that protects the investor against a significant
loss on the original investment.
Capital write-down/Kapitalschnitt
Reduction of capital stock and ensuing reverse split, combined with a subsequent
capital increase through the issue of new shares. Serves to strengthen the capital
base of a company in temporary difficulties.
Capitalization rate
See capitalization.

Glossary FS001
Capitalization/Kapitalisierung
(1) Calculation of the capitalized value of regularly recurring payments or income
streams (such as rental income) using a specific interest rate (capitalization rate).
(2) Synonym of market capitalization.
Carriage and insurance paid/Carriage and Insurance Paid
Abbreviation: CIP. Also: Carriage and insurance paid to. Clause used in the
forwarding business meaning that the seller delivers the goods to the carrier
nominated by him, but the seller must in addition pay the cost of carriage
necessary to bring the goods to the named destination. However, in CIP the seller
also has to procure insurance against the buyer's risk of loss of or damage to the
goods during the carriage.
Cash and carry arbitrage/Cash-und-Carry-Arbitrage
When an instrument is purchased on the spot market and the same instrument is
simultaneously sold on the futures market.
Cash equity/Cash Equity
Physical shares as opposed to derivative products
Cash flow statement/Mittelflussrechnung
Part of the annual financial statements, listing all inflows and outflows of cash
and therefore the change in liquidity during the year under review.
Cash flow/Cashflow
Financial analysis: the flow of money payments to or from a company over a
given period (for example, over the course of a year). The cash flow is the net
profit plus depreciation and provisions in the period in question. Extraordinary
or accrued expenses and income should be excluded from calculation of the
cash flow so that the total figure reflects as clearly as possible the true earnings
performance of the company in question for the period. The picture should
likewise not be distorted by extreme fluctuations in the amount of hidden
reserves created or released. The cash flow is a key valuation parameter for both
investors and lenders.
Cash loan/Geldkredit
Loan where the bank makes direct cash payment, for example, current account
loans or discount credit. Opposite: Guarantee credit.
Cash management/Cash-Management
The planning, implementation and monitoring of measures designed to ensure
that adequate liquidity is maintained, surplus funds are profitably invested and
shortfalls are made up in good time and at low cost. Cash management, together
with credit management, belongs to financial enterprise management.
Cash market, spot market/Kassamarkt
The here-and-now market for immediate delivery and payment. Opposite:
Futures market.

FS001 Glossary
Cash reserve/Barreserve
Assets or capital which are immediately accessible or transferable into cash.
CASH/CASH
Chip card function (for example, on a Maestro card or Postcard). Chips can
be loaded with cash up to a set amount at a Bancomat. Can be used as a cash
substitute for smaller payments in shops displaying the CASH sign. PIN codes are
not required, and the price of the purchase can be debited directly from the card.
CD
Abbreviation for certificate of deposit.
CDS
Abbreviation for Credit Default Swap.
Central bank money supply/Notenbankgeldmenge
Sum of the notes and coins in circulation, plus the sight deposits held with the
national bank by the commercial banks. The monetary policy instruments can
control the central bank money supply.
Central bank/Notenbank
Also: National bank. Only institution which has the right to issue banknotes,
constitutes the monetary and credit policy authority of a currency zone.
Central mortgage bond institutions/Pfandbriefzentrale
Special institution set up to issue mortgage bonds and grant long-term loans
to its affiliated banks.
Certificate of deposit
Synonym of Depositenzertifikat.
Certificate of deposit/Depositenzertifikat
Also: Abbreviation: CD. A certificate of deposit is a money market instrument
and negotiable claim issued by a bank in return for a short- to medium-term
deposit usually lasting 1-12 months, but in exceptional cases up to 5 years. By
issuing the certificate, the bank confirms that it has received a certain sum and
that it will repay this amount to the lender together with the interest due at the
end of the period decided upon by the lender. Normally certificates of deposit
are issued in US dollars, even if they are issued by US banks through their
branches in London (London CDs). Those certificates issued in New York play
an important role as money market paper.
Certificate of origin/Ursprungszeugnis
Document certifying the country of origin as well as the price or value of goods.
It may be issued by an official organization, such as a chamber of commerce, or
by the beneficiary or the manufacturer.
Certificate/Zertifikat
(1) Record, attestation, confirmation. (2) Collective document of title to one or
more units in an investment fund. (3) Synonym of stock certificate.

Glossary FS001
Chamber of commerce
Short form of International Chamber of Commerce.
Changeomat/Changeomat
Note-changing machine which can be used irrespective of bank opening hours to
change foreign currency notes into the domestic currency and vice versa.
Check
Synonym of Check.
Check card/Checkkarte
Also: Debit card. Card issued by a bank for accountholders who are members
of a cheque system. The bank promises to cash cheques up to a certain amount
provided that the signature and account number on the cheque and the cheque
card are identical and the cheque card number is noted on the back of the cheque.
Check made out to cash/Barcheck
Also: Cash check. Cheque used by the drawer to withdraw cash from his account.
Checkable deposits/Giralgeld
Also: Bank money. Bank and postal checking account balances available at any
time for transfers and conversion into cash.
Cheque (GB); check (USA)/Check
Also: Check An order to or from the drawee (usually a bank), cheque holder
or another named person, that is payable on demand and linked to specific
formalities, to pay a specified sum of money. Unlike a bill of exchange, a cheque
is not a means of credit but a means of cashless payment.
CIF
Abbreviation for cost, insurance and freight.
CIP
Abbreviation for carriage and insurance paid.
Claim/Forderung
Right to a specific payment. In the case of a nominal claim, the demand is
exclusively for a certain sum of money. In bank balance sheets a distinction is
drawn between claims on banks and claims on clients. Opposite: Liability.
Clean Bill of Lading
Synonym of reines Konnossement.
Clean bill of lading (clean B/L)/reines Konnossement
A bill of lading that contains no positive notation of a defective condition or
shortage either of the cargo or its packaging. The seller must deliver the goods in
seaworthy packaging.
Clearing
See for deposit only.

FS001 Glossary
Clearing office; clearing house/Abrechnungsstelle

Institution which settles the payment of financial transactions between members.
Used to rationalize securities trading and bank payments. Local clearing houses
exist in all major banking centres, often alongside other organizations working
on a national or international basis.
Clearing operations/Giroverkehr
Using giro accounts to make cashless payments.
Clearing/Clearing
A system used to clear mutual payments between a number of organizations
(banks, brokers, and so on). All claims are set against one another, a balance
is struck at agreed intervals and only the differences are settled, for example,
securities clearing and bank clearing.
Clearstream/Clearstream
International clearing company formed in 2000 from the merger of CEDEL and
Deutsche Bank Clearing. Website: www.clearstream.com.
CLN
Abbreviation for Credit Linked Note.
Close (an account)
Synonym of balance an account.
CMBS
Abbreviation for commercial mortgage-backed security.
Co-ownership/Miteigentum
Joint ownership of a property by two or more persons under which each retains
title to a distinct part. Each co-owner can sell or pledge his or her portion,
whereas disposal over the entire property requires the consent of all co-owners.
Coinage prerogative/Münzregal
The right to mint and issue coins used as legal tender.
Collateral loan/Börsenkredit
Lombard loan secured by pledging securities and precious metals in order to
finance stock market transactions. The term "collateral loan" has become less
important in recent years.
Collateral security margin/Sicherheitsmarge
The margin or difference between the market value of collateral and the credit
granted. This margin is demanded by the bank to cover itself against any possible
decline in the value of the collateral.
Collateral security/Deckung
Security for a credit or other liability, usually in the form of something readily
convertible into cash, for example, goods, bonds, shares, and so on.

Glossary FS001
Collateralized debt obligation/Collateralized-Debt-Obligation

Abbreviation: CDO. Bond that is secured by a diversified debt portfolio. A
collateralized debt obligation is generally divided into different tranches with
different credit ratings.
Collection endorsement/Vollmachtsindossament
Also: An endorsement whereby the endorsee is given only the full authority to
collect a debt, without transfer of ownership. The endorsee may also pass on the
security in his turn, but only by way of a further collection endorsement.
Collection/Inkasso
The presentation for payment of any obligation, for example, collection of a
bill of exchange.
Collective account/Kollektivkonto
Account where the account holders are only entitled to dispose of the deposited
assets and the available balances jointly.
Commercial mortgage-backed security/Commercial Mortgage-Backed
Security
Abbreviation: CMBS. Security that is backed by the cash flows of a mortgage or
pool of mortgages on commercial real estate.
Commercial register/Handelsregister
Official register of companies which engage in a trade, manufacturing or another
type of commercial business.
Commission and service fee income/Kommissions- und
Dienstleistungsgeschäft
Also: Item in the income statement consisting of income from commission
and service fee activities less commission and service fee expenses. For the
service fee income, the bank is paid in the form of commission or fees, rather
than earning interest.
Commitment commission/Bereitstellungskommission
Fee charged by banks (usually on a quarterly basis) for credit lines granted but
not drawn on during the agreed loan period.
Commitment/Engagement
(1) Securities trading: Obligation from the (new) securities purchase or name
for the entire securities portfolio of an investor or a buyer group.(2) Credit
business: Credit obligation that a bank enters into with a customer or a debtor
country (credit commitment).
Commodity fund/Warenfonds
Also: Investment fund that invests mainly in commodity stocks or tradable
commodities.

FS001 Glossary
Commodity futures/Warenterminkontrakt
Contractual agreement to sell or purchase a standardized amount of a specific
physical commodity (for example, grain, metal, oil) at a predetermined price
and at a set date in the future.
Compliance/Compliance
Set of voluntary, banking supervisory and legally prescribed measures designed
to ensure that the business activities of financial institutions and the personal
transactions undertaken by their employees comply with the prevailing laws,
regulations and practices. Compliance serves to preserve the good reputation of
financial institutions.
Compound interest/Zinseszins
Interest which is accrued on previous interest that has become due and been
added to the principal amount.
Confirmed credit/bestätigtes Akkreditiv
Special type of documentary credit where, in addition to the payment undertaking
of the importer's bank, an undertaking is also given by the exporter's bank (or a
third-party bank, for example) the World Bank or an international development
bank) in order to provide the exporter with additional security. This second
undertaking to pay acts as a safeguard against risks that may stem from the
importer's bank (country risks and/or bank risks) or the importer's country (for
example, the risk of a moratorium on international payments due to a shortage
of foreign exchange).
Consolidated balance sheet
Synonym of group balance sheet.
Consolidation/Konsolidierung
(1) Conversion of outstanding, short-term debts into fixed, long-term debts, for
example, from a construction loan to a mortgage. (2) Stabilization of prices on
the stock exchange following a downturn or after a bull market.(3) Combination
of the separate balance sheets of a group of companies into a single group or
consolidated balance sheet.
Consortium/Konsortium
Also: Syndicate. An association of independent companies in the form of an
ordinary partnership formed to undertake a project requiring a pooling of skills
and resources. For example, banks often form consortia to undertake large-scale
financial operations (bond issues, capital increases, loans, and so on) for common
account.
Constant annual principal and interest payment/Annuität
The annual payment made by a borrower, consisting of an amortization
of principal and an interest component. This payment remains unchanged
throughout the entire repayment period. As the debt is worked down the interest
payments are gradually reduced, while the principal repayment rate increases.

Glossary FS001
Construction loan/Baukredit
A current account-type loan granted specifically for financing the construction or
renovation of a building. Funds are advanced at specific stages of construction
in so-called progress payments. This is a loan that is secured by a mortgage.
Accrued interest is factored into the loan. On completion of building work, a
construction loan is usually converted into a mortgage.
Consumer banking
Synonym of retail banking.
Consumer credit/Konsumkredit
Also: Consumer loan. Relatively small loan generally granted to private
individuals to acquire consumer durables or finance holidays.
Consumer loan
Synonym of Konsumkredit.
Contingent liability/Eventualverpflichtung
A liability which will come into definite existence only on the occurrence of a
specific event, for example, bank liability arising from acceptance, guarantees
and letters of credit. Contingent liabilities are not included in the balance sheet of
a bank but have to be reported under supplementary notes.
Continous trading/laufender Handel
The third session of stock market trading, during which new orders are
continually matched to existing ones in the order book according to the matching
rules, and orders that cannot be executed are entered in the order book.
Control stock/Sperrminorität
Shareholding held by management or individual shareholders which represents
less than a majority but is nevertheless sufficient to exert a decisive influence at
shareholders' meetings.
Conversion parity/Wandelparität
The conversion parity shows investors how much a stock will cost them if they
exercise their conversion right. Conversion parity = nominal value x price /
number of shares per convertible bond +/- payment per share.
Conversion premium/Wandelprämie
The difference in price between acquiring shares through conversion of a
convertible bond and buying the corresponding number of shares directly on
the stock exchange. The conversion premium shows how many percentage
points more expensive it would be to acquire shares by buying and subsequently
converting convertible bonds.
Conversion price/Wandelpreis
Price specified on the issue of convertible bonds for the conversion of the said
bonds into shares or participation certificates.

FS001 Glossary
Conversion right/Wandelrecht
Also: The inalienable right attached to a convertible bond entitling the holder to
convert it into shares or participation certificates of the respective company.
Convertibility/Konvertibilität
The ability of one currency to be converted into another.
Convertible bond issue
Synonym of Wandelanleihe.
Convertible bond issue/Wandelanleihe
Issue whose bonds can be converted into shares or participation certificates of the
issuing company under certain conditions and at specified terms.
Corporate bond/Unternehmensanleihe
Fixed-income security issued by an industrial firm.
Corporate Finance
Synonym of Unternehmensfinanzierung.
Corporate finance/Unternehmensfinanzierung
Procurement of the short- to long-term financial resources needed by the
enterprise. Consulting and support given to companies in the field of corporate
finance is an important area of banking, especially for big banks.
Correlation/Korrelation
Statistical measure of the linear relationship between two series of figures
(for example, performance of a security and the overall market). A positive
correlation means that as one variable increases, the other also increases. A
negative correlation means that as one variable increases, the other decreases.
By definition, the scale of correlation ranges from +1 (perfectly positive) to -1
(perfectly negative). A correlation of 0 indicates that there is no relationship
between the two variables.
Correspondence check/Korrespondenzcheck
Also: Cheque provided with a separate tearsheet designed for writing messages
to the recipient or beneficiary.
Correspondent
Synonym of correspondent bank.
Correspondent bank/Korrespondenzbank
Credit institution acting as agent for a bank in a financial centre where the latter
does not have its own branch.
Cost, insurance and freight/Cost, Insurance and Freight
Abbreviation: CIF. Also: cost, insurance and freight. A contractual term usual
in foreign trade which states that all costs for shipping, insurance and freight to
the harbour of destination are included in the price of the goods. CIF is only
practicable for sea or inland waterway transport. In all other cases the CIP clause
is used in place of CIF.

Glossary FS001
Countercyclical/antizyklisch
Term that means trading against the trend. Countercyclical investors buy shares
in a falling market, for instance, in the hope that prices will go up again.
Opposite: Procyclical.
Counterparty risk/Gegenparteirisiko
Loss that a bank would incur if a business partner were to become insolvent.
Country risk/Länderrisiko
Risk arising from political, economic, legal or social factors in a particular
country.
Country-specific fund/Länderfonds
Investment fund which invests exclusively in a specific country.
Coupon/Coupon
A certificate attached to a bond or share which, when detached and presented to
the issuer of the security, entitles the bondholder or shareholder to receive the
interest payment or dividend or to exercise rights. Due to the dematerialization of
securities trading, coupon is now often only used in a figurative sense.
Coverage requirement/Eindeckungspflicht
Obligation for the debtor to return the credit item to the contractual status using
repayment or additional securities when they exceed the credit limit.
Crash
Synonym of stock market crash.
Credit agreement/Kreditvertrag
Contract in which a bank grants its customer a loan or credit limit.
Credit capacity/Kreditfähigkeit
The capacity of a borrower to bear the financial burden of borrowing. This
capacity depends on income, earnings and assets.
Credit card/Kreditkarte
An internationally accepted form of payment, permitting the cashless purchase
of goods and services upon production and signature. Bills are issued monthly.
Credit cards can be used at companies (shops, hotels, restaurants, transport
companies, and so on) which have joined the appropriate credit card associations.
Cash can also be withdrawn from ATMs using a PIN. Credit card companies
include: MasterCard, VISA, Diners Club and American Express.
Credit cost/Kreditkosten
The total costs that the borrower must bear from using the credit. For personal
loans the partial payment charge is added to the interest costs. For construction
loans, as well as interest, you must pay the credit commission for the check
on invoices and payment processing.

FS001 Glossary
Credit Default Swap/Credit-Default-Swap

Abbreviation: CDS. Credit derivative under the terms of which one counterparty
pledges to take on the other's future loan losses in exchange for the payment of
a premium.
Credit derivative/Kreditderivat
Bilateral financial transaction allowing credit risk to be isolated from other
risks and from the instrument it is associated with and transferred from one
counterparty to the other.
Credit facility secured by mortgage/Hypothekarkredit
Current account loan secured by a maximum-sum mortgage or pledge on a
mortgage deed.
Credit for an unlimited period/unbefristeter Kredit
Credit that is not granted for a certain amount of time and for which notice of
repayment can be given at any time (for example, current account credit).
Credit guarantee/Kreditsicherungsgarantie
A guarantee to secure the lender's claim on the borrower in the event of the
loan not being repaid as stipulated in the agreement. Credit guarantees are used
all around the world.
Credit interest/Habenzins
Interest paid by banks on credit balances on client accounts. Opposite: Debit
interest.
Credit limit
Synonym of Kreditlimite.
Credit limit/Kreditlimite
Also: Credit line, credit facility. An amount up to which the bank will lend
money to a particular customer. Customers can draw down any unutilized part of
the credit line immediately as they require, without needing to submit a further
application.
Credit line
Synonym of credit limit.
Credit Linked Note/Credit-linked-Note
Abbreviation: CLN. Security with an embedded credit default swap. This allows
the issuer to transfer a specific credit risk to credit investors.
Credit management/Kreditmanagement
The planning, execution and monitoring of the credit operations in a company.
Credit management, together with cash management, belongs to financial
enterprise management.
Credit memorandum/Kreditprotokoll
The bank's internal recording using the assessment of an application for credit.

Glossary FS001
Credit overdrawing/Kreditüberziehung
To draw in excess of the deposit balance or of a line of credit agreed between
the bank and customer. Due to the risk involved, unauthorized overdrafts attract
higher interest than the utilization of credit within an agreed limit.
Credit payment order
See payment order.
Credit risk/Kreditrisiko
Also: Counterparty risk. Risk that a borrower will be unable to meet his/her
payment obligations, and that the lender will suffer a financial loss.
Credit secured by collateral/Realkredit
Loan secured by pledging certain assets. The collateral is either movables (for
example, securities, goods) or immovables (for example, property).
Credit; loan/Kredit
Legal operation by which the creditor transfers money to the borrower which
he/she must repay at the end of the term, when called or in installments. Loans
must be repaid and normally entail interest payments. Loans are categorized
according to length of term, cover, purpose or form of interest.
Creditor/Gläubiger
An individual or legal entity having a financial claim against another. Creditors
are ranked and, in the event of the debtor's bankruptcy, their claims are satisfied
in order of precedence from the proceeds of realization of the debtor's assets.
When the assets are realized, the resulting revenue is distributed according to the
order of priority of creditors.
Creditworthiness; credit standing/Kreditwürdigkeit
Totality of characteristics which make an individual or a corporate entity
trustworthy enough to receive a loan.
Creditworthiness/Bonität
Totality of characteristics which make an individual or a corporate entity
trustworthy enough to receive a loan. The creditworthiness is based on
characteristics that determine the willingness of the individual to pay. For the
ability to pay, these are conditions that enable payment. The various levels of
creditworthiness are reflected in the credit rating by the securities analysis, for
example, from Standard & Poor's or Moody's. It is also a determining factor for
the level of interest on a loan or the level of collateral on a loan.
Cross-selling/Cross-Selling
The sale of different categories of products or services using common channels.
Cross-selling is used primarily by full-service banks as part of an integrated
financial advisory approach.

FS001 Glossary
Crossed check/gekreuzter Check

Also: A cheque restricted in use by means of special endorsements. A general
crossed cheque has two parallel diagonal lines across the face and may also be
endorsed "& Co." The bank on which a crossed cheque is drawn may only pay it
to one of its customers or to a bank. A special crossed cheque bears the name
of a bank between the parallel lines, denoting that it may only be paid to the
designated bank. If the bank on which the cheque is drawn is itself the designated
bank, then the cheque may be paid to one of its customers. A general crossed
cheque may be converted into a special crossed cheque, but not vice versa.
Currency area
Synonym of currency zone.
Currency clause
Synonym of Valutaklausel.
Currency clause (foreign)/Valutaklausel
Also: A clause in a contract aimed at excluding the risk posed by the devaluation
of a currency relating to a particular claim by fixing the applicable exchange rate
between this currency and the foreign currency in the terms of the contract.
Currency swap/Währungs-Swap
Also: Swap, cross-currency swap. Swap of a capital sum together with the
related interest payments in one currency into a capital sum and the related
interest payments in another currency.
Currency unit/Währungseinheit
The monetary unit of a country or of an international monetary system (for
example, the euro).
Currency zone/Währungszone
Also: Currency area. Geographical area in which a currency is legal tender. A
currency zone normally coincides with the national frontiers of a country because
it is defined by the monetary order. Supra-national currency zones are created
when a number of currencies are linked by convertible currencies with fixed
exchange rates. Example: GBP zone.
Currency/Währung
The monetary system of a country or group of countries. Currencies can be
referred to as being hard or soft depending on the level of confidence they enjoy
worldwide.
Current account balance; balance of payments on current
account/Leistungsbilanz
Part of the balance of payments showing all accounts receivable and payable by a
country over a given period as a result of foreign trade in goods and services,
transfer payments, and wages and capital income.

Glossary FS001
Current account/Kontokorrentkonto
Also: Chronological, ongoing entry of the debits and credits resulting from
the business transactions between the bank and current account holders, with a
running balance being kept. A current account may also be used for accounts
receivable or payable. Current accounts offer little or no interest but unlimited
withdrawal privileges and many other services (for example, cheque books,
automated cash withdrawal, payment transfers, and so on) are available.
Current assets/Umlaufvermögen
Also: Assets of a company set aside for circulation in the operating process. In
addition to liquid assets, these include goods and claims that can normally readily
be turned into cash. Opposite: Fixed assets.
Custodian bank/Depotbank
Bank that keeps the assets of an investment fund, gathers the issues and returns
from investment certificates and handles the payment transactions of the fund.
The custodian bank also monitors that the investment funds adhere to the law and
to guidelines according to the investment guidelines.
Custody charges/Depotgebühr
Also: Custody price. The annual fee charged by banks for the custody and
administration of securities.
Custody price.
Synonym of custody charge.
Customer deposits/Kundengelder
Also: Customer funds. Accepting customer deposits is part of banks' core
business in which they act as financial intermediaries. Banks use customer
deposits as the main source of funding for their lending and investment activities.
Customer funds.
Synonym of customer deposits.
Cycle/Zyklus
More or less regular sequence of uptrends and downtrends in the performance of
a market or economy.
Daily balance interest calculation/Staffelmethode
Method customarily used for calculating interest on current accounts, with
interest based on the daily balance. Interest is paid on the existing balance
until it changes.
DAX
Abbreviation for Deutscher Aktienindex.
Day-to-day money
Synonym of call money
Debit card
Synonym of check card.

FS001 Glossary
Debit card/Debitkarte
A coded plastic card for making cashless payments which allows the holder to
draw cash or make payment for goods electronically.
Debit interest/Sollzins
Interest charged by the bank on loans or on overdrawn accounts. Opposite:
Credit interest.
Debt enforcement by bankruptcy proceedings
Synonym of Betreibung auf Konkurs.
Debt financing.
See also Fremdkapital.
Debt register claim/Schuldbuchforderung
A claim on the state arising from a loan or credit entered in an official register
of debt. No securities are issued for such claims. They are recorded solely in
the Register.
Debt rescheduling/Umschuldung
Adjustment of the terms applying to the existing liabilities of an overindebted
company or country; for example, a reduction of interest rates and an extension
of the time required for payment.
Debt-to-equity ratio/Verschuldungsgrad
Financial statistic comprising the ratio of a company's debt to its equity.
Debtor warrant/Besserungsschein
Written promise from a debtor to make periodic payments to a creditor
(payments being contingent on the profits generated by the debtor's company)
thus compensating the creditor for not enforcing his right to have a restructuring
program imposed on the debtor.
Debtors
Synonym of claims. Opposite: Creditors.
Default interest/Verzugszins
The rate of interest charged on an overdue debt, from the date of default to the
date of eventual settlement.
Default probability/Ausfallwahrscheinlichkeit
Likelihood that a counterparty will default on its obligation either over the life of
the obligation or over some specified horizon.
Default/Verzug
Also: Failure to make required debt payments on a timely basis or to comply
with other conditions of an obligation or agreement.
Defensive investment
Synonym of Anlagepapier.

Glossary FS001
Defensive investment/Anlagepapier
Security with comparatively low price and earnings fluctuations in contrast to
speculative securities. Defensive investments such as blue chips and bonds are
especially suitable for long-term capital investment.
Deferred payment/Deferred Payment
Also: aufgeschobene Zahlung. Expression used for a letter of credit with a
deferred payment date (for example, 90/120/180 days after the date of the bill of
lading). No draft is required.
Deflation/Deflation
A sharp decline in prices or an increase in the purchasing power of money,
brought about by a decrease in the amount of money in circulation relative to the
amount of goods and services available. Accompanied as a rule by a contraction
in capital spending activity. Opposite: Inflation.
Demand deposits.
Synonym of sight deposits.
Denomination/Stückelung
Breakdown of bond issues or capital stock into parts.
Deposit base/Bodensatz
Average volume of customer deposits available to the bank for investment at any
given time regardless of withdrawal options available to customers.
Deposit business/Passivgeschäft
Transactions under which the bank accepts borrowed funds and thereby assumes
liabilities in respect of customers in the form of savings or investments. Also
includes the issue of medium-term notes and own offerings. Opposite: Lending
business.
Depositary
Synonym of custodian.
Depositor protection/Einlegerschutz
Safeguard for customer claims in the event of a bank filing for bankruptcy.
Deposits
Synonym of bank deposits.
Deposits and borrowed funds
Synonym of Fremdgelder.
Deposits and borrowed funds/Fremdgelder
Also: fremde Mittel. Funds which a bank or other company borrows from third
parties. Opposite: Equity capital.

FS001 Glossary
Deposits; creditors; payables/Kreditoren

Collective term for creditors. In the balance sheet of a company, deposits
and borrowed funds that were received from customers or banks are listed
as creditors. In the terminology for banking balance sheets today, the term
"creditors" is replaced by "liabilities". Opposite: Debitors or claims.
Depreciation/Abschreibung
The gradual decrease in value of an asset through wear and tear or other factors
limiting its usefulness. Fixed assets are depreciated in accounts by regularly
reducing their book value in the balance sheet. Claims against debtors who have
become insolvant are also written off.
Deregulation/Deregulierung
Dismantling or abolition of state intervention in economic matters with the
purpose of reducing the influence of the state in the economy, abolishing
bureaucratic obstacles and legal regulations.
Derivative instrument
Synonym of derivative.
Derivative/Derivat
Also: Derivative instrument, derivative financial instrument. Generic term for
synthetic financial products which are linked to an underlying instrument such as
shares, bonds, indices, goods and so on.
Devaluation; depreciation/Abwertung
Reduction of the external value of a currency. In a system of fixed exchange rates
or bloc currencies, devaluation is effected by the legal or official lowering of the
exchange rate (or parity) of a currency in terms of the other currencies (formerly
against gold). In the case of flexible or floating exchange rates, depreciation is
the result of a decline in the exchange rate on the currency market in synch with
supply and demand. Opposite: Revaluation
Direct Banking
Synonym of Electronic Banking.
Direct debit (system); direct debiting/Lastschriftverfahren
Abbreviation: A method of collection whereby the debtor gives authorization for
his/her bank accounts to be debited directly.
Direct investment/Direktanlage
Capital export, in other words, by acquiring, establishing or making a strategic
investment in companies abroad.
Direct investment in individual securities instead of, for example, in funds.

Glossary FS001
Direct mortgage loan/direkter Hypothekarkredit

Under a direct mortgage loan, the bank is granted a mortgage lien as security for
its credit exposure. Where security is given in the form of a mortgage note, this
becomes the property of the bank. If the bank's claims are not met when due, it
can take legal action to enforce the sale of the underlying property and use the
proceeds to settle the outstanding debt directly.
Directive
An EU directive
Disagio; discount/Disagio
Also: The difference between the nominal or par value and the underlying market
value. For example, if the issue or market price expressed in percent of the
nominal value drops below par (in other words, below 100). In foreign exchange
operations, it is the term for the discount charged for exchanging a depreciated
foreign currency and the charge or discount deducted for exchanging abraded or
worn coins. Opposite: Agio.
Disclosed reserves/offene Reserven
Reserves openly reported in a company's balance sheet. Opposite: Undisclosed
reserves.
Disclosure of holdings/Offenlegung von Beteiligungen
Provision contained in the Stock Exchange Act stipulating that the shareholders
of listed companies must disclose share purchases or sales that result in their
voting rights exceeding or falling below a threshold of 5, 10, 20, 33 1/3, 50 or 66
2/3% of the company's total voting rights.
Discount
Synonym of disagio and markdown.
Synonym of Disagio.
Discount credit/Diskontkredit
Credit or discount line granted to a customer by a bank to provide liquidity by
discounting bills of exchange or similar commercial paper. On the strength of
the discount approval, the customer can have bills discounted up to a stipulated
total amount, but, having endorsed the bill, remains liable along with the other
endorsers as joint and several debtor until the bill is paid on maturity.
Discount rate
Synonym of Diskontsatz.
Discount/Diskont
Interest deducted in advance if claims falling due later, esp. drafts and bills,
are purchased. The net amount of the claim after deduction of the discount is
immediately credited to the beneficiary upon presentation. Discounting is usually
effected by a bank.

FS001 Glossary
Discount/Skonto
Price reduction expressed in percent which may be deducted from the invoiced
amount if payment is made within a specified period (for example, within 14
days).
Discretionary/diskretionär
Safeguarding, fiduciary. Used in banking for account and custody account
maintenance with a management agreement.
Disintermediation/Disintermediation
Trend away from bank to market financing or - seen from the banks' perspective -
away from balance-sheet to off-balance-sheet operations. Banks are acting less
as independent deposit-takers and lenders and more as intermediaries between
investors and borrowers.
Diversification/Diversifikation
A strategy of spreading an investment over different assets in order to reduce the
risk of earnings fluctuations.
Dividend
See Dividende.
Dividend coupon/Dividendencoupon
The coupon from the coupon sheet that is usually specified for the declaration
of dividends and that must be submitted in order to receive the dividend. The
dividend coupon secures the claim to the dividend in the form of a bearer security.
Dividend coupon/Gewinnanteilschein
Securitized claim to a share in the profit or dividend. Dividend coupons may be
attached to regular shares, dividend-right certificates or participation certificates.
Dividend yield
Synonym of Dividendenrendite.
Dividend yield/Dividendenrendite
Also: Stock yield. Ratio showing the yield on an equity investment calculated by
dividing the dividend by the current share price and which enables a comparison
to be made with other returns obtainable in the capital markets.
Dividend/Dividende
A share in the profits of a limited company (corporation) or cooperative. The
rate of dividend is determined at the General Meeting upon the proposal of the
Board of Directors. Distributions to the owners of participation certificates and
dividend-right certificates are also called dividends. Dividends can take the form
of a cash dividend (payment in cash), stock dividends and dividends in kind.
Document against acceptance
Synonym of Documents against Acceptance.

Glossary FS001
Documentary acceptance credit/Rembourskredit

Acceptance credit used for import or export financing. Usually secured by an
irrevocable documentary credit issued by the buyer's bank.
Documentary collection/Dokumentarinkasso
Request from the exporter to the bank to cash the relevant receivable or to allow
a correspondence bank to cash the relevant receivable. The collecting bank
provides the documents collected (for example, shipping papers) only after
the buyer has provided the specified service. Documentary collection offers
exporters considerably more security than is offered by an open account basis,
however not as much security as is offered by the documentary credit.
Documentary credit
Synonym of Dokumentenakkreditiv.
Documentary credit/Dokumentenakkreditiv
Also: Letter of credit, import credit, export credit. The most common form of
the commercial letter of credit, the documentary credit is an arrangement for
the safe negotiation of a payment and credit transaction, esp. in connection
with international deliveries of merchandise. The documentary credit covering
merchandise consists of a written undertaking on the part of a bank to pay, on
instructions from the buyer, a certain amount to the seller within a prescribed
period and against surrender of stipulated documents covering the shipment
of goods contracted for between seller and buyer, to accept said payment or
to negotiate it, or to authorize another bank to make such payments or draft
negotiations if the conditions are met. All instructions to open, confirm or advise
of a documentary credit must list precisely the documents to be presented.
Permissible documents include: bill of lading, insurance documents, trading
invoice, consular invoice, certificate of origin, weight and quality certificates.
A documentary credit can be revocable or irrevocable. Unless expressly stated
to the contrary it is regarded as irrevocable. The basis for the execution of
documentary credit is provided by the "Uniform Customs and Practice for
Documentary Letters of Credi" (UCP) drafted by the International Chamber
of Commerce in Paris.
Documentary draft/Dokumentartratte
A draft drawn by the seller on the buyer and accepted by the latter in connection
with a documentary collection. If the draft contains the notation D/A (documents
against acceptance) the documents are handed over upon acceptance of the draft.
If it is marked D/P (documents against payment), they are handed over only after
the acceptance has been paid.

FS001 Glossary
Documents against acceptance/Documents against Acceptance

Abbreviation: D/A. Also: Issuing note that may be attached to the draft for
export businesses in connection with a documentary collection or documentary
credit. This note signifies that documents may be surrendered to the drawee only
against acceptance of the accompanying bill.
Documents against payment
Synonym of Documents against Payment.
Documents against payment/Documents against Payment
Abbreviation: D/P. Also: Issuing note that may be attached to the draft for
export businesses in connection with a documentary collection or documentary
credit. This note signifies that documents may be handed over to the buyer
only against payment.
Domestic bond/Inlandsanleihe
Bond issue placed for public subscription by a borrower who is domiciled in the
country where the issue is floated. Opposite: Foreign bond issue.
Domiciled bill/Domizilwechsel
Bill containing a domicile clause which shows where the bill is payable. In actual
practice, bills are usually domiciled at the bank of the acceptor.
Draft/Tratte
Bill of exchange that has not yet been accepted by the drawee. Opposite:
Acceptance.
Draw by lot
Synonym of Auslosung.
Drawee
Synonym of Trassat (1).
Synonym of Trassat.
Drawee/Trassat
Also: (1) Also: In terms of the law pertaining to bills of exchange: person or
firm in whose name a bill of exchange has been made out (person ordered to pay
under the bill). The drawee is only subject to legal obligations in respect of the
bill of exchange when he/she/it has accepted the latter. (2) In terms of the law
pertaining to cheques: the bank on which a cheque was drawn and which cashes
the cheque to the debit of the drawer provided the necessary cover is available.
Issuer of a bill of exchange.
Drawer/Aussteller
Person who draws a check or bill of exchange.
DTA
Abbreviation of double taxation agreement.

Glossary FS001
Dual currency bond/Doppelwährungsanleihe

A bond issue where issues, interest payments and capital repayments are made in
two different currencies.
Due date/Fälligkeit
The date on which a payment can be requested and must be provided, for
example, repayment of a debt.
Due diligence/Due Diligence
Detailed check of a company's financial position, results of operations and cash
flows, its strengths and weaknesses, future potential and the risks it is subject to.
This check is conducted prior to a planned merger or takeover.
Duration; term; maturity/Laufzeit
(1) The time that elapses from the date a debenture is issued until it is repaid.
(2) The time for which a loan or credit is granted.
Duration/Duration
Cumulative average term of all payments (interest, repayment) of a fixed-interest
security. The duration is a measured value for the interest rate risk of
interest-dependent line items and assets.
E-banking/E-Banking
Short form of Electronic Banking.
E.v.
Abbreviation for Eingang vorbehalten (subject to collection).
Earning power/Ertragskraft
Ability of a company to generate profits now and in the future. This is used as
the basis for the stock rating.
Earnings per share
Synonym of Earnings per Share.
EBIT/EBIT
Also: Abbreviation for Earnings before Interest and Taxes. Basic earnings figure
of a company derived from net profit for the year before deducting tax, interest
or extraordinary items.
EBITDA/EBITDA
Also: Abbreviation for earnings before interest, tax, depreciation and
amortization. Absolute earnings figure of a company consisting of net profit for
the year plus tax, interest, depreciation and amortization.
ec
See Maestro card.
ec card
See Maestro card.

FS001 Glossary
Economic cycle
Synonym of economy.
Economic indicator/Konjunkturindikator
A measure of economic activity, providing information on the state of the
economy.
Economy
Synonym of Konjunktur.
Economy/Konjunktur
Also: Business cycle, economic cycle, trade cycle. All the regular and irregular
fluctuations in gross domestic product around a long-term trend level. An
economic cycle consists of the following phases: Upswing, peak or boom,
downturn or recession, low or trough.
ECU/ECU
Abbreviation for European Currency Unit.
EEA
The European Economic Area (EEA), consists of the EU Member States plus
Iceland, Norway and Liechtenstein.
EFT/POS
Abbreviation for Electronic Funds Transfer at the Point of Sale.
Electronic bank/elektronische Bank
Bank offering electronic self-service facilities which customers can avail
themselves of regardless of bank opening hours.
Electronic banking/Electronic Banking
Short form: e-banking. Also: Direct banking. Use of banking services via
electronic channels or via designated providers and private transmission media
regardless of time of day or location.
Electronic Funds Transfer at the Point of Sale.
Abbreviation: EFT/POS. Payment system which enables cashless payment at
sales points.
Emerging market
Synonym of Emerging Market.
EMI/EWI
Abbreviation for European Monetary Institute.
EMS/EWS
Abbreviation for European Monetary System.
EMU/EWU
Abbreviation for European Monetary Union.

Glossary FS001
Endorsee/Indossatar
Person to whom the title to and rights of an order instrument are transferred
by virtue of an endorsement.
Endorsement/Indossament
The transfer of title or rights to an order instrument by signing on the back of the
instrument.
Endorser/Indossant
Person who has title to a negotiable instrument and writes his name on it in order
to transfer said title or rights to another person or persons.
Enforced saving/Zwangssparen
All measures imposed by government bodies through legislation or collective
agreements to establish a social security system that provides for retirement
and invalidity.
Equity (2)/Aktien
Asset class for investments in the securities category share.
Equity banking
Synonym of Equity-Banking.
Equity banking/Equity-Banking
Also: Equity financing. Equity financing provided by a bank for newly
incorporated companies or those exhibiting strong growth with a good credit
rating.
Equity capital
Synonym of eigene Mittel.
Equity capital/Eigenkapital
Net assets of a company calculated as the excess of assets over liabilities.
Opposite: Liabilities.
Equity financing/Eigenfinanzierung
Funds raised by a company for capital investment via, in a limited company, the
issue of shares and participation certificates or, in the case of a cooperative,
the issue of unit certificates. Equity financing also includes self-financing by
retaining profits. Opposite: Debt financing.
Equity paper/Beteiligungspapier
Certificated equity instrument or dividend-right certificate.
Equity ratio/Eigenfinanzierungsgrad
Ratio of a company's equity to its entire capital.
Equity ratio/Eigenkapitalquote
Basic ratio which expresses equity capital as a percentage of a company's total
assets.

FS001 Glossary
Equity security
Synonym of Dividendenwert.
Equity security/Dividendenwert
Security with an entitlement to share in profits, as against fixed-income securities
with an entitlement to interest payments. Shares, participation and dividend-right
certificates are equity securities.
Equity; capital base/eigene Mittel
Also: Capital base(1) In a broader sense a synonym of equity capital. (2) In
banking, equity consists of core capital (Tier 1 comprising paid-up capital,
disclosed reserves and profit brought forward) as well as certain additional
capital components eligible for inclusion in tier one (undisclosed reserves and
subordinated bond issues). Equity capital must satisfy the requirements set out
in the law regarding banking, but in most cases it goes beyond these prescribed
limits. Equity is an important measure of how financially sound a bank is. (3)
Lending: the capital or assets which an applicant must usually have (except in
leasing) in order to be granted a loan.
ERA/ERA
Abbreviation for the Standard Guidelines and Applications for Documentary
Letters of Credit that was produced by the International Chamber of Commerce
(Guidelines for the International Chamber of Commerce (ICC), publication
no. 500. 1993).
ERG/ERG
Abbreviation for export risk guarantee.
EU directive
A legislative act of the European Union which requires member states to achieve
a particular result without dictating the means of achieving that result. Since
directives need to be transposed into the national legal framework, margin for
manoeuvre as to the form and means of implementation is given. How each
country puts the directive into effect depends on their legal structure.
EU regulation
A legislative act of the European Union which is binding in its entirety and
directly applicable in all member states. For this reason, regulations constitute
the most powerful form of EU law. If a member state's local laws are contrary
to the regulation, these are overruled as EU law is supreme over the laws of the
member states.
Eurex/Eurex
Umbrella organization founded jointly in the second half of 1998 by the Swiss
Exchange and Deutsche Börse AG to operate the first ever cross-border futures
market. The merger of SOFFEX and DTB Deutsche Terminbörse produced

Glossary FS001
a common platform for full electronic trading and clearing of derivatives

instruments. One of the world's largest derivatives exchanges. Website:
www.eurexchange.com.
Euribor
Abbreviation for Euro Interbank Offered Rate. The interest rate at which euro
interbank term deposits within the euro zone are offered by one prime bank
to another prime bank.
Euro area
Synonym of eurozone
Euro Traveller's Cheque/Euro Traveller Cheque
Brand of travellers cheque accepted throughout the world and marketed by a
large number of financial institutions.
Euro/Euro
Single currency for European Monetary Union (EMU) launched on January
1, 1999.
Eurobond
Synonym of Euroanleihe.
Eurobond issue/Euroanleihe
Also: Eurobond. Bond issued on the Euromarket in a currency other than that of
the issuer's country of origin.
Eurocapital market/Eurokapitalmarkt
The segment of the Euromarket where instruments with medium- to long-term
maturities (in other words, maturities of longer than 18 months), are issued and
traded. Above all, this refers to eurobonds.
Euroclear/Euroclear
International securities clearing system formed by banks and securities dealers in
1968 for the collective custody and book-entry transfer of securities (initially
primarily Eurobonds).
Eurocredit/Eurokredit
International bank credit denominated in a Eurocurrency.
Eurocurrency/Eurowährung
Currency employed for balances and liabilities on the Euromarket. Examples of
eurocurrencies are: Eurodollar, euro, euro-GBP, euro-CHF.
Euromarket; Euromarkets/Euromarkt
International financial market on which bank loans and bond and equity issues
are transacted. Despite its name, the Euromarket is by no means confined to
Europe geographically; the most important trading currency is the US dollar.
Since the introduction of the euro, the term "international financial market" is
increasingly being used.

FS001 Glossary
Euromoney market/Eurogeldmarkt
The segment of the Euromarket which specializes in settling short- to
medium-term deposits (with maturities not exceeding 18 months).
European Central Bank/Europäische Zentralbank
Abbreviation: ECB. Central bank of the European Monetary Union whose remit
is to implement European monetary policy within the EMU. The headquarters
of the European Central Bank are in Frankfurt. It is wholly independent and
not subject to instructions from governments or the EU executive. The central
banks of member countries, which also enjoy complete independence, remain
in existence and operate along with the ECB constitute the European System of
Central Banks (ESCB). Website: www.ecb.int.
European Currency Unit/Europäische Währungseinheit
Abbreviation: ECU. Former currency unit equal to the sum of the values of the
currencies of the previous 12 EU member states. The value of an ECU was
calculated as a weighted average of these currencies. The ECU was abandoned
when the euro was introduced on January 1, 1999. The euro replaced the ECU on
the basis of 1 ECU = 1 euro.
European Monetary Institute/Europäisches Währungsinstitut
Abbreviation: EMI. Precursor of the European Central Bank responsible for
coordinating monetary and economic policy in the EMU countries in preparation
for the third phase of the introduction of the euro.
European Monetary System/Europäisches Währungssystem
Abbreviation: EMS. The European Monetary System I (EMS I) was a system
of fixed, but nonetheless flexible, exchange rates determining the exchange
rates for the currencies of certain EU member countries. Since the European
Monetary Union came into force, a new system (EMS 2) has governed the fixing
of exchange rates between the euro and the currencies of those EU countries not
participating in the single currency.
European Monetary Union/Europäische Währungsunion
Abbreviation: EMU. On January 1, 1999, EU member states formed a union with
regards to monetary policy. As a result of this union, the participating states
introduced the euro as the common currency.
European System of Central Banks/Europäisches System der
Zentralbanken
Abbreviation: ESCB.
Eurozone/Eurozone
Also: euro area, Euroland. Currency area of the euro.
Excess return/Überschussrendite
Return above the money market rate.

Glossary FS001
Exchange of data carriers/Datenträgeraustausch

Abbreviation: Processing of payment transactions via data carriers or file transfer.
Exchange office/Wechselstube
Obsolete, colloquial name for the banking department/teller area that handles
currency exchange and related business (such as coin dealing, traveller's cheques
and letters of credit).
Exchange rate mechanism/Wechselkursmechanismus
The European Monetary System (EMS) was replaced following the decision
taken by the European Council on 16 June 1997 to set up an Exchange Rate
Mechanism (ERM II) in the third stage of the Economic and Monetary Union.
The aim of this Exchange Rate Mechanism is to ensure stability and solidarity
in terms of exchange rates between those countries that have introduced the
euro as their currency and those that have not. Primary objective: To prevent
excessively large exchange-rate fluctuations between the EUR and the currencies
of non-participating nations.
Exchange rate parity/Währungsparität
The officially fixed ratio of the value of one currency against another. Dollar
parity, for example, is the ratio of a currency against the US dollar and gold parity
is the ratio of a currency against gold.
Exchange rate/Devisenkurs
The rate at which one currency is exchanged for another. The average of the bid
and asked prices is taken as the mean rate.
Exchange rate/Wechselkurs
The rate at which one currency is exchanged for another.
Exchange/Börse
Financial market that operates regularly and is organized in accordance with
fixed customs and practices, for example, security, forex, option and commodity
exchanges. The key exchanges include the New York Stock Exchange, the
Nasdaq and the London and Tokyo stock exchanges.
Expiry/Verfall
Date on which a debt (for example, a bond) falls due or an option expires.
Borrowers who fail to meet their obligations by the expiry date are said to be in
default.
Export credit
Synonym of Dokumentenakkreditiv.
Export credit insurance/Exportkreditversicherung
Usually government-sponsored (but autonomously financed) schemes offering
protection against the specific risks associated with the granting of export credits.

FS001 Glossary
Export credit/Exportkredit
Medium- to long-term credit granted for the purpose of financing export
shipments. There are two main forms of export credits: supplier credit (trade
credit). In other words, credit granted by the supplier to the buyers, and customer
or buyer's credit granted directly to the foreign buyer or his bank. Large credits
of this kind are generally furnished by a syndicate of banks (syndicated credit).
An export credit granted jointly by a commercial bank and the government is
referred to as a mixed loan or credit. This type of loan is commonly granted to
developing economies.
Export finance credit/Exportfinanzkredit
One of the instruments in export finance. Export finance credits are granted to
finance export shipments, to finance downpayments, intermediate payments and
local costs related to the installation of plant or equipment delivered.
Export financing/Exportfinanzierung
Providing exporters with the required capital for the export of goods, and (in
the broader sense of export financing) for the rendering of services such as
construction, engineering and development operations in a different country.
Export finance generally takes the form of bank credits granted to the supplier or
credit given to the foreign purchaser of the goods. The documentary credit plays
an important role in short-term export finance. Medium- to long-term export
credits furnished by the banks are the most usual form of export financing today.
Special types of export financing: Offset transactions.
Extra dividend/Bonus
Also: Bonus. Special dividend distribution on shares and participation
certificates made by a company in addition to its regular dividend, for example,
as a jubilee bonus.
Factoring/Factoring
A form of financing which enables companies to generate liquidity. In factoring,
short-term trade receivables (usually of 30 days) from goods and services are
purchased by a factoring company (factor). The purchase price paid by the factor
is credited to the client after deduction of the factoring fee and the financing
charges (depending on the amount of credit drawn).
Family company/Familienunternehmen
Company which is wholly or predominantly owned by one family. If the family
company is a limited company, it is known as a family limited company. In
contrast to this, ownership of a public limited company or other limited company
is more broadly based.
Fiduciary transactions/Treuhandgeschäfte
Fiduciary transactions are fundamentally characterized by the fact that a trustee
or fiduciary acquires in his own name goods, assets or claims (receivables) at the
instructions of the trustor or beneficiary and manages the assets held in trust in

Glossary FS001
the interest of the principal and in accordance with his instructions. The trustee
or fiduciary acts in his own name but for the account and at the risk of the
trustor or beneficiary. Fiduciary transactions performed by a bank in the form
of money market investments or as fiduciary loans are effected or granted in its
own name, but in response to a written order, exclusively for the account and at
the risk of the customer (fiduciary investments, fiduciary loans). The principal
bears the currency, transfer and del credere risks. Fiduciary transactions rank
among off-balance-sheet business but are shown by banks under the line. In the
wider sense of the word they also include all other transactions entrusted to
a fiduciary or trust company.
Finance bill/Finanzwechsel
Bill of exchange not directly connected with an actual business transaction.
Frequently takes the form of a promissory note. Finance bills include Treasury
notes, bills issued by public authorities and banker's acceptances in the USA.
Opposite: Trade bill.
Financial analysis/Finanzanalyse
Also: Investment research. Analysis of political and economic conditions, the
state of the financial markets, specific industries and companies with a view
to developing an investment policy, an asset allocation and individual share
recommendations.
Financial center/Finanzplatz
Collective term for the interface between national and international financial
systems in the broadest sense (banks, financial markets, insurance and other
financial service companies). A financial centre may be national, regional or a
hub location with a strong banking presence and close ties to the international
financial community.
Financial centre/Börsenplatz
Also: Trade center. Town containing one or more active exchanges.
Financial future/Finanzterminkontrakt
Synonym of Financial Future.
Financial innovations/Finanzinnovationen
Financial market instruments embodying novel conditions.
Financial loan/Finanzkredit
Bank loan for a fixed amount and term the use of which is not tied to a
commercial transaction.
Financial market instrument/Finanzmarktinstrument
Collective term for any form of standard, tradable financial products such as
securities, foreign exchange instruments, precious metals, options, financial
futures, and so on.

FS001 Glossary
Financial statement
See financial statements.
Financial statement/Abschluss
(1) Also: Also: accounts, annual accounts. The balance sheet and profit and loss
account/income statement of a company prepared at the end of an accounting
period.(2) In the stock exchange dealings: The closing of a deal.
Financing/Finanzierung
Obtaining or supplying money for specific projects.
First mortgage
Synonym of erste Hypothek.
First mortgage/erste Hypothek
Also: Mortgage loan usually granted for up to two-thirds of the property's market
value.
Fixed advance
Synonym of fester Vorschuss.
Fixed advance/fester Vorschuss
Also: Fixed-rate commercial loan of a specific amount repayable on an agreed
due date or subject to a period of notice.
Fixed assets/Anlagevermögen
Assets acquired by a company that are not intended for immediate consumption,
for example, land, machinery, tools, equipment, furniture and so on. Also
includes certain immaterial values (patents, licenses, processes) and permanent
participations. Opposite: Current assets.
Fixed exchange rate/fester Wechselkurs
Official exchange rate of a currency fixed by central banks. The rate is kept
within the permitted fluctuation margin. If the exchange rate falls short of or
exceeds this limit, the central banks purchase or sell the relevant currency.
Opposite: Floating exchange rate.
Fixed-date bill/Datowechsel
Bill of exchange that becomes due and payable at a stipulated date after the issue
date. Fixed-date bills are common in overseas trade.
Fixed-interest securities/festverzinsliche Werte
Security on which the borrower must pay interest at a set rate for their entire
maturity (such as bonds, notes, medium-term notes, debentures, and so on).
Opposite: Share, floating rate bond.
Fixed-rate mortgage
Synonym of Festzinshypothek.

Glossary FS001
Fixed-rate mortgage/Festzinshypothek
Also: Fixed mortgage. Mortgage with a fixed, unchangeable interest rate running
for a period agreed on between the bank and the borrower, usually between
two and ten years.
Floating exchange rate/flexibler Wechselkurs
An exchange rate which is allowed to move freely, finding its level as a function
of supply and demand on the foreign currency market, and is subject to only
limited intervention by the central bank. Opposite: Fixed exchange rate.
Floating rate bond
Abbreviation: FRB. Synonym of floating rate note.
Floating rate note/Floating-Rate-Note
Abbreviation: FRN. Bond with a variable interest rate based on a reference
interest rate, plus or minus a further component as risk premium. Synonym
of floating rate bond.
Floating/Floating
Central bank policy which involves allowing exchange rates to be dictated by
supply and demand on the foreign currency market.
Floor/Floor
(1) Financial instrument guaranteeing a contractually agreed minimum rate
of interest. Opposite: Cap.(2) Area of a stock exchange in which trading is
conducted.
FOB
Abbreviation for Free on Board. Contract clause common in international
trade. Denotes that the transport, insurance and loading costs incurred until the
merchandise is loaded on board the ship are included in the price of the goods.
For deposit only/nur zur Verrechnung
Endorsement on the face of a check indicating that the amount must be credited
to an account and cannot be paid out in cash. This makes the check a cross check.
Forced sale of collateral/Exekution
The forced sale of the assets pledged as security to the bank for a loan if the
credit utilization exceeds the lending value of the pledged collaterals or if the
customer defaults their payments.
Foreign assets/Auslandaktiven
Credit balances or claims, for example, in the form of loans, granted to customers
abroad. Opposite: Foreign liabilities.
Foreign bond issue/Auslandsanleihe
Bond issue placed outside the country of domicile of its issuer in the currency of
the country where it is offered for subscription. Opposite: Domestic bond.

FS001 Glossary
Foreign currency account/Fremdwährungskonto

An account not denominated in local currency but in the currency of another
country.
Foreign currency market/Devisenmarkt
Market on which currency is offered and purchased.
Foreign exchange trading/Devisenhandel
Also: Foreign exchange. Business activity which consists of the purchase and
sale of currencies, holding currency positions, currency arbitrage and speculation
on the currency markets.
Foreign exchange/Devisen
Instruments used to make payments between countries, especially in the form of
checks, bills of exchange, debits and credits, and so on.
Foreign exchange/Foreign Exchange
Abbreviation: Forex, FX. English equivalent of Devisenhandel.
Foreign liabilities/Auslandpassiven
Financial obligations towards foreign creditors, for example in the form of
balances due to banks located abroad. Opposite: Foreign assets.
Foreign notes and coins/Sorten
Standard banking name for foreign bank notes and coins.
Forex/Forex
Abbreviation for foreign exchange.
Forgery/Falsifikat
Also: Falsification. Term for forged bank notes, coins, securities and stamps.
Forward contract/Forward-Kontrakt
Agreement between two parties to buy or sell a specific quantity of a commodity
subject to conditions agreed beforehand, with delivery and payment taking place
at a later date. Unlike standardized futures contracts, forward contracts are traded
over the counter, rather than on a stock exchange.
Forward rate agreement/Forward-Rate-Agreement
Abbreviation: FRA. A forward transaction between banks and industrial firms
whereby the two parties agree on an interest rate for a future period and no initial
margin payment is required at the time the contract is concluded. Unlike financial
futures, FRAs are not standardized and are not traded on interbank markets.
They are used to hedge the risk of a change in interest rates by locking in the
current interest rate for future payments.
Forward rate/Terminkurs
The price paid for a future transaction or on the futures markets. Opposite: Spot
rate.
Forward transaction
Synonym of Termingeschäft.

Glossary FS001
Forward transaction/Termingeschäft
Also: Transaction (purchase or sale), whereby the contractual obligations (for
example, delivery of and payment for currency, goods or securities) are not
performed immediately but instead at a later date and at a price either fixed
in advance or determined on the basis of market developments. A distinction
is drawn between unconditional forward transactions (futures, forwards) and
conditional forward transactions (options). Opposite: Spot transaction.
Forward transactions
See forward transaction.
Forwarder's receipt/Spediteurempfangsschein
Forwarding agent's written declaration confirming receipt of goods for shipment.
Not a security, but often necessary for the execution of a documentary credit.
Founder's share/Gründeranteilschein
Shares issued to founders of a company as compensation for previously unpaid
services. They grant certain preferential rights, for example, to a part of the
net profit or the liquidation proceeds.
FRA
Abbreviation for Forward Rate Agreement.
Franchising/Franchising
Contractually agreed system of cooperation within the area of sales organization
and financing, for example, in the retail business, hotel and restaurant industry
and in industry. The franchisor performs certain managerial functions and
assumes specific investment and operating costs, while the franchisee operates
for his own account.
FRB
Abbreviation for floating rate bond.
Free alongside ship/Free Alongside Ship
Abbreviation: FAS. In German: frei bis zum Schiff. A contract clause commonly
used in foreign trade which stipulates that the price of the goods includes transport
and insurance costs until the goods are delivered to the quay at the port of lading.
Free cash flow/Free Cashflow
Total liquid funds not required to finance operations or for capital expenditure on
replacement. These free funds are available for distribution to shareholders, for
new investment or for the repayment of debt capital.
Free float/Free Float
The part of a company's shares which is not held as a long-term investment (by
the founder, management, and so on). The free float can therefore be traded on a
stock exchange at any time.

FS001 Glossary
Freight collect/Freight Collect

Term used in commercial contracts stating that the purchaser must pay the freight
charges for a consignment of goods on delivery.
Freight prepaid/Freight Prepaid
Term used in commercial contracts indicating that the seller has paid the costs of
freight beyond a named point to a second named point.
Friendly takeover/freundliche Übernahme
Takeover welcomed and supported by the management of the company which is
the subject of the takeover. Opposite: Hostile takeover.
FRN
Abbreviation for floating rate note.
Full convertability
Full convertibility means a currency can be exchanged into other currencies
with virtually no restrictions.
Full set/Full Set
Term commonly used in documentary credit transactions denoting the complete
set of bills of lading (in other words, the full set of original documents).
Fund management company/Fondsleitung
Independent company which manages investment funds for the account of
investors and in its own name. The fund management company decides which
investments to acquire and sell, in the same way as it decides on distributions
and the issuing of units.
Fund regulations/Fondsreglement
A document forming the basis for the business activities of an investment fund
and governing the rights and responsibilities of the contracting parties (fund
management company, custodian, investors).
Fund unit/Fondsanteil
Embodies the investor's right, enforceable against the management company, to a
share in the assets and income of the investment fund.
Fund/Fonds
Short form of Anlagefonds.
Fundamentals/Fundamentaldaten
Key figures which relate directly to a company and are not dependent on the
market. They include sales or revenues, cash flow and profits. Basic analysis
uses such data to determine the theoretical value of a share. This may indicate
that the share is undervalued, overvalued or fairly valued on the market. The term
is also used to denote the important economic numbers (growth, inflation, current
account balance, government finances) which can influence the financial markets.

Glossary FS001
Fungible items/fungible Sachen

Fungible items, for example, bearer securities. Fungible securities can be
exchanged for each other without legal consequences.
Fungible/fungibel
Freely exchangeable.
Future/Future
Also: Futures contract. Standardized contract traded on an exchange by which
the seller undertakes to sell or buy a specified quantity of a commodity of
a defined quality (commodity future) or a specified amount of a financial
instrument (financial future) on a specified due date and for a specified price.
Futures clearing
See securities clearing.
Futures contract/Terminkontrakt
Standardized contract traded on an exchange by which the seller undertakes to
sell or buy a specified quantity of a commodity of a defined quality (commodity
future) or a specified amount of a financial instrument (financial future) on a
specified due date and for a specified price. Divided into commodity future
and financial future. Futures contracts encompass futures, financial futures and
options.
Futures exchange/Terminbörse
Exchange on which certain futures market products are offered. Eurex is an
example of a futures exchange.
Futures market/Terminmarkt
Commodity exchange on which futures contracts are traded. Opposite: Spot
market.
G7
Abbreviation for Group of 7, a group comprising the major industrialized
nations in economic terms, which in view of the global economic importance
of the member states have made it their objective to coordinate their respective
economic policies.
General business conditions/Allgemeine Geschäftsbedingungen (AGB)
The principles and guidelines that govern business relations. They are an integral
part of contracts concluded between a company (for example, a bank) and any of
numerous business partners.
Generally Accepted Accounting Principles/Generally Accepted
Accounting Principles
Abbreviation: GAAP. Mandatory US standards for the presentation of accounts.
Gentlemen's agreement/Gentlemen's Agreement
A voluntary agreement between parties secured only by the honour of the
participants.

FS001 Glossary
Giro transfer/Giro
(1) The cashless transfer of payments. (2) Transfer by endorsement of an order
instrument (for example, bill of exchange).
GMBF
German abbreviation for money market book claim.
GNP/BSP
Abbreviation of Gross National Product.
Gold coins/Goldmünzen
Coin minted from gold or gold alloys. In practice, all gold coins are traded at
their market value, which is subject to continual fluctuations. Bullion coins have
a market value broadly in line with their gold value.
Golden rule of banking/goldene Bankregel
A principle which states that the maturities of the loans granted by a bank should
be congruent with, or match, the maturities of the deposits used to finance such
loans. According to the rule, short-term transactions should be financed with
short-term money, long-term transactions with long-term funds.
Goodwill/Goodwill
The portion of the value of a company which is over and above its market price.
It includes all intangible assets which are not reported on the balance sheet, such
as the reputation and familiarity of a company and its products. Goodwill is of
major importance in assessing the value of the company's stock.
Government bond
Synonym of Staatsanleihe.
Government bonds/Staatsanleihe
Also: Government paper, government issues. Bonds issued by a government to
cover its financial obligations.
Government securities
Synonym of government bonds.
Gross domestic product/Bruttoinlandprodukt
Abbreviation: GDP. Measure of the domestic economic performance during a
specified period.
Gross interest/Bruttoverzinsung
Interest paid before deduction of any taxes at source (such as withholding tax,
excise tax, and so on). Opposite: Net interest.
Gross national product/Bruttosozialprodukt
Abbreviation: GNP. Measure of the economic performance of a national
economy over a given period of time.

Glossary FS001
Gross operating profit/Bruttogewinn

In commercial companies, the gross operating profit corresponds to the net
sales revenue minus manufacturing costs for goods sold. For banks, the gross
operating profit is the total of net interest income, net fee and commission
income, net income from trading operations and other ordinary income after
deduction of operating costs.
Gross yield/Bruttorendite
The income produced by investments (such as securities, real estate property, and
so on) before any deductions, charges or taxes. Opposite: Net yield.
Group balance sheet/Konzernbilanz
Consolidated balance sheet of a group of companies, showing combined results
with the exception of inter-company participations, supplies, receivables and
debts, shipments and services (in other words, purchases and sales) and similar
items. A group income statement is prepared together with the consolidated
balance sheet.
Group/Konzern
Affiliation of legally independent companies in an economic unit under common
management by means of financial participation. This structure is normally
chosen to strengthen market positions.
Growth rate
Synonym of Wachstumsrate.
Growth rate/Wachstumsrate
Also: The percentage increase in a given value (for example, real GDP) over a
certain period of time (usually one year).
GTC/AGB
Abbreviation for General Terms and Conditions.
Guarantee credit/Verpflichtungskredit
Bank credit where the bank does not grant funds but incurs liabilities or
obligations on behalf of the customer, for example, bill guarantee, acceptance or
surety credit, contingent liability. Opposite: Cash loan.
Guarantee/Bürgschaft
A contractual engagement to answer for the debt, default or failure of another
person. The guarantor is obligated in respect of the obligee of a third party
(principal debtor or obligor) to pay the debt if the third party fails to perform.
The purpose of a guarantee is to secure a claim, mainly in order to raise credit
(guaranteed credit).
Guaranteed bond/garantierte Anleihe
Bond issue for which a third party (for example, parent company) guarantees
fulfillment of the terms vis-à-vis the issuer's creditors.

FS001 Glossary
Guaranteed credit/Bürgschaftskredit
Bank credit without tangible collateral but that requires one or several guarantees.
The banks usually require joint sureties for a guaranteed credit.
Hard currency/harte Währung
Freely convertible currency characterized by low inflation rates in the country of
issue and particularly high currency stability. Opposite: Soft currency.
Hedge/Absicherung
Also: Hedging. Strategy used to protect a position or an entire portfolio against
negative market fluctuations.
Holding company/Holdinggesellschaft
Company with permanent holdings in other, legally independent, companies for
the purpose of control or financing.
Home banking
Obsolete name for electronic banking.
Hostile takeover/feindliche Übernahme
Takeover with the intention of replacing the current management of the target
company. This takeover is usually made in the form of a public offering.
Opposite: Friendly takeover.
House bank
Synonym of Hausbank.
House bank/Hausbank
Also: House bank. Bank with which a company transacts the major part of
its business.
IAS/IAS
Abbreviation for International Accounting Standards.
IBAN/IBAN
Abbreviation for International Bank Account Number.
IFRS/IFRS
Abbreviation for International Financial Reporting Standards.
Illiquid/unkurant
Refers to securities that are difficult to sell and value. Opposite: Marketable.
Illiquidity/Illiquidität
A lack of liquid and easily marketable assets resulting in payment liabilities
and obligations not being met on time.
IMF
Abbreviation for International Monetary Fund.
Income account
Synonym of profit and loss statement.

Glossary FS001
Index/Index
Indicator which can be used to compare the value or level of a statistic with its
value or level at an earlier point in time, accounting for changes due to factors
such as price changes and movements in the economy.
Indicator/Indikator
A series of data used as a proxy for the development of another statistic.
Indirect mortgage loan/indirekter Hypothekarkredit
A mortgage credit in which a debt instrument secured by real estate (such as a
mortgage note) is pledged as collateral. If the debtor becomes insolvent, the bank
can dispose of or realize the property only after it has obtained title to it.
Inflation
Synonym of Inflation.
Inflation rate/Inflationsrate
Statistically determined measure of the rise in price levels and therefore the
decline in the value of money. The inflation rate shows the percentage change in
price levels over a given period (month, year).
Inflation/Inflation
Also: Increase in the general level of prices and wages and a decrease in the
purchasing power of money, resulting from growth in the money supply in
relation to the supply of goods. Opposite: Deflation.
Insider trading
Synonym of insider transactions.
Insider transactions/Insidertransaktion
Transaction designed to secure a financial advantage by improperly exploiting an
information lead. Any insider obtaining a financial advantage for himself or a
third party by exploiting confidential information relevant to the price of a stock.
It is a punishable offence for persons (even if they are non-insiders) to receive
and make use of insider information.
Insider/Insider
Person party to confidential information on the strength of his or her professional
position. Normally used in connection with information which when made public
is likely to have a significant influence on the price of securities.
Insolvency
Synonym of Zahlungsunfähigkeit.
Insolvency/Zahlungsunfähigkeit
Also: The inability of borrowers to meet their payment obligations. Opposite:
Solvency.

FS001 Glossary
Institutional investor/institutioneller Anleger

Also: Organization with substantial (mostly continuous) investment needs which
trade large volumes of securities, for example, insurance companies, pension
funds, investment funds, and so on.
Intangible assets
Synonym of Intangibles.
Intangibles
Synonym of Intangibles.
Intangibles/intangibles
Also: Intangible assets. Identifiable non-monetary asset without physical
substance held for use in the production or supply of goods or services, for rental
to others, or for administrative purposes. Examples: Rights, patents, licences,
brands, goodwill and client relationships
Interbank business
Synonym of Interbankgeschäfte.
Interbank business/Interbankgeschäft
Also: Loans and deposits processed directly between banks. Shown on the
balance sheet as sums due from or to banks.
Interbank rate/Interbank-Rate
Also: Interest rate applied to credit operations between banking institutions.
On the Euromoney market, the London Interbank Offered Rate (LIBOR) is
calculated daily and serves as a guide for the interest rates used for many
international loans in euros. Other financial centers provide the interbank rates
that currently apply to them, for example, New York, Frankfurt, Hong Kong.
Interest coupon
Synonym of Zinscoupon.
Interest coupon/Zinscoupon
Also: Coupon attached to bonds and medium-term notes and presented to collect
interest on the due dates.
Interest days/Zinstage
The number of days per month and year taken for interest calculations. German
practice: 1 month = 30 days, 1 year = 360 days. UK practice (followed on the
Euromarket): the exact number of days in a calendar month is taken; 1 year
= 365 days.
Interest divisor/Zinsdivisor
A constant used to simplify the calculation of interest. It corresponds to the
number of the days in the year divided by the rate of interest.
Interest margin
Synonym of Zinsmarge.

Glossary FS001
Interest margin/Zinsmarge
(1) The difference between the interest earned by a bank and the interest paid
by it. (2) The difference between the interest rates in a particular sector of the
banking business, for example, between the interest rate for first mortgages and
the interest rate on the deposits and borrowings used to refinance the mortgages.
Interest operations; interest income business/Zinsengeschäft
Bank transactions connected with the payment or receipt of interest (claims,
liabilities). Bills of exchange and the money market securities business are
generally also included under interest operations.
Interest operations/Zinsdifferenzgeschäft
All bank transactions based on an interest margin. The margin derives from the
fact that the bank pays a lower rate of interest on the funds received from clients
than it earns on the loans it grants. The bank uses the income from this margin to
cover its expenses and make a profit.
Interest paid/Passivzinsen
Balance sheet item showing the interest paid by the bank on funds it has received
on deposit. Usually called credit interest in current account transactions.
Opposite: Interest received.
Interest rate arbitrage/Zinsarbitrage
Exploiting arbitrage opportunities offered by differences in interest rates.
Interest rate risk/Zinsrisiko
Risk stemming from the influence of interest-rate changes on existing
investments and loans and on the costs of future borrowings or liquidity to be
invested in the future.
Interest rate/Zinssatz
Also: The rate of interest for a year expressed as a percentage of the capital.
Interest received/Aktivzinsen
Interest paid to a bank for the money it has lent out. This is made up of the
refinancing costs, the risk premium and the profit contribution. Opposite:
Interest received.
Interest/Zins
Remuneration paid on capital that has been borrowed. Normally refers to
monetary capital, but can also be used in the case of physical capital (rent).
Interim dividend
Synonym of Interimsdividende.
Interim statement/Zwischenbilanz
Balance sheet of a company covering a period ending between the regular annual
closing dates.

FS001 Glossary
International Accounting Standards Board/International Accounting

Standards Board
Abbreviation: IASB. Independent, privately funded international organization
based in London which is responsible for drawing up the International
Accounting Standards. Website: www.iasb.org.
International Accounting Standards/International Accounting Standards
Abbreviation: IAS. Standards drawn up by the International Accounting
Standards Board with a view to ensuring the quality, transparency and
comparability of balance sheets and annual accounts. The International
Accounting Standards are now known as the International Financial Reporting
Standards (IFRS). However, the individual IAS standards have not been renamed.
International Bank Account Number/International Bank Account Number
Abbreviation: IBAN. Standard developed by the ISO and the ECBS for
identifying banks and account numbers. Its main purpose is to simplify
cross-border financial transactions and thereby rationalize payments between
various countries.
International Bank for Reconstruction and Development
Synonym of World Bank.
International Chamber of Commerce/Internationale Handelskammer
Abbreviation: ICC. Private, politically independent organization formed to
improve trade and business relations between nations. It is based in Paris.
It brings together national chambers of commerce and large professional
associations.
International financial market
See Euromarket.
International Financial Reporting Standards/International Financial
Reporting Standards
Abbreviation: IFRS. Accounting standards issued by the International
Accounting Standards Board. The International Accounting Standards are now
referred to as the IFRS. However, the individual IAS standards have not been
renamed.
International Monetary Fund/Internationaler Währungsfonds
Abbreviation: IMF. The most important international organization for monetary
policy cooperation. The IMF, like the World Bank, was established in 1944 in
Bretton Woods (USA) and is headquartered in Washington, D.C. Its aims are to
monitor and stabilize the international financial system to prevent crises such
as the crash of 1929.
International Payment Instruction/International Payment Instruction
Abbreviation: IPI. Standardized payment slip for international payments.

Glossary FS001
Internet banking
See electronic banking.
Intrinsic value/innerer Wert
(1) Value, for example of a company, obtained using objective valuation methods.
(2) Options: positive difference between the current price of the underlying and
the lower strike price of a call or higher strike price of a put.
Inverse interest rate structure/inverse Zinsstruktur
Situation in which interest rates and yields for longer durations are lower than for
shorter duration. Normally, the interest rate or yield increases as the investment
period increases.
Investition/Investment
(1) Banking: synonym of capital investment.(2) Business management: medium
and long-term investment of capital in means of production to replace worn-out
equipment or expand production capacity.
Investment advice
Under MiFID: the provision of a personal recommendation to a client regarding
specific transactions relating to specific financial instruments.
Investment advisory services/Anlageberatung
Counselling facilities of a bank or other specialized units in the area of asset
management. Advisory services are geared to clients' requirements: capital
growth or income-oriented. Unlike with a managed account, the client ultimately
makes his own investment decisions.
Investment advisory services/Vermögensberatung
Counselling facilities of a bank. For example, for the succession planning in
companies, generating contracts of assignment and contracts of purchase,
testaments, matrimonial agreements and inheritance contracts, usufructuary
contracts, founding and operating trusts and so on.
Investment banking/Investment-Banking
Area of banking which is primarily concerned with the securities business and
corporate finance.
Investment fund
Synonym of Anlagefonds.
Investment horizon/Anlagehorizont
Period of time for which an investor wishes to invest part of his assets.
Investment order/Anlageauftrag
Order given by the client to his bank to invest the funds in his account, in
particular, income from securities, capital repayments and incoming payments.
Investment plan/Anlageplan
Plan for the optimum investment of specific funds.

FS001 Glossary
Investment policy/Anlagepolitik
All operations to be performed in connection with the investment of funds in
order to optimally attain a specific investment objective. Depending on the
financial circumstances of the investor, special importance is attached to security,
yield, the price and growth potential of the holdings or their liquidity. Of equal
significance is the timing of the acquisition and sale of the investments.
Investment services and activities
Any of the services and activities listed in MiFID Annex I Section A relating
to any financial instrument, namely: reception and transmission of orders in
relation to one or more financial instruments; execution of orders on behalf of
clients; dealing on own account; portfolio management; investment advice;
underwriting of financial instruments and/or placing of financial instruments
on a firm commitment basis; placing of financial instruments without a firm
commitment basis; operation of MTFs (Multilateral Trading Facilities).
Investment strategy/Anlagestrategie
Entirety of the guidelines that determine the portfolio structure in terms of
investment vehicle, currency, sector and maturity structure required to achieve
the defined investment objective .
Investment/Kapitalanlage
Long-term planned use of capital to obtain revenue and/or a capital gain or to
maintain existing capital. The most important forms of investment: Property and
real estate, cash in banks, securities, mortgages, precious metals and so on.
Investor
Synonym of Anleger.
Investor/Anleger
Also: Investor. Person or institution purchasing securities or tangible assets for
the purpose of earning a return or receiving the monetary value.
Investors' account
Synonym of Anlagekonto.
Investors' account/Anlagekonto
Also: Special savings product for the medium-term investment of savings at a
relatively high interest rate and normally with limited withdrawal conditions.
Cash machine and cheque withdrawals are generally not possible.
Investors' savings account
Synonym of investors' savings account
Investors' savings account/Anlagesparkonto
Also: Investors' savings account. Account with special interest rate for
medium-term savings deposits of private investment clients in combination with
a securities portfolio and related transaction account.

Glossary FS001
Irrevocable letter of credit/unwiderrufliches Akkreditiv

Letter of credit that cannot be changed or cancelled without the agreement of all
parties. This is the norm in international trading. An irrevocable letter of credit
gives the seller the security that the opening bank will make the payment if
the documents stipulated under the documentary credit terms are presented as
agreed. If payment is made using a correspondent bank, the opening bank can
ask the latter at the demand of the principal to confirm the irrevocable letter of
credit rather than merely issuing notification. The correspondent bank is then
obliged to make the payment itself at the domicile of the beneficiary on due
presentation of the documents (confirmed letter of credit).
ISIN/ISIN
Abbreviation for International Securities Identification Number. A twelve-digit
number consisting of three elements used to identify securities. The first two
places are reserved for a combination of letters indicating the country of origin.
For example, DE for Germany, LU for Luxembourg. These are followed by a
national identification number consisting of up to ten digits.
ISMA
Abbreviation for International Securities Market Association.
ISO code/ISO-Währungscode
Internationally recognized 3-letter currency code. The International
Standardization Organization (ISO) created such a code for the currencies of all
countries. Designed to overcome the problem of ambiguous currency references
and facilitate computer processing. The first two letters identify the country, and
the third letter identifies the unit of currency.
Issue price
Synonym of Emissionspreis.
Issue price/Ausgabepreis
Price at which an investment fund sells newly issued units to the public. The issue
price corresponds to the net asset value of the units plus a premium commission.
Issuer of a covered warrant/Stillhalter
Also: Writer of a covered warrant, writer. Seller of an option, who is obliged to
buy or sell the underlying security at the pre-determined strike price. Whether
the option is exercised depends on the buyer and the price of the underlying.
Issuer/Emittent
Private sector corporation or public authority raising capital for its own use by
issuing securities (bonds, shares and so on) on the public market.
Joint account
Synonym of Gemeinschaftskonto.

FS001 Glossary
Joint account/Gemeinschaftskonto
Also: Account opened jointly in the names of two or more persons whereby it is
agreed that each can dispose of the assets in the account individually and without
having to obtain the consent of the other(s).
Joint and several guarantee/solidarische Bürgschaft
Also: Guarantee, under the terms of which the guarantor can be ordered to
pay prior to the principal debtor and prior to the realization of the real estate
mortgages if the principal debtor is in arrears with his or her payment despite
reminders or is clearly insolvent
Joint liability/Solidarschuld
Contractual obligation of several debtors under which each is individually
answerable to the creditor for the discharge of the entire debt. The creditor can
choose to demand a part of the debt from each debtor or to demand the whole
debt from a single joint debtor.
Joint property/Gesamteigentum
Undivided legal or contractual ownership of a property by a community of
persons. They can only dispose of the property by unanimous decision because
each has a right to the undivided property and not to quotas or shares.
Joint safekeeping account
Synonym of Dépôt joint.
Joint stock company (GB); corporation (USA)/Aktiengesellschaft
A group or association of people recognized in law as an individual entity with a
fixed capital stock (share capital) divided into parts (shares).
Joint venture/Joint-Venture
Strategy for opening up a foreign market, whereby a company joins forces with
partners in another country to set up a business there. Under this arrangement,
ownership, management and control of the business are shared.
Junior mortgage/Nachgangshypothek
A mortgage which has a lending limit less than that for first mortgages and
therefore carries a higher interest rate. If it is stipulated in the Land Register that
a junior mortgage may be ascribed a higher priority, it moves up in ranking if a
lien with a higher ranking claim is cancelled.
Key interest rate; base rate (GB); prime rate (US)/Leitzins
The interest rate set by a central bank for central bank funds.
Land register extract/Grundbuchauszug
Description of all entries (rights, encumbrances, notations, provisional
reservations) in the Land Register referring to a particular property.

Glossary FS001
Land register/Grundbuch
Public register in which all rights to real estate properties are entered. The Land
Register consists of the main ledger (one page for each property), supporting
documents and a chronological register for entries, building lot plans and
property descriptions. The Land Register is kept by the Land Register Office.
If there are several liens for each page of the Land Register, the information is
entered in chronological order according to when they were registered in "ranks"
(1st ranked, 2nd ranked and so on). If you repay part of the debt, the lower ranks
become empty and you can then remortgage these.
Large cap/Standardwert
Also: Blue chip. Share of widely known companies with large stock market
capitalizations and which are heavily traded on the stock markets.
Lead bank
Synonym of lead manager.
Leading indicator/Frühindikator
Economic indicator which changes before the overall economy itself changes,
and is therefore seen as an indicator of future developments.
Leasing/Leasing
The renting out, for a specific period, of industrial equipment, facilities and
capital goods (machines, technical installations, vehicles, and so on). The
manufacturer or - in the case of leasing in the narrower sense of the word
(financial leasing) - special leasing companies act as principals. Leasing helps
to perform medium-term to long-term financing of the investment activities
that preserves liquidity. 100% borrowing on a pay-as-you-earn basis. Fixed
monthly costs cover interest, amortization, the upfront fee and (for example, with
car leasing) the insurance premium.
Legalization/Legalisation
Also: Authentication. To give legal validity to documents or signatures by
having them verified by authorized officials.
Lending business/Aktivgeschäft
Generally covers the banking business on the assets side of the balance sheet.
In a narrower sense, the loans, advances, mortgages and other types of credit
granted to customers or banks. Opposite: deposit business.
Lending limit/Belehnungsgrenze
The maximum value of a particular object which may serve as collateral for a
loan or mortgage (sometimes expressed as a percentage).
Letter of credit
Synonym of documentary credit.

FS001 Glossary
Letter of credit issuance/Akkreditiveröffnung

Letter by the bank of the applicant notifying the beneficiary that a letter of credit
has been opened. See also documentary credit.
Liabilities/Fremdkapital
In non-banks, this is a standard name for the payables a company has against
a third-party, for example, bank loans, loans, trade credit, bonds. Depending
on the terms of the payables, liabilities may be short- to long-term. The credit
management department of a company procures the liabilities.
Liabilities/Passiven
Also: A company's debts appearing on the right side of its balance sheet. This
mainly consists of payables (liabilities) and the equity capital. Opposite: Assets.
Liabilities/Verbindlichkeiten
A company's debts appearing on the liabilities side of its balance sheet. The
liquidity requirements draw a distinction between short-term liabilities, which
include those repayable on demand or often within one month, and total
liabilities, consisting of all liabilities vis-à-vis third parties (including any
provisions required). Frequently used as a synonym of obligations.
Liability under bills of exchange
Synonym of Wechselobligo.
Liability under bills of exchange/Wechselobligo
Also: Liability assumed on signing a bill of exchange.
Liability/Obligo
Widely used term for an obligation under a bill or other instrument, but can also
refer to many other forms of liability, undertaking or guarantee.
Liability/Verpflichtung
Also: Widely used banking term for borrowed funds in which a difference is
made between liabilities from money market papers, liabilities to banks and
liabilities to customers. Opposite: Receivable.
LIBOR
Also: Abbreviation for London Interbank Offered Rate.
Life assurance policy (GB); life insurance policy (USA)/Lebensver-
sicherungspolice
Document confirming that a contract for life insurance coverage has been
concluded. Serves only as evidence and is not a negotiable instrument.
Limit/Limite
(1) Highest price given for the purchase or sale of securities (price limit). (2)
Upper limit for the utilization of a credit (credit line).

Glossary FS001
Liquidation/Liquidation
(1) Dissolution of assets or of a company by realizing the assets and settling
the debts. (2) Settlement of forward or future transactions on the exchanges,
with specific dates stipulated ahead of time for the individual operations (option
declaration, payment, delivery of securities, and so on). The liquidation calendar
is determined by the stock exchange board.(3) Closing (squaring) a forward
transaction in foreign exchange or precious metals by a corresponding contra
transaction with the same due date.
Liquidity statement/Liquiditätsausweis
Overview that is periodically issued by the bank showing the relationship
between the disposable means and the easily marketable assets on the one hand
and the short-term liabilities on the other.
Liquidity/Liquidität
The ability of an enterprise to meet its payment obligations on time. In a wider
sense it means the availability of cash and cash-like funds within a company, on
the money and capital markets and within the national or world economy.
Loan
See also Kredit.
Loan against pledge/Faustpfandkredit
Loan secured by the pledging of collateral.
Loan against pledged bill/Wechselpension
A loan by the bank in exchange for a bill of exchange as pledge, blank endorsed
by the customer.
Loan from central mortgage bond institution/Pfandbriefdarlehen
Long-term loan granted by a central mortgage bond institution to one of its
member banks as funding for loans secured by mortgages.
Loan to value ratio/Belehnungssatz
Ratio of the fair market value of a collateral to the value of the loan that will
finance the purchase. The more stable the value of an asset, the higher the loan to
value ratio. The more unstable the asset, the lower the loan to value ratio.
Loan/Darlehen
A specified sum of money lent by a creditor or lender (for example, a bank)
to a person or entity and repayable at a predetermined due date or after notice
of repayment is given.
Loans to directors, senior executives and auditors/Organkredit
Loans and advances to members of the Board of Directors, the Executive Board
or the internal auditors, as well as to any companies controlled by these persons.
Local bill (GB); town bill (USA)/Platzwechsel
Bill of exchange accepted by a bank for collection or discounting and which is
payable at the place where the accepting bank is located.

FS001 Glossary
Lombard loan (GB); collateral loan (USA)/Lombardkredit

Loan granted against the pledging of securities as collateral (broker's loan) or
against the pledging of goods (advance against goods as security).
London Interbank Offered Rate/London Interbank Offered Rate
Abbreviation: LIBOR, Libor. Interest rate at which banks in London offer to lend
out short-term deposits to one another.
LSV
German abbreviation of direct debiting.
M&A
Abbreviation for mergers and acquisitions.
Maestro card/Maestro-Karte
A form of payment accepted worldwide when shopping, filling up at gas stations
or withdrawing cash from ATMs. It can be used abroad to withdraw cash in the
local currency wherever the Cirrus sign is displayed. The CASH chip function
also permits cashless payment for small amounts, for example, when parking, on
buses and trams and at numerous outlets throughout Switzerland.
Managed account/Vermögensverwaltungsdepot
A (generally sizeable) securities safekeeping account managed by the bank on
the basis of a mandate awarded by the client. The bank is authorized to perform
all operations regarded as expedient within the generally accepted definition of
asset management, for example, the adjustment of securities weightings in line
with market conditions and the reinvestment of freed-up resources.
Margin/Marge
1) Difference between the lending and deposit rates of a bank, between purchase
and sale prices or between bid and ask rates. See also interest margin or spread.
(2) Security deposited in stock market, option, foreign currency or precious
metals trading for a forward or futures transaction or in connection with the sale
of an option to cover the price risk. (3) Loan-to-value ratio for collateral loans.
Mark-to-market/Mark-to-Market
Daily adjustment of (generally exchange-traded) derivative contracts to calculate
daily gains or losses on the relevant position.
Market capitalization
Synonym of Börsenkapitalisierung.
Market capitalization/Börsenkapitalisierung
Also: Stock market capitalization, capitalization. Value of a corporation as
determined by the price of its equity. Calculated by multiplying the market
value of the security (share, participation certificate) on a given day by the total
number of securities in issue.

Glossary FS001
Market maker/Market-Maker
Securities dealer who regularly quotes bid and ask prices for selected instruments
and buys and sells at those prices at their own risk.
Market manipulation/Marktmanipulation
Market manipulation is the practice of using sham transactions, other transactions
without an economic basis or simply placing orders with intent to create the
impression of market activity or to distort supply and demand, share prices or the
valuation of securities.
Market price/Börsenwert
The price at which a security (share or bond, and so on) is traded on the stock
exchange. The market price of a stock corporation corresponds to the market
capitalization of the corporate equities for the relevant company.
Market risk
Synonym of systematic risk.
Market theories/Börsentheorien
Principles or models used for predicting future stock market performance or for
explaining past price trends.
Market value/Verkehrswert
The price that can be obtained (usually with reference to real estate) on the open
market under ordinary circumstances. The market value is determined by an
expert appraiser on the basis of the intrinsic value and the capitalized income
value, and adjusted in line with local rates and the situation on the property
market.
Marketable/kurant
Securities or other assets which can be readily sold or otherwise disposed of
for cash. Opposite: Illiquid.
MasterCard/MasterCard
International company for electronic payment systems, whose activities include
offering the MasterCard and Maestro card.
Maximum sum mortgage
Synonym of Maximalhypothek.
Maximum sum mortgage/Maximalhypothek
Also: Mortgage where the underlying real estate property provides collateral
in an amount not exceeding the sum entered in the Land Register (in contrast
to a security interest).
MBS
Abbreviation for mortgage-backed security.
Medium-term note
Synonym of Kassenobligation.

FS001 Glossary
Medium-term note/Kassenobligation
Also: Bond issued by a bank with a term of two to eight years.
Merger/Fusion
The combining of two or more separate companies into one. This occurs either
by a takeover or by consolidation (statutory consolidation of a company).
Leveraged buy-out is a particular form of a merger.
Mergers & acquisitions/Mergers & Acquisitions
The M&A package of services that commercial and investment banks offer
companies acquiring major shareholdings or entire companies. Mergers &
Acquisitions includes consultancy, identifying suitable investments, engineering
the actual transaction and financing.
Middle rate; middle price/Mittelkurs
Also: Average rate, average. Arithmetic mean between several rates, for example
between the bid and asked rates.
MiFID
The Markets in Financial Instruments Directive, a key stepping stone in the
European Commission's plan to create a single, integrated market in financial
services. It seeks to harmonise financial services within the European Economic
Area and to formalise and strengthen measures that protect investor interests.
MiFID came into effect on November 1, 2007. Many of MiFID's requirements
underline best practices. MiFID strengthens the rights of investors to obtain fair
information, suitable recommendations, and transparent pricing, in particular by
requiring that banks: 1) classify their investors into private and professional
clients, 2) offer transactions on the most favourable terms to their clients, 3)
ensure that only suitable recommendations are provided to clients, and 4)
mitigate, manage or disclose any conflicts of interest.
Minimum reserves/Mindestreserven
Also: Minimum balances. Minimum amount of funds which by law must be
deposited by the banks with the central bank. Usually non-interest-bearing.
The amount which must be deposited is generally calculated as a percentage of
specific liabilities. Minimum reserves restrict the ability of the banks to grant
loans and thus influence the money supply.
Mixed investment fund/gemischte Anlagefonds
Investment fund investing its assets in various securities, money market
instruments or real estate property.
Mixed loan/Mischkredit
Type of credit granted to economically weak countries to subsidize the cost of
exports and facilitate trade. The loan consists of a tranche on preferential terms
(government tranche) and a tranche on market terms (bank tranche).

Glossary FS001
Monetary basis/monetäre Basis

Banknotes and coins circulating in the private sector of the economy as well as
giro (clearing) balances maintained with the central bank by commerce, industry
and the banks.
Monetary fund
See International Monetary Fund.
Monetary policy instruments/Notenbankinstrumentarium
Instruments of credit, monetary and currency policy which the central bank
is authorized to use. The classical instruments include discount and Lombard
policy, repurchase transactions, open market policy and minimum reserves.
Monetary policy/Geldpolitik
Totality of measures taken by a central bank to control the money supply, interest
rates and the exchange rate against foreign currencies.
Monetary union/Währungsunion
Group of countries that have a single currency and a common central bank.
Example: European Monetary Union
Money
Generally accepted medium of exchange and payment in a society.
Money laundering law/Geldwäschereigesetz
Under the money laundering law, financial brokers and agents are required to
identify their contracting partners, to establish the beneficial owner's identity,
to clarify the background of any unusual looking transactions, and to keep a
record of this data. If there are reasonable grounds to suspect that the funds in
question are of criminal origin, this is to be reported immediately to the relevant
authorities and the funds blocked.
Money laundering/Geldwäscherei
Infiltration of illegally acquired assets into the legal financial system. Generally,
a distinction is made between three phases of laundering: (1) Feeding money
of criminal origin into the financial system. (2) Masking the origin of funds
by frequently transferring and converting. (3) Reintegrating the funds into the
legal economy.
Money market book claim/Geldmarktbuchforderung
Short-term capital raised by first-class domestic and foreign borrowers by tender
at a fixed interest rate and maturity (up to 364 days).
Money market fund/Geldmarktfonds
Investment fund investing in short-dated money market paper.
Money market paper/Geldmarktpapier
Security with a short maturity. Classical money market instruments are domestic
bills of exchange, Treasury bills and Treasury notes issued by the Confederation
and so-called federal rescriptions. Of particular importance for short-term

FS001 Glossary
investments abroad are US money market instruments or paper, usually with

terms of 3 to 6 months (Treasury bills, banker's acceptances, commercial paper,
finance paper and certificates of deposit issued in New York), as well as London
certificates of deposit.
Money market rate/Geldmarktsatz
Interest rate applied on the money market.
Money market/Geldmarkt
The open market for lending or borrowing short-term funds (as a rule up to
12 months).
Money supply/Geldmenge
The stock of cash and book money that exists in an economy at a given time.
Stabilizing prices by steering the money supply is an important economic policy
target.
Month-end borrowing/Ultimofinanzierung
Borrowing in order to bridge temporary liquidity shortages at month-end.
Month-end closing/Ultimo
(1) End of the month (the last business day of a month). Therefore, transactions
that are processed at the end of the month are called month-end transactions
or month-end borrowing. (2) Time when forward transactions are closed out
(liquidated, squared).
Moratorium/Moratorium
A freeze on the repayment of debt or the extension of the lending period.
Moratoriums are often declared by governments, typically in favour of
developing countries.
Mortgage
Synonym of Hypothekardarlehen.
Mortgage assignment/Grundpfandverschreibung
A written document serving as evidence of a transfer of a loan obligation from
the original borrower to a third party.
Mortgage backed security/Mortgage-Backed Security
Abbreviation: MBS. Security similar to an asset-backed security, where the
underlying assets are loans to owners of residential or commercial real estate
secured with a mortgage over the property.
Mortgage bank/Realkreditinstitut
Bank that specializes in granting mortgage loans. "Realkreditinstitut" is a
standard name in Germany.
Mortgage bond/Pfandbrief
Bond issued by special central mortgage bond institutions and secured by
the repayment and interest undertaken by the debtor. The bondholders
have a lien on the underlying assets enforceable against the mortgage bond

Glossary FS001
institution. The German Pfandbrief is more tightly defined than the English term
"mortgage-backed bond/mortgage bond" and may only be issued by mortgage
banks, ship mortgage banks and a number of public sector issuers (central
mortgage bank institutions).
Mortgage fund/Hypothekarfonds
Investment fund that invests in mortgage deeds and other similar securities.
Mortgage loan/Grundpfandkredit
Loan secured by a mortgage on real property. In granting these loans, the
banks differentiate between mortgage investments, indirect mortgage loans and
construction loans.
Mortgage note in the name of the owner/Eigentümerschuldbrief
Mortgage note in which both lender and borrower are the same person. A
mortgage note in the name of the owner is issued, for example, when a mortgage
is repaid and the mortgage note is transferred to the name of the borrower.
Mortgage note/Schuldbrief
A security which is vested by a personal claim and secured by a lien or mortgage
on real estate property.
Mortgage/Hypothekardarlehen
Loan that is secured by a title to real estate property. Such rights may take the
form of a mortgage assignment or mortgage note.
Multilateral Trading Facility (MTF)
A multilateral system which brings together multiple third-party buying and
selling of interests in financial instruments - in the system and in accordance
with non discretionary rules - in a way that results in a contract in accordance
with the provisions of MiFID.
Multiple lien (on property)/Gesamtpfandrecht
The pledging of several pieces of land as security for the repayment of the same
claim, each property being encumbered with the full amount of the pledge. A
multiple lien may be established only if the pieces of land belong to the same
owner or are owned by debtors granting joint and several guarantee.
National Association of Securities Dealers Automated Quotations
See Nasdaq.
National bank
Synonym of central bank.
National income/Volkseinkommen
Total income earned by the population of a country or region in a year. The
national income is calculated on the basis of the income earned by the nationals
of the country or region in question both at home and abroad.

FS001 Glossary
Negative clause/Negativklausel
(1) Synonym of negative mortgage clause. (2) Synonym of negative pledge
clause.
Negative interest; interest charge/Negativzins
Interest which is deducted from the principal.
Negative mortgage clause/negative Hypothekenklausel
The promise made by a mortgage borrower to the creditor not to encumber
the property with any additional pledges in favour of third parties without the
creditor's consent and not to raise existing ones. Negative mortgage clauses
are usually agreed in writing.
Negative pledge clause/negative Verpfändungsklausel
Promise made by the borrower in writing to the creditor not to pledge any
assets in favour of third parties (securities, goods, claims, and so on) without
the agreement of the creditor. This clause is also applied when issuing bonds.
Here, the issuer undertakes to his/her creditors not to pledge assets in favour
of third parties.
Negotiating bank/negoziierende Bank
The bank which accepts the documents for the purpose of examining and
crediting the documentary credit amount from the exporter (beneficiary).
Net position/Nettoposition
A market player's total position, ascertained by offsetting purchases against sales.
Netting/Netting
Mutual offsetting of claims and liabilities from identical types of transaction
between two parties. Important in connection with the capital adequacy
requirements applicable to banks. In industry, it is a method of optimizing
intra-group capital transfers using a central account of net credits.
New York Stock Exchange/New York Stock Exchange
Abbreviation: NYSE. Also known in stock market jargon as the Big Board or
Wall Street. It was founded in 1792. The New York Stock Exchange is the
world's largest stock exchange. Website: www.nyse.com.
Night safe/Nachttresor
Night depository in the form of a vault which is used mainly by commercial
clients to deposit their takings in safeboxes or safebags outside opening hours.
Their use is regulated by written agreement.
No-par-value share
Synonym of Quotenaktie.
Nominal claim
See claim.
Nominal value
Synonym of par value.

Glossary FS001
Non-performing loan/notleidender Kredit

Loans for which the debtor defaults on the agreed interest and/or capital
repayments or for which it is clear that the debtor has become insolvent.
Non-recourse financing
Synonym of forfaiting.
Non-recourse financing; forfaiting/Forfaitierung
A method of purchasing medium term claims whereby the purchaser waives any
entitlement to enforce the claim against its original owner. Forfaiting is normally
used as a method of export financing. An exporter sells a claim for receivables
against an importer to a third party, thereby converting a sale on deferred
payment terms (between 1 and 5 years) into a sale against cash payment.
Non-resident/Devisenausländer
Natural person or legal entity which is treated as non-resident for the purpose of
exchange and currency regulations. Opposite: Residents.
Non-systematic risk/unsystematisches Risiko
Risk exposure dependent on factors which influence an individual security only,
for example, corporate results. Opposite: Systematic risk.
Nostro account/Nostro-Konto
The account maintained by a domestic bank with a foreign bank in foreign
currency. Opposite: Vostro account.
Not to order clause/Rektaklausel
A bill or cheque marked "endorsement prohibited", "" or "Payable to...". A
transfer using endorsement is therefore excluded. Transfer may only be effected
by assignment since the "not to order" clause changes an order paper into a
registered security.
Note-issuing privilege/Notenmonopol
Sovereign right to issue banknotes.
Notification/Notifikation
(1) Formal communication to the borrower by the former or new creditor when
a claim is assigned or assets pledged as security. (2) Under bill of exchange
law, notification means the legally prescribed communication addressed by the
cheque or bill holder to the previous holder and drawer or by the endorser to the
previous endorser concerning the refusal of the drawee to pay under the bill.
Numbered account/Nummernkonto
An account where the name of the accountholder is known only to a small circle
of people within the bank, as all transactions are processed under a number.
Numbered safekeeping account/Nummerndepot
A safekeeping account where the name of the accountholder is known only
to a small circle of people within the bank, as all transactions are processed
under a number.

FS001 Glossary
NYSE
Abbreviation for New York Stock Exchange.
Obligation to provide additional cover/Nachdeckungspflicht
Obligation on the part of the borrower to return the cover for the loan to its
contractually agreed level by furnishing additional collateral if the value of the
objects pledged as security for the credit has declined.
Off-balance-sheet operations
Synonym of Ausserbilanzgeschäft.
Off-balance-sheet operations/Ausserbilanzgeschäft
Also: Also: non-interest business. Transactions conducted by the bank which
are not reported in the balance sheet. These include contingent liabilities (for
example, guarantees), irrevocable commitments, liabilities for calls on shares,
commitment facilities, open derivatives contracts and fiduciary transactions.
These transactions must be reported separately below the line and underpinned by
equity capital. Bank services such as investment counselling, asset management,
securities trading and payments also fall under off-balance-sheet operations.
Off-exchange trading/Freiverkehr
Over the counter trading of securities. Over-the-counter securities trading
involving securities which do not meet the requirements for official trading
on a regulated market, but where there is interest on a transparent market.
Off-exchange trading is not governed by the Stock Exchange Act and is subject
only to the supervisory mechanisms implemented by the stock exchange
concerned to prevent abuse.
Official authentication (of a document)/öffentliche Beurkundung
The most stringent formal requirements for the validity of a contract, in which the
official checks the signatures and must confirm that the contents of the contract
correspond to the intentions of the contract party and that the parties involved
are fully aware of the consequences of the contract.
On board bill of lading/Bordkonnossement
Bill of lading that certifies that the goods that are to be transferred for the
shipment are actually on board the ship.
On demand/Sicht
In the case of a claim document, this means that the amount specified becomes
due and payable immediately upon presentation of the debt certificate or payment
order by the creditor to the debtor.
Open market policy/Offenmarktpolitik
Influence exerted on the money supply and interest rates by the central bank
through purchases and sales of short-, medium- and long-term debt instruments
on the money or capital market for its own account.

Glossary FS001
Open position/offene Position

Position taken by the purchase or sale of a contract but not yet closed by an
opposite position.
Open safekeeping account/offenes Depot
Safekeeping account for the depositing and administration of valuables
(especially securities). Opposite: Sealed safekeeping account.
Open-end fund
Synonym of Open-End-Fund.
Operating assets/Betriebsvermögen
Assets of a company which enable it to produce its goods or services. They
include administrative buildings, plant facilities, liquid assets, and so on.
Opposite: Non-operating assets.
Option class/Optionsklasse
A group of options that share the same underlying.
Option premium
Synonym of option price.
Option price/Optionspreis
The price quoted on an options exchange to buy or sell an option.
Option series/Optionsserie
Options of the same option class and with the same expiry date, but with different
strike prices.
Option transaction/Optionsgeschäft
A futures transaction in which one party has the right to buy (call) or sell (put).
Option transactions can be carried out using exchanges or in over-the-counter
trading.
Option/Option
Agreement reached with a contractual partner that confers the right to buy
(call option) or sell (put option) a predetermined quantity of a good or security
at a predetermined price on (European option) or by (American option) a
predetermined date. Options are traded on futures or options exchanges.
Options exchange/Optionenbörse
An exchange that specializes in trading in options or financial futures.
Order instrument/Orderpapier
Paper which can be transferred by endorsement (negotiable). Legal order
instruments (cheques, drafts, bills of exchange, registered shares) are always
order instruments, even if they do not bear the "to the order of" notation.
Instruments to order, in other words, certain securities that those involved have
agreed are order instruments (for example, bills of lading, bill-like orders)
become negotiable only with such a notation.

FS001 Glossary
Order of priority/Rang
For mortgages, this is the order of claim established by senior and junior
mortgages to the underlying real estate serving as collateral for the mortgage.
The mortgages are entered in the Land Register in the order of their priority
(first mortgage, second mortgage, and so on). The claim is generally realized
(the mortgage foreclosed) by an action or proceedings brought by the creditor
against the debtor after the latter has defaulted or as a consequence of the debtor's
bankruptcy.
Originator/Originator
Savings, lending or mortgage bank that initially drew up a mortgage loan or
proposed a new securities issue.
Out option/Out-Option
Option that has a limiting value as well as the option price and that expires as
soon as the price of the base value reaches this limiting value.
Over-the-counter trading/Over-the-Counter-Handel
Abbreviation: OTC. Securities trading outside the regular exchange. The OTC
market also includes telephone trading in unlisted securities.
Overdraft
Synonym of Kontoüberziehung.
Overdraft facility (GB); current account credit (USA)/Kontokorrentkredit
A credit line which an account holder can use at any time and in any amount up
to an agreed limit during the term of an agreement. Particularly common in the
form of working capital loans. The current account credit can also be extended as
unsecured credits or secured credits (for example, Lombard loans).
Overdraft limit/Überzugslimite
Individually agreed limit to bridge temporary financial bottlenecks. An overdraft
limit on a personal account is usually roughly equivalent to a pension payment or
a salary payment and has no time limit, but either side can cancel it at any point.
Individually agreed limit to bridge temporary financial bottlenecks. Overdraft
limits on a personal account are usually roughly equivalent to one month's salary.
Overdraft/Kontoüberziehung
To draw in excess of the deposit balance or of a line of credit agreed between
the bank and customer. Due to the risk involved, unauthorized overdrafts attract
higher interest than the utilization of credit within an agreed limit.
Overdraw/überziehen
To draw in excess of the deposit balance or credit limit.
Overdue bill; dishonored bill/notleidender Wechsel
A bill of exchange which was not paid at maturity (due date).
Overheated economy
Synonym of overheating.

Glossary FS001
Overheating/Konjunkturüberhitzung
Also: Overheated economy. A situation in which the economy grows rapidly,
resulting in production bottlenecks and inflation.
Oversubscription/Überzeichnung
If demand for an issue exceeds the bond amount announced, the issue is said
to be oversubscribed.
Overvaluation
A security is said to be overvalued if its valuation is excessively high. Opposite:
Undervaluation.
p.a.
Abbreviation for per annum.
Paper money
See banknote.
Paper profit (loss)/Papiergewinn (-verlust)
Non-realized capital gains (or book losses) on securities. The difference between
the current price and the original purchase price.
Par value/Nennwert
Also: Nominal value. Value of a security as printed on its face. The par value is
different from the market value With notes and coins, you also refer to the par
value. In the USA and Canada, no-par-value shares are permitted.
Parity/Parität
Exchange rate between two currencies. Example: Dollar parity, for instance, is
the price of a currency expressed in dollars.
Partial acceptance/Teilakzept
An acceptance which varies from the terms of the bill itself, for example, in that
it calls for payment of only part of the amount.
Partial convertibility/Teilkonvertibilität
Partial convertibility means that a currency can be converted into other currencies
at least to a certain extent.
Payee
Synonym of Wechselnehmer.
Payee/Wechselnehmer
Also: Recipient. Person or company to whom or to whose order the amount
written on a bill, cheque or negotiable instrument by the drawer is to be paid.
Paying agent/Zahlstelle
Also: Agent or bank appointed by the issuer of securities to carry out all ongoing
transactions that arise for the owners of the said securities, for example, payment
of dividends and interest coupons.

FS001 Glossary
Paying-in slip/Einzahlungsschein
Form which can be used at either a bank or a post office to make a deposit or
transfer money in favour of a recipient.
Payment guarantee/Zahlungsgarantie
A payment guarantee secures any claims by the seller on the buyer for payment
of the contract price by the agreed date. Often used in the import-export business
instead of a documentary credit where delivery is against 'open account'. The
guarantee amount is as a rule the contract price or a part thereof. The term mostly
corresponds to the period allowed for payment, plus 15 days for example.
Payment order
Synonym of Anweisung.
Synonym of Zahlungsauftrag.
Payment order/Anweisung
Authorization to transfer money, securities or other fungibles for the account of
the authorizing party to another person entitled to receive the same in his own
name. The payment directive is an indirect form of payment. In the payment
order, the person entitled to receive is granted a loan from the authorizing party
by the drawee.
Payment order/Zahlungsauftrag
Also: An order to a bank from a customer instructing it to make a payment in
favour of a third party.
Payment transfers; payment operations/Zahlungsverkehr
Money debt payments. Payment transfers are said to be cashless when effected
as accounting entries only, in other words, without transferring physical money.
Performance
Synonym of Performance.
Personal account
Synonym of Privatkonto.
Personal account/Privatkonto
Also: Bank account operated as a current account by private individuals with
special interest and withdrawal conditions.
Personal Identification Number
See PIN.
Personal loan company/Privatkreditinstitut
Credit institution specializing in granting personal or consumer loans and
financing instalment purchasing.

Glossary FS001
Personal loan/Kleinkredit
Loan for a relatively small amount, repayable in installments and usually granted
to salaried employees for personal consumption and durable goods purchases.
Personal loans can be used at the borrower's discretion and not tied to a specific
purpose.
Personal loan/Personalkredit
Credit granted to a private person for non-commercial purposes solely on the
basis of that person's creditworthiness, income and financial circumstances.
Credit granted to a private person for non-commercial purposes. Examples:
Personal loan, consumer credit. With regards to the form of the loan (amount
and term), private loans are usually based on the specific financial needs of
the customer.
Phone banking/Phone-Banking
Service offered to customers to check the status of their accounts or issue
payments or stock market orders over the phone as part of a comprehensive
service package.
PIN/PIN-Code
Abbr. for personal identification number, and also referred to ungrammatically
as PIN number or PIN code. Personal alphanumeric code for direct interaction
between customers and banks or for the electronic identification of a customer
using an account card, for example, to withdraw cash from an ATM. PIN stands
for personal identification number.
Place of payment/Zahlungsort
Place where the debtor is to fulfil his/her obligation to pay.
Plain vanilla bond/Plain-Vanilla-Bond
Bond issued without conversion or warrant clauses but with a fixed term to
maturity, fixed interest rate, regular interest payments on dates specified in
advance and unconditional repayment of the bond amount at maturity. "Plain
vanilla" is also used in connection with other financial products (for example,
options, swaps) to indicate a standard form without special characteristics.
Plastic money/Plastikgeld
Slang term for all plastic cards, such as VISA, MasterCard and Maestro card,
used to make cashless payments.
Pledge/Verpfändung
Transfer of assets to secure payment of an obligation, but generally without
transfer of title or ownership. This occurs on the basis of a pledge agreement.
In the event of default, the creditor can realize the pledged assets and satisfy
his claims from the proceeds (execution). In the banking business, pledging
securities is the most common credit collateralizing transaction, especially in the
case of current account credits and loans.

FS001 Glossary
Pledged collateral/Faustpfand
Valuable assets (for example, securities, jewellery, precious metals) deposited
and pledged as security for the repayment of a loan.
Point of sale/Point-of-Sale
See POS terminal.
Pool/Pool
A community of persons or companies with common interests which combine to
carry out common measures, contribute to a common fund of resources or further
a common effort. The rights and duties of pool members are usually governed by
a contract. Examples: Gold pool, shareholders' pool.
Portfolio
Synonym of Portefeuille.
Portfolio analysis
Synonym of Depotanalyse.
Portfolio investment/Portfolioinvestition
Investments in tradable securities and book-entry securities of foreign issuers.
The key motivation is to earn a return and not to exert an influence on the
company's business operations. Examples: Bonds, money market paper, equities
and fund units. Investments in derivatives are not generally regarded as portfolio
investments these days.
Portfolio management
Synonym of Vermögensverwaltungsdepot.
Portfolio management/Vermögensverwaltung
The management of a portfolio or certain assets by a portfolio manager assigned
this function on the basis of a management mandate. The banks perform portfolio
management services in connection with their custody activities.
Portfolio mortgage/Portfoliohypothek
Adjustable-rate mortgage split into several fixed-rate mortgages each of which
is renewed on maturity for the same term. The rate of interest on a portfolio
mortgage is calculated as a moving average of the rates on the component
fixed-rate mortgages. Advantage: The advantage is that the rate of interest is
smoothed out, with minimized risk of fluctuation.
Portfolio/Portefeuille
Also: (1) Holdings of bills and similar paper managed or administered by a bank
on behalf of a customer (portfolio of bills). (2) Selection of securities held by a
bank in a safekeeping account for administration or discretionary management
on behalf of a customer or on its own account. (3) All securities (and other
assets) owned by a person or company.

Glossary FS001
POS terminal/POS-Terminal
End-device that can be used when making cashless payments for goods and
services in shops. The funds can be debited directly from the customer's account
(for example, when using a Maestro card with PIN). POS stands for point of sale.
Position/Position
(1) Status, balance (for example, current account).(2) In derivatives or securities
trading, a particular investment that is entered into in a security.
Positive correlation
See correlation.
Post-market trading/nachbörslicher Handel
Also: After-hours trading. Unofficial securities trading after the close of a stock
exchange. Normally takes place between banks using electronic information
systems.
Post-trade transparency
The MiFID requirement for investment firms that conclude transactions in shares
(either on their own behalf or on behalf of clients) outside of a regulated market
or MTF to make public information relating to those transactions (price, volume
time, and so on).
Postal check/Postcheck
Special order used by the holder of a postal checking account to dispose over the
balance in his account and make payments.
Postal giro transfer/Postgiro
Cashless transfer of money between different postal checking accounts.
Postal money order/Postanweisung
Instrument used for paying (transferring) money to a person who does not
maintain a postal checking account.
Postcard/Postcard
A card issued by the post office that can be used to withdraw cash (worldwide),
or as a form of payment at shops, restaurants, gas stations, and so on.
Precious metals/Edelmetalle
Collective term for the elements gold, silver as well as the group of platinum
metals: platinum, palladium, iridium, rhodium, osmium and ruthenium. Precious
metals are characterized by their chemical durability, valuable physical properties
and attractive appearance. Only gold, silver, platinum and palladium are used
for capital investments; they are traded worldwide around the clock in spot and
forward markets. Precious metal options serve as hedging instruments.
Premium
Synonym of agio.

FS001 Glossary
Premium/Agio
Also: Markup, extra charge, report, fee In stock exchange trading: The difference
between the par value and the higher market value of a security expressed as a
percentage of the par value (for example, in a bond). In coin trade: The surplus
price of a coin (or medal) against the value of the metal. In forex trading: The
difference between a forward and spot rate, where the forward rate is the higher.
Opposite: Disagio.
Price reduction
Synonym of disagio.
Price/Kurs
Market or selling price of securities, foreign exchange, coins or goods.
Private bank/Privatbank
Banking institution in private hands as opposed to public sector banks, where the
owner or partners are liable with their personal assets.
Private banking/Private Banking
Investment counselling and portfolio asset management services offered to
international private and institutional clients.
Private clients
Those bank clients who do not qualify for professional or eligible counterparty
status. Private clients (or retail clients as they are named under MiFID) are
generally considered to be the least sophisticated and are given the most
protection. They are required to demonstrate to the firm that they are transacting
with the necessary knowledge and experience to understand the risks associated
with the transaction. There is also a greater administrative burden associated with
private respectively retail categorization for both firms and clients.
Private equity/Private Equity
Capital that is invested in an unlisted company, either to assist at the start-up or
growth stage or to resolve succession or ownership problems.
Professional clients
Bank clients who meet the professional criteria set out in MiFID. These include
credit institutions, investment firms, pension funds and their management
companies, and other institutional investors. Certain private clients may also
qualify for professional status if they meet specific quantitative and qualitative
criteria. Professional clients are considered to possess the experience, knowledge
and expertise to make their own investment decisions and properly assess the
risks they incur. They obtain an intermediate level of protection under MiFID
and gain the benefit of conduct of business provisions relating to best execution
and order handling.

Glossary FS001
Profit and loss account (GB); income statement (USA)/Gewinn- und

Verlustrechnung
Also: Income account. A statement detailing and balancing the expense items
and income items of a company for the past financial year.
Profit/Gewinn
The income remaining after deduction of all expenses during a specific period.
The total gross income minus all operating and non-operating expenses is called
the net or clear profit. The disposable net profit consists of the net profit for the
year plus any surplus carried forward from the previous financial year.
Profitability/Rentabilität
The success of a company measured in relation to the capital employed. In a
narrower sense, profitability is a synonym of return on equity.
Promissory note
Synonym of Eigenwechsel.
Promissory note issued as security
Synonym of Kautionswechsel.
Promissory note/Eigenwechsel
Also: Written note, issued and signed by the debtor himself, that includes a
promise to pay to the payee, to which the exchange law applies.
Property fund
Synonym of real estate fund.
Protest
Synonym of protest of a bill of exchange.
Protest of a bill of exchange/Wechselprotest
Also: Protest. Formal written notice that the payer has refused to make payment.
The bearer of a bill of exchange files such a protest in cases where the payer
cannot honour a bill on the due date and cannot obtain a prolongation from the
issuer. This protest gives the bearer of the bill the right to demand payment
of the amount of the bill, interest since the due date, protest costs and other
expenses as well as compensation from a previous owner or the issuer by way
of recourse to the endorser.
Provisions/Rückstellungen
Liability items in the balance sheet charged to the profit and loss account to cover
future liabilities or anticipated losses. Frequently listed under other liabilities
in the balance sheet. Provisions for risks in the lending business and in foreign
exchange trading are of particular significance for banks. Specific provisions
are set aside to cover particular risks, while contingency (del credere) reserves
or provisions cover general expected losses which cannot yet be specified in
detail. Contrary to reserves, provisions are not allocated from the net profit but
from operating profit.

FS001 Glossary
Proxy/Vertretungsvollmacht
Also: Authorization to represent a client on the basis of a power of attorney.
Public offer/öffentliches Kaufangebot
Under the Stock Exchange Act, buyers acquiring more than one-third of the
voting rights of a listed company via a takeover are required to offer to buy
the shares of all other shareholders at the same price. Companies can make
a provision in their articles of association opting out of this requirement or
increasing the threshold to 49% (opting up).
Public sector bond
Synonym of government bond
Purchasing power/Kaufkraft
The number of units of one or several types of goods that can be exchanged for
one unit of money. In simpler terms, purchasing power is the ratio between
money and goods. Purchasing power almost always refers to the domestic
purchasing power.
Quotation
Synonym of quote.
Quote; quotation/Notierung
Also: Quotation The market price of an officially listed security. The price is
determined during trading hours and is published in the official price list and
in the daily papers and other media.
Rate for advances against collateral/Lombardsatz
Interest rate applied where securities are pledged as collateral for loans.
Rating agency/Rating-Agentur
A company that specializes in assigning ratings. Examples: Standard & Poor's,
Moody's.
Rating/Rating
Classification of the credit quality of an individual, firm, bank or state, or of
securities issued by them. Awarded by banks or specialized rating agencies.
Real asset/Sachwert
Assets with a lasting value (for example, real estate, precious metals, inventories
of commodities or goods, shares). As a rule, an investment in real assets offers
better protection against inflation and greater security against the depreciation of
a currency over the long term than nominal claims (for example, bonds). They
are, however, subject to greater fluctuations in value.
Real estate fund/Immobilienfonds
Investment fund whose assets are placed in buildings and/or vacant land, the
overriding principle being to spread risks geographically and to invest in a
number of diverse properties.

Glossary FS001
Real estate/Immobilien
Asset class for investments in property or in companies and investment
instruments that conduct real estate transactions or invest in real estate.
Real interest rate/Realzins
Interest rate calculated by subtracting the annual inflation rate from the stated
(or nominal) interest rate. If inflation is higher than the interest rate, then real
interest rates are negative.
Real return/reale Rendite
Nominal return less inflation.
Received bill of lading
Synonym of Übernahmekonnossement.
Received bill of lading/Übernahmekonnossement
Also: Received bill of lading. Words stamped onto a bill of lading to indicate
that the shipowner has received the goods for shipment. It does not indicate that
the goods have already been shipped.
Recommended list/Anlageliste
Also: List published periodically by a bank containing a selection of securities
recommended for investment.
Recourse/Regress
The right to demand payment from the endorser of a commercial paper when
the first party liable fails to pay. For a bill of exchange and check: Right of a
person to whom a cheque, bill of exchange, promissory note or other negotiable
instrument has been endorsed to recover payment from the endorser if the
original borrower defaults.
Redemption price/Rücknahmepreis
The price at which an investment fund is obliged to repurchase fund units. The
redemption price is charged to the fund's assets and corresponds to the net asset
value less any redemption commission and the expenses incurred in connection
with the sale of investments
Rediscount/Rediskont
Also: To sell or discount a negotiable instrument which has already been
discounted once.
Reference currency/Referenzwährung
(1) Currency in which an investor thinks and calculates. (2) Currency in which
the performance of an investment product is measured.
Refinancing/Refinanzierung
Raising of funds by a bank to finance its own lending business.
Reflation/Reflation
Intentional reversal of deflation through aggressive monetary policy easing.

FS001 Glossary
Regional bank/Regionalbank
Generally a small bank whose operations are restricted to a specific region. In the
nineties, the majority of regional banks came under the aegis of RBA-Holding.
Register of mortgage holders/Gläubigerregister
List kept by the land registry in which each holder of a lien on real estate (or each
mortgagor and creditor under a mortgage note) can ask to be entered.
Registered mortgage note/Namenschuldbrief
A mortgage note made out to order, under which only the party named on the
mortgage note can claim the rights arising from the mortgage note.
Registered security
Synonym of Namenpapier.
Registered security/Namenpapier
A security which is made out in the name of the owner and can be transferred
only by assignment. It differs from instruments made out to order, such as bills of
exchange, checks, registered shares, promissory notes, and so on, which name
a beneficiary and are transferable by endorsement.
Regulated market
A market place, trading system or exchange which meets the minimum EU
standards set out in title III of the MiFID. Under MiFID, entities that offer
multilateral trading for financial instruments (such as an order book) must be
organized as either a regulated market or an MTF. Slightly different standards
apply to each of these organization forms.
Reinvestment discount/Wiederanlagerabatt
Discount on the issuing price granted by investment funds to customers
reinvesting income proceeds to acquire fund units of the same type.
Reinvestment/Thesaurierung
(1) Continuous reinvestment of income by an investment fund. (2) Continuous
reinvestment of income by a company for self-financing purposes. (3) Stockpiling
objects of value in the expectation that there will be a downturn in the economy.
Renewal coupon
Synonym of Talon.
Renewal coupon/Talon
Certificate attached to the coupon sheet of a share or bond and exchangeable for
a new set of coupons.
Renewal/Novation
Also: Contract in which an old debt is cancelled by the establishment of a new
one. With current accounts this can be achieved by determining the negative
balance and having this acknowledged.
Rente
In Deutschland üblicher Ausdruck für Obligation.

Glossary FS001
Reorganization/Sanierung
Restoring the economic and financial viability of a company through such
measures as tighter control over its financial operations, reducing the capital
stock (share capital) or raising new capital resources.
Repayment/Tilgung
Repayment of a debt.
Replacement value/Wiederbeschaffungswert
Price that the bank would have to pay on the market in order to conclude an
equivalent replacement transaction if a counterparty were to pull out. The current
replacement value of a contract is the most reliable measure of credit risks
associated with derivatives business.
Repo business/Repo-Geschäft
Germanized expression for repurchase agreement. Repurchase agreement for
securities transactions (sales with simultaneous forward purchase), mainly
between note-issuing banks and commercial banks. Repurchase agreements are a
special form of repurchase transactions (1) that control liquidity in the short-term
and are part of the modern instruments for note-issuing banks.
Reporting/Reporting
(1) Drawing up of reports by companies on their business activities. (2)
Reporting of on-exchange securities trades.
Repurchase agreement
Synonym of Repo-Geschäft.
Repurchase transaction/Pensionsgeschäft
(1) Agreement whereby commercial banks temporarily borrow liquidity from the
central bank. Under a repurchase agreement, the national bank will buy a specific
quantity of securities for a set period and subsequently sell them back to the bank
it bought them from. (2) The acceptance of securities (such as equity paper) by a
bank or financing institution for a limited period, with the depositor or a third
party undertaking to repurchase the relevant securities after a stipulated period.
Reserve
Synonym of reserves.
Reserve for doubtful debts/Debitorenreserve
A reserve set aside for anticipated losses arising from bad debts.
Reserves/Reserven
Also: Reserve. Accounting term denoting an amount of money set aside from
profits and other company funds transferred from surplus or undivided profits to
a special liability account. Reserves serve an important safety function but are
also used for self-financing.

FS001 Glossary
Resident/Deviseninländer
Private person or legal entity treated as resident under fiscal, currency control
and other legislation. Opposite: Non-residents.
Residential mortgage-backed security/Residential Mortgage-Backed
Security
Abbreviation: RMBS. Pass-through mortgage-backed security on residential
property.
Restrictive endorsement/Rektaindossament
Endorsement that has a "not to order" clause. The endorser is liable to the direct
endorsee only and not to persons who (despite said clause) obtain it through
subsequent endorsement.
Retail banking
Synonym of retail banking.
Synonym of Retail-Banking.
Retail clients
Private clients
Retail-Banking/Retail banking
Also: Consumer banking, personal banking. High street banking business with
individuals. The main objective of retail banking is to provide low-cost banking
services in line with customers' needs. To do this, they offer standardized
products and simplify sales processes.
Return on equity
Synonym of Eigenkapitalrendite.
Return on equity/Eigenkapitalrendite
Also: Ratio of net profit generated over a certain period to equity capital.
Revaluation/Aufwertung
Increase in the external value of a currency. In a system of fixed or bloc-linked
exchange rates, revaluation is effected through legal or official increases in the
parity of a currency against the other currencies or the key currency (formerly
against gold). In the case of flexible or floating exchange rates, appreciation is
the result of a rise in the exchange rate on the currency market in response to
supply and demand. Opposite: Devaluation.
Revenue
Synonym of yield.
Revocable letter of credit/widerrufliches Akkreditiv
Documentary credit that can be modified or cancelled at any time. The revocable
letter of credit is hardly ever used because it offers little security.
Revolving credit/revolvierender Kredit
A credit line which can be utilized, repaid and utilized again during the agreed
term. Examples: revolving discount credit, revolving collateral loan.

Glossary FS001
Revolving letter of credit

See documentary credit, revolving credit.
Right of lien/Pfandrecht
Restricted right to hold and retain property until a claim is satisfied. If the claim
is not met, the creditor is entitled to realize the property securing the lien and to
satisfy his claim out of the resulting proceeds.
Right of preemption/Vorkaufsrecht
The written right to purchase either in preference to others or before an offer is
made to others.
Right to move mortgage to higher order of priority
See junior mortgage.
Risk arbitrage
Synonym of Risk-Arbitrage.
Risk aversion/Risikoscheu
See risk tolerance.
Risk concentration/Klumpenrisiko
Loans, equity interests or investments whose size exceeds acceptable limits,
thereby contravening the bank's policy of risk diversification.
Risk management/Risikomanagement
(1) Management tool designed to broadly and systematically identify, quantify
and manage banking-related risk exposure. (2) Service package provided by
banks to commercial clients to help them limit risk exposure through the use of
hedging instruments.
Risk paper
Synonym of share.
Risk premium/Risikoprämie
Premium demanded by investors for investing in risky capital investments. The
higher the risk of loss or default, the higher the premium.
Risk spread
Synonym of risk diversification.
Risk tolerance/Risikoneigung
Also: Risk appetite, willingness to accept risk. A person's individual attitude
towards risk. They may, for example, be willing to accept risks or they can
be risk-averse.
Risk-free return/risikofreier Ertrag
Return on an investment in first-class money market paper, which due to its short
term to maturity is subject to virtually no price fluctuations and is therefore
regarded as being risk-free. Example: Treasury bills.

FS001 Glossary
Risk/Risiko
Exposure to damage or financial loss, for example, a fall in the price of a security,
or insolvency on the part of a creditor. Financial market theory measures the risk
exposure of an investment in terms of the degree of variance. Risk and return are
in direct mutual correlation: the higher the risk exposure, the more substantial
the long-term return on an investment should be. The main risk categories are:
country risk, transfer risk, settlement risk, price risk, interest-rate risk and credit
risk. Risks are hedged with provisions. Hedging products available from banks
include forward and repurchase transactions, options and financial futures.
RMBS
Abbreviation for residential mortgage-backed security.
Roll-over credit/Roll-over-Kredit
Medium- to long-term credit with a floating interest rate which is usually reset
every 3, 6 or 12 months. The basis for the periodic interest rate adjustment is, for
example, the London Interbank Offered Rate (LIBOR) for short-term borrowing
on the Euromarket.
RUF
Abbreviation for revolving underwriting facility.
Safe
Synonym of safe deposit box.
Safe deposit box
Synonym of Tresorfach.
Safe deposit box/Tresorfach
Also: Safe. Lockable deposit box which is located in the vault of a bank and can
be leased out to customers.
Safekeeping account bookkeeping/Depotbuchhaltung
Keeping a record of all securities deposited with a bank by safekeeping account
number and within the safekeeping accounts by securities number.
Safekeeping account/Depot
(1) Short form of securities account. (2) Total of all securities and valuables
deposited with a bank.
Salary account
Synonym of personal account.
Sarbanes-Oxley Act/Sarbanes-Oxley-Act
US legislation that contains a number of measures aimed at improving corporate
governance. The aim of the law is to strengthen investor confidence in the
integrity of the financial data published by companies subject to US legal
requirements.

Glossary FS001
Savings account/Sparkonto
Savings deposits managed in the form of a bank account offering special legally
defined protection (preferred claim under bankruptcy). Reflecting the savings
nature of the account, withdrawal options are more restricted than with a personal
account but the interest is usually higher.
Savings bank/Sparkasse
Depository financial institution that mainly accepts interest-bearing savings
deposits of varying amounts.
Savings book
Synonym of Sparheft.
Savings book/Sparheft
Also: Savings book. Savings account maintained in book form. The savings
book has now largely been replaced by the savings account.
Sealed safekeeping account/geschlossenes Depot
Also: Closed safekeeping account. Safekeeping account where valuables or
documents are deposited, as a rule wrapped and sealed, exclusively for safe
custody. Opposite: Open safekeeping account.
Seasonal loan/Saisonkredit
Credit granted to bridge seasonal needs for funds as experienced by certain types
of enterprises, for example, fashion houses. Special form of working capital loan.
SECOM system/SECOM-System
Also: Sega Communication System (formerly: SEGA Communication System).
The SECOM system is a technical platform for the processing of national and
international securities transactions. SECOM is one of only a few systems
worldwide that enables real-time processing.
Second line security
Synonym of small cap.
Second mortgage
Synonym of zweite Hypothek.
Second mortgage/zweite Hypothek
Also: Mortgage that is usually granted with a loan-to-value ratio of around
65%-80% of the underlying property's market value. The interest rate on second
mortgages is higher than on first mortgages and second mortgages are usually
subject to amortization.
Secondary centre/Nebenplatz
Location where the national bank is not represented by its own bank offices,
agencies or correspondent banks.
Secondary market/Sekundärmarkt
Market on which the trading of securities takes place.

FS001 Glossary
Secured credit/gedeckter Kredit

Credit granted on the basis of a pledge of securities, an assignment, a guarantee,
a surety or real and personal collateral. Opposite: Unsecured credit.
Securities clearing system/Effektengiroverkehr
A system used to settle accounts between securities traders. All claims are set off
against one another in a clearing centre and only the differences settled, with no
physical delivery between participants.
Securities trader/Effektenhändler
Person or company commercially engaged in buying and selling securities on the
exchange. For tax purposes, the issuers of securities are also classified as traders.
Securities trading statement/Börsenabrechnung
Also: Statement of securities transactions. Statement from the bank for
customers. This statement lists data on the sales or purchases of securities.
Securities/Effekten
Securities, book-entry securities and derivatives that are unified and are suitable
for stock exchange dealings.
Securitization/Securitisierung
Also: The growing trend of corporate borrowers to issue marketable securities
on the financial markets as opposed to raising bank loans and credit from other
Securitization/Verbriefung
Also: The growing trend of corporate borrowers to issue marketable securities
on the financial markets as opposed to raising bank loans and credit from other
Security
Synonym of Wertpapier.
Security interest/Kapitalhypothek
Interest in property that exists by contract as security for payment of a defined
capital amount plus to a limited extent of interest and administrative costs over
and above this amount.
Security/Wertpapier
Also: Instrument that signifies an ownership position in a corporation (stocks or
shares), a creditor relationship with a corporation or government body (bonds),
or rights to ownership such as those embodied in options or subscription rights.
Segment information/Segmentinformationen
Supplementary information included in the notes to the financial statements of
a company, giving a breakdown of business results by sector and geographical
location. Required in accordance with International Accounting Standards.

Glossary FS001
Self-financing/Selbstfinanzierung
Provision of funds by a company for capital investment in plant and equipment or
for acquisition purposes out of self-generated sources (net profit and cash flow).
Senior claim/Konkursprivileg
Preferential position among claims in the event of bankruptcy proceedings. Not
until all claims of the preceding class have been satisfied can the proceeds from
the liquidation of any remaining assets be used to meet lower-ranking claims. In
the event of a bank filing for bankruptcy, depositor protection applies.
Separation of commercial and investment banking/Trennbankensystem
Banking system under which certain business areas must be strictly separated.
The best-known example was the separation of commercial and investment
banking in the USA from 1933 to 1999 (Glass Steagall Act). However, these
restrictions were lifted when the law was changed in 1999, and it is therefore
now also possible to operate as a full-service bank, in other words, to provide
all financial services (including insurance) via a holding structure ("universal
banking"). Opposite: Full-service or universal banking.
Service fee income
See commission and service fee income.
Servitude/Grundlast
Obligation on the owner of real property to render a specified service (such as
maintaining a road through the property). Servitudes are recorded on the land
certificate for the property.
Settlement day; declaration day/Stichtag
(1) Cut-off date for generating financial statements. (2) Exchange trading: the
day on which liabilities arising from forward transactions have to be settled.
(3) Dividend distributions: the day on which shareholders become entitled to
a dividend.
Settlement risk/Abwicklungsrisiko
Risk of a trade failing to settle due to error, default or weaknesses in the
settlement system.
Share capital (GB); capital stock (USA)/Grundkapital
The equity capital of a company. The equity capital of a public limited company
is equal to the share capital plus any participation certificate capital.
Share of profits/Tantieme
Proportion of the profit that is paid out to the administration or supervisory board
members of a public limited company.

FS001 Glossary
Share/Aktie
A form of security representing a portion of the nominal capital of a company. It
also gives the owner the right to vote at General Meetings and to elect directors
as well as the right to information and to exercise control. Shares further entitle
the holder to a portion of the company's profits and to a proportional share of any
capital increase or liquidation proceeds.
Shareholder value/Shareholder-Value
Also: Stockholder value. Endeavours by a company's management to steadily
increase the value of the company for the shareholders.
Ship mortgage/Schiffshypothek
Claim or receivable which is secured by a mortgage or lien on a ship pledged
as collateral.
Short-term liabilities
See liabilities.
Sight deposits/Sichtgelder
Also: Demand deposits. Bank balances which can be withdrawn at any time, in
other words without any prior notification.
Sight draft; sight bill/Sichtwechsel
Bill of exchange endorsed "on demand". It does not require payment on a
definite date The sight draft is payable immediately on presentation. It has to be
presented within one year after drawing if no other period is stipulated.
Signature card/Unterschriftenkarte
The document deposited at the bank which bears the signature of the account or
deposit holder, together with those of the authorized agents. The signature card
that provides information about the regulations of the authorization to draw is
stored in the bank that manages the account.
Simple guarantee/einfache Bürgschaft
Guarantee where the obligee can only demand payment from the guarantor if
the principal obligor has become bankrupt, or has been granted a stay of (debt)
enforcement, or if certain other conditions have been fulfilled. If a lien exists for
the guaranteed obligation, then the guarantor can demand that the obligee first
realize the value of this collateral as long as the principal obligor has not been
declared bankrupt or has been granted a stay of enforcement.
Single assignment/Einzelzession
Contractual assignment of a debt to a new creditor. This may be with regard to
either a single obligation or to individual specially designated obligations.
Small and medium-sized enterprises/Klein- und Mittelunternehmen
Abbreviation: SME. Company with up to 250 employees.
SME/KMU
Abbreviation for small and medium-sized enterprises.

Glossary FS001
Solvency
Synonym of Zahlungsfähigkeit.
Solvency/Zahlungsfähigkeit
Also: Ability of borrowers to meet their payment obligations. Opposite:
Insolvency.
Speculation/Spekulation
Activity focused on exploiting expected changes in the market. Specifically,
speculation refers to transactions entailing disproportionately high returns and
risks.
Spot price/Spotpreis
Current rate or price of base value being traded on the cash market.
Spot rate/Kassakurs
Also: Spot price. Rate of a currency or price of a security in a spot transaction.
Opposite: Forward rate.
Spot transaction
Synonym of Kassageschäft.
Spot transaction/Kassageschäft
Also: Transaction where delivery and payment for the instruments or goods (for
example, securities, foreign currencies or commodities traded on exchanges) are
immediate. In the securities trading, a spot transaction is usually settled on the
second or third working day following the transaction. In the quotation list,
spot transactions are marked with a "c" for comptant. In the foreign exchange
market, a spot transaction is settled at the latest two working days later. Opposite:
Forward transaction.
Stagflation/Stagflation
Term to describe the combination of slow or non-existent economic growth
(stagnation) with relatively strong price increases (inflation).
Stagging (GB); flipping (US)/Konzertzeichnung
Applying to several banks at once for newly issued shares or bonds in strong
demand in the hope of securing a sizeable allotment.
Standard deviation/Standardabweichung
Square root of variance.
Standby credit/Standby-Kredit
(1) Credit line granted against payment of compensation (commitment
commission) for a specified term. (2) Bridging loan extended to a country or
central bank facing balance of payments difficulties (for example, the stand-by
facilities of the IMF).

FS001 Glossary
Standby Letter of Credit/Standby Letter of Credit

A common form of bank guarantee in the USA and Asia. May be used for all
types of guarantee, in particular as a payment guarantee. It also serves as security
for the event that a third party fails to meet a promised obligation.
Standing order/Dauerauftrag
Payment product which enables the client to give an order to the bank to make
regular payments for the same amount and execution date.
Statute of limitations/Verjährung
When a claim becomes time barred after a certain period of time has elapsed. The
borrower is then no longer obliged to make any payments. There are different
limitation periods defined by law depending on the type of claim in question.
Stock exchange bank/Börsenbank
Bank that trades in securities on the stock exchange.
Stock exchange/Effektenbörse
Also: Stock market. Exchange on which securities are regularly traded.
Stock market crash/Börsenkrach
Sudden drop in stock prices. A crash can occur when economic growth slows
down abruptly or if the market is in technically poor condition due to excessive
prices caused by speculation. Serious stock market crashes were seen on 13 May
1927, in Germany ("Black Friday"), and on 29 October 1929 ("Black Tuesday"),
and 19 October 1987 (Black Monday"), in New York, although the latter was less
severe than its predecessors.
Structured product/strukturiertes Produkt
Combination of two or more financial instruments, at least one of which must
be a derivative, to form a new investment product.
Sub-participation/Unterbeteiligung
(1) In the securities underwriting business: where banks that are not members of
an underwriting syndicate participate in an issue. The sub-participating banks
participate to a certain extent in the rights and obligations of the syndicate.
Sub-participation is an attractive option for banks not included in a syndicate.
By granting sub-participations, the syndicate banks can reduce their own risk
exposure and access a broader group of investors. (2) In the lending business: if
a large loan is granted to a borrower, several banks can join together to act as
the lender. Each bank provides part of the loan, but only the lead bank deals
directly with the client. The lead bank refers to the credit facilities provided by
the other banks as sub-participations.
Subject to collection/Eingang vorbehalten
Abbreviation: Clause by which the bank reserves the right to reverse or cancel a
credit entry if the countervalue of promissory notes and other debt certificates
(such as bills of exchange and cheques) cannot be collected.

Glossary FS001
Subordinated issue/nachrangige Anleihe

Bond issue where the lender contracts that his debt will rank behind some or all
other debt on liquidation or bankruptcy of the issuer.
Subscription
Synonym of Zeichnung.
Subscription form/Zeichnungsschein
Order form used in the issuing business. With this form, a subscriber undertakes
to take up and pay for allocated securities according to the conditions set down
in the prospectus.
Subscription period/Zeichnungsfrist
Period during which subscriptions to a new securities issue can be accepted by
the subscribing agent (usually a bank).
Subscription/Zeichnung
Also: In the issuing business: In subscribing a specific number of securities, the
subscriber undertakes to take up the said securities according to the conditions
set down in the prospectus if they receive a definitive allocation.
Subsidiary (company)/Tochtergesellschaft
Legally independent company that is controlled by another company, its parent
company. The subsidiary may have been founded by the parent company or
acquired by it, and forms part of a corporate group.
Summary bill enforcement procedure/Wechselstrenge
Especially rapid summary bankruptcy proceedings brought against bill and
cheque debtors whose names are entered in the commercial register.
Supervisory authorities/Aufsichtsbehörde
Legally appointed body whose remit is to supervise the activities of financial
institutions.
Surety credit/Avalkredit
A bank grants credit, thereby assuming liability for a bill guarantee up to a given
amount (guarantee limit).
Surrender value/Rückkaufswert
The amount an insurance company will repay to a policyholder who wishes to
terminate his policy early. Usually, the life insurance policy premiums must have
been paid for at least three years. The surrender value is used as a guideline for
determining the credit line granted against the pledge of life insurance claims
as collateral.
Suspense account/Interimskonto
Also: Interim account. An account for the temporary entry of charges or credits,
pending determination of their ultimate disposal.

FS001 Glossary
SWIFT/SWIFT
Abbreviation for Society for Worldwide Interbank Financial Telecommunication
which is located in Brussels. The company operates a computer-guided
communications system to rationalize international payment transfers.
Switch/Switch
Restructuring and shifting within a portfolio, with the weightings of positions in
certain securities being reduced and that of others being increased.
Syndicate/Syndikat
Also: Consortium. Group of companies that come together for a common
purpose (for example, underwriting syndicate).
Syndicated credit
Synonym of syndicated loan.
Syndicated loan
Synonym of Konsortialkredit.
Syndicated loan/Konsortialkredit
Also: Syndicated credit. Credit or loan granted jointly by two or more banks, one
of which acts as lead manager.
Syndication/Konsortialgeschäft
Financial transaction usually of a considerable size (bond issue, loan, and so on)
organized by a group of several banks which form a syndicate or consortium
for the purpose.
Systematic risk/systematisches Risiko
Also: Market risk. Risk dependent on factors which influence the entire market
and cannot be reduced or eliminated by portfolio diversification.
Takeover bid
See public offer.
Takeover financing/Übernahmefinanzierung
Raising the necessary financial resources for the acquisition of a controlling
interest in one company by another company. Such transactions are frequently
combined with bank loans, bank guarantees and securities issues.
Takeover/Übernahme
Also: Acquisition. The transfer of control of a company from one group of
shareholders to another. Takeovers are linked to a change in the top management
of the target company. The latter is integrated in the acquiring company once
the takeover is complete. A distinction is drawn between friendly takeovers
and hostile takeovers.
Taxation of savings income/Zinsbesteuerung
EU taxation of interest income from assets belonging to natural persons and
held outside their country of residence.

Glossary FS001
Tenant's deposit
Synonym of tenant's guarantee.
Tenant's guarantee/Mietergarantie
Also: Deposit paid as security for a tenant's liabilities. The maximum deposit
under the law is three months' rent. The tenant's guarantee is held in safekeeping
in an interest-bearing bank account. The net interest income accrues to the
tenant.
Theoretical value
Synonym of fair value (2).
Three month Libor/Dreimonats-LIBOR
London Interbank Offered Rate for a term of three months.
Tier 1/Tier 1
A bank's core capital, comprising its share capital, open reserves and profit
brought forward. The core capital is part of the bank's equity and must comprise
at least 50% of the this. See also tier 2, tier 3.
Tier 2/Tier 2
Supplementary capital that forms part of bank's equity. The tier 2 capital
comprises hybrid trading instruments, hidden reserves in the value adjustments
and provisions position, fluctuation reserves in the fixed assets, loans and bonds
with an original subordinated term to maturity of at least 5 years and 50% of the
further contributions the bank is liable to make on a certain amount. See also
tier 1.
Tier 3/Tier 3
Category of a bank's equity that comprises the additional capital. See also tier 1,
tier 2.
Time deposit
Synonym of Festgeld.
Time deposit/Festgeld
Bank deposits which are to be held for a specified period of time at a set rate of
interest. The periods are generally between 1 and 12 months and the minimum
amount usually CHF 100,000. On the balance sheet time deposits are shown
as amounts due to customers (term).
Time value (of an option)/Zeitwert
With options, the difference between the price of an option and its intrinsic value.
To the order of/Orderklausel
The notation "to the order of" after the name of the beneficiary makes it possible
to transfer securities by endorsement. The clause turns the security into an
instrument to order (bill of lading). In the case of legal instruments made out to
order (for example, bill of exchange, cheque, registered share), the notation is not
essential because these securities are already deemed to be endorsed.

FS001 Glossary
Total assets/Bilanzsumme
The sum of assets or liabilities reported by a company in its balance sheet. As
off-balance-sheet operations become increasingly significant, this indicator
reflects only part of the overall business of a bank. See also bank balance sheet.
Trade bill
Synonym of Warenwechsel.
Trade bill/Warenwechsel
Also: Bill of exchange with a commodity transaction as the underlying.
Trading center
Synonym of financial center.
Trading price/Abschlusskurs
The price at which a stock exchange transaction is effected. An asked price is
the lowest price offered by the seller and a bid price is the highest price a buyer
is prepared to offer. The rate that is first paid for a stock exchange security on
a certain day is an opening price, and the rate that is paid last on this day is
the closing price.
Tranche/Tranche
Part of a uniform capital issue (bond) which is offered for subscription in several
instalments. The individual tranches usually have different maturities and offer
different rates of interest, and therefore have different issuing and market prices.
Transfer credit/Transferkredit
Blanket credit line based on a loan agreement and on bilateral agreements in the
form of a treaty or correspondence between the state and a developing nation.
Transfer risk/Transferrisiko
The risk that a transfer covered by a contract cannot be effected between one
currency area and another, or that such transfers are restricted as a result of state
intervention.
Transfer/Transfer
Also: Payment from one country or currency area to another. In a similar way,
transfer agreements are agreements using international payment transactions.
Transfer/Überweisung
Cashless remittance of an amount of money from one account to another.
Transferable letter of credit/übertragbares Akkreditiv
Documentary credit under the terms of which the beneficiary may instruct the
expressly authorized bank to make all or part of the credit available to one or
more other beneficiaries (second beneficiaries).
Transparency
Post-trade transparency, pre-trade transparency
Travelers Cheque
See Traveller's Check.

Glossary FS001
Traveller's check/Reisecheck
Also: Traveler's check. Medium of payment created especially for use in
international travel and tourism. In contrast to conventional cheques, traveller's
cheques must be paid in advance by the buyer. They can be cashed at most
banks and many businesses in other sectors (shops, hotels, and so on) subject to
verification. Traveller's cheques are issued by banks, groups of banks or travel
organizations. They are made out in round amounts.
Treasury note/Schatzanweisung
Also: Short- and medium-term debt certificates issued in bill or note form by a
government. In the USA, a distinction is made between treasury bills (short-term,
3-12 months) and treasury notes (medium-term, 1-5 years).
Trend/Tendenz
The general tendency of a market to move in a certain direction (for example,
price developments on a stock exchange or forex market).
Triple A
Synonym of AAA.
Trustee security status/Mündelsicherheit
Legally required security for investments of the assets of individuals under
guardianship. Savings deposits and public sector bonds are permitted. However,
investments in equities, participation certificates and derivatives are prohibited.
Turnover fee
Synonym of turnover commission.
Underlying
Synonym of underlying value.
Undervaluation/Unterbewertung
A security is said to be undervalued if its valuation is excessively low. Opposite:
Overvaluation.
Underwriter/Underwriter
Bank or intermediary that commits itself to taking up an unsold portion of a
securities issue after placement.
Underwriting agreement/Übernahmevertrag
Agreement concluded between the issuer and underwriting syndicate concerning
the direct underwriting of a new securities issue.
Underwriting price/Übernahmepreis
The price to be paid by the banks to issuers for the direct underwriting of a new
securities issue. The difference between the issue price and the underwriting
price is the banks' gross profit margin (underwriting fee).
Undisclosed assignment/stille Zession
Assignment not disclosed to the borrower.

FS001 Glossary
Undisclosed reserves/stille Reserven

Reserves not shown in the balance sheet of a company; for example, if the market
value of an asset is higher than its book value. Other forms: replacement reserves
(maintenance of real-asset values and equity capital) and other undisclosed
reserves. Any dissolution of undisclosed reserves which has a significant impact
on the company's results must be declared in the annual financial statements.
Undisclosed reserves enhance a company's creditworthiness. Opposite:
Disclosed reserves.
Unit certificate/Anteilschein
(1) Certificate of participation in an investment fund issued as a security without
par value. (2) Certificate of membership in a cooperative (no security, only
document in proof).
Universal bank; full-service bank/Universalbank
A bank operating in all banking sectors and for all types of clients.
Unlimited
Synonym of at best.
Unlimited order.
Synonym of market order.
Unlisted security/unkotiertes Wertpapier
Security which is not listed for trading on an official stock exchange.
Unsecured credit/Blankokredit
Loan granted on the strength of the borrower's credit history or reputation.
Opposite: Secured credit.
US-GAAP/US-GAAP
Abbreviation for Generally Accepted Accounting Principles. Mandatory US
standards for the presentation of accounts.
Validate/validieren
Declare valid.
Validity/Validität
The validity of, for example, a payment.
Valuation/Bewertung
Estimate of the value and potential of a security based on the security and
financial analysis.
Value added/Wertschöpfung
Increase in value created by a company or an economy over a given period. The
sum of the value added by all companies in a country corresponds to the gross
domestic product.
Value adjustment/Wertberichtigung
Adjustment of the value of an asset on the balance sheet to its true value.

Glossary FS001
Value-at-risk/Value-at-Risk
Abbreviation: VaR. Risk statistic that expresses the potential loss if a certain
scenario occurs. In the case of banks, the value-at-risk is calculated daily.
Variable interest rate/variabler Zinssatz
Interest rate which may be changed during the term of a loan or a bond issue. In
the case of international loans and bonds, the periodic adjustment in line with the
London Euromoney market rate is of particular significance.
Variance/Varianz
Statistical measure of the risk exposure of an investment (share, bond and so on)
or portfolio. Variance is the amount by which individual earnings positions
deviate from average earnings over a set period. High variance is an indication
of high risk.
Vault/Tresor
A room at a bank for the safekeeping of valuables.
Venture capital
Synonym of Wagniskapital.
Venture capital/Wagniskapital
Financing provided to new and innovative companies with a view to making
capital gains. Venture capital is provided by institutions specializing in this form
of finance, such as venture capital companies and private equity companies.
VISA card/VISA-Karte
Credit card that can be used worldwide. A VISA card also offers additional
services such as cash withdrawals, hotel reservations and making phone calls
without cash. Website: http://www.visaeurope.com
Volatility/Volatilität
A measure of the fluctuations in the yield on a security within a specific period.
Usually stated as a standard deviation, expressed as an annualized value.
Voluntary reserves/freiwillige Reserven
Reserves constituted over and above the minimum required by law. They may be
provided for by a company's articles of association or by a resolution of the body
which oversees the company's operations, for example, the General Meeting.
Wall Street
Also: In stock market jargon, synonymous with the New York Stock Exchange
and the financial centre of New York. Wall Street is the street that runs through
New York's financial district.
Warehouse receipt/Lagerempfangsschein
Receipt given by a warehouse for goods stored on its premises. The warehouse
receipt is a confirmation. It is not a security.

FS001 Glossary
Warehouse receipt/Lagerschein
Identification paper that certifies the right to stored goods. The warrants usually
have the characteristics of securities and can also be mortgaged if required.
Warrant issue/Optionsanleihe
Bond issue which bears interest throughout its term to maturity and features a
warrant which embodies the right to purchase a share or other security. The
warrant may be traded separately from the bond.
Warrant/Optionsschein
Also: Warrant. Type of security, usually issued together with a bond or preferred
stock, entitling the holder to buy a proportionate amount of common stock or
other securities at a specified price for a period of years.
Waybill/Frachtbrief
A written list detailing goods included in a shipment by rail or road. Unlike a bill
of lading, it does not have the status of a security.
Weighted average life/gewichtete durchschnittliche Laufzeit
Maturity of each position in a mortgage pool or other debt instrument portfolio
weighted by the value of the position to compute an average maturity for the pool.
Wertpapierkennnummer (securities identification number)
Common name for securities number in Deutschland.
Wholesale banking/Wholesale-Banking
A bank's business with large corporate clients. Opposite: Retail banking.
Willingness to accept risk
Synonym of risk tolerance.
Willingness to pay/Zahlungsbereitschaft
Willingness of a company to meet its payment obligations.
Window dressing/Window-Dressing
(1) Trading activity used by mutual fund and portfolio managers near the year
end or quarter end to improve the appearance of the portfolio/fund performance
before presenting it to clients or shareholders. (2) Bank accounting policy:
increasing total assets by taking up interbank assets prior to a reference date so
as to present higher liquidity.
Without our liability
Synonym of ohne Obligo.
Without our liability/ohne Obligo
Also: Without our guarantee. This or a similar note is used in banking mainly in
the following contexts: (1) to refuse any liability in connection with information
provided to a third party (2) refusal by a bill endorser to be held liable if the
bill is dishonored.

Glossary FS001
Without protest/ohne Protest

Also: Notation used by the issuer, endorser or guarantor of a bill of exchange
to protect the holder against the bill being protested due to non-payment or
non-acceptance.
Working capital loan/Betriebskredit
Loan granted to temporarily strengthen the working capital of companies and
self-employed persons to ease a shortage of liquidity.
World Bank/Weltbank
Name commonly used for the International Bank for Reconstruction and
Development. Like the International Monetary Fund, it was established in 1944 at
Bretton Woods (USA) and has its headquarters in Washington. Both institutions
now have more than 180 member countries. The World Bank's primary mission is
to fight poverty. In particular, it grants long-term investment loans to developing
countries and finances long-term projects aimed at improving the economic and
ecological standard of living of the population. Website: www.worldbank.org.
Writer
Synonym of issuer of a covered warrant.
Year-end closing
See financial statements.
Yield/Rendite
The total income produced by a capital investment expressed in percent. In the
case of bonds, the yield to maturity or yield to the earliest possible redemption
date is usually taken, the total return being calculated by dividing the annual
interest payments and price changes to redemption by the number of years left
to maturity.
Zero bond
Synonym of Nullcoupon-Anleihe.

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FS001 - Introduction To The Banking Industry

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Introduction to the Banking Industry

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Unit 1: Fundamentals....... ............... ............... ............... ............... ....... 1

Unit 2: Deposit banking, credit transactions and payment transactions... ..... 61

Glossary ........ ............... ............... ............... ............... ............... ..... 99

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• Consultants and IT employees who want to familarize themselves with banking

• familiarize yourself with banking

• understand basic financial terms

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viii © 2008 SAP AG. All rights reserved. 2008

• Explain the financial requirements and the investment requirements

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• Describe specialized commercial banks

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Lesson: Dimension of a bank

Figure 1: Cash and service flow in an economy based on division of labour

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Figure 2: Main functions of the banking system

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Figure 3: Transformation activities of banks between customers, partners and

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Figure 4: Typical banking services

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Lesson: Financial institutions

Figure 5: Financial institutions: Classification of terms

Figure 6: Financial institutions: Classification of terms

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Figure 7: Financial institutions: Transactions of the credit institutions

Credit institutions require permission from the Federal Supervisory Office

Figure 8: Financial institutions: Transactions of the credit institutions

Credit institutions require permission from the Federal Supervisory Office

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Figure 9: Financial institutions: Banking transactions in accordance with 1

1. Deposit business: the acceptance of funds from others as deposits or of other

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10. Underwriting business: The purchase of financial instruments at the credit

Figure 10: Financial institutions: Financial services in accordance with the

Figure 11: Financial institutions: Macroeconomic tasks

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Figure 12: Macroeconomic tasks: Intermediation functions

Intermediation is the brokerage between two or more parties.

Figure 13: Macroeconomic tasks: Intermediation functions

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Figure 14: Macroeconomic tasks: Disintermediation

Securitization is the issuing of securities to receivables or payables. Companies and

Figure 15: Macroeconomic tasks: Market intermediation

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Figure 16: Macroeconomic tasks: Cash generation