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Banking and

Franklyn

Finance English

Class: 1
Introduction:-
Commerce has become one of the most sought after streams for the
youngsters. There is huge potential in the Banking and finance sectors
of our country. Commerce graduates and students who have a flair for
commercial and banking technicalities jump for this bandwagon.
The employments available in these sectors demand quality and
aptness from the candidates, thus making the bunch of competent and
eligible team of youngsters.
But, it is very obvious that in order to gain certain degree of eligibility a
solid base of communication is very much required.
Looking at this growing need of Commerce Franklyn has developed a
foundation course for you. The target is to make you aware of the
technical and non-technical components of this happening industry.
This course caters to all those aspirants who opt for commerce as their
mainstream subject, businessmen want to have a better grip over the
market and professionals in general who want to navigate in to the
world of commerce for practical and personal need.

With the wake of Globalization banking is no more confined to the area


of local market and a handful of target clients only. The increase of
corporatization requires an enlarged market and should include global
customers too. This extended version of Finance sector should match
with profiles that can make a thorough communication and network a
chain of large and prolific populace. Keeping an eye with this Franklyn
Banking and Finance English offers a customized course that
incorporates almost all of the subjects which can make one suitable for
the industry.
Financial English courses are developed to provide you with the key
skills, tools and terminology you need to operate in an ever
competitive international financial environment.

Objectives:-

Fun learning

These unusual way of training is by no means dilute the seriousness of


learning. There are few traditional institutions that offer classical
modes of learning, and a few of these offbeat courses fill the gaps thus
giving students something experimental they are looking for. Our
unique course contents allow students to master the course better
than any traditional method of learning. In specialized course contents
Franklyn’s allow students to know the subject through and through.

Feasibility

This course, Banking and Finance English is probably creating a stir


around the business and corporate world, and might be a subject of
great many conversations in the cafeteria. Without investing for a full
time course this crash course might well be taken as a learning
platform to gather some hands on skill on the domain.

The world of banking of finance is dominated by the English language.


Whether between negotiating parties or in commercial business
English is the prominent language of choice.

It is estimated that over 1 billion people are learning English worldwide


and as the world economy steadily grows the popularity of English as a
major language in banking and finance is likely to increase.

Benefits

Franklyn’s Financial English course will provide you with:

- Greater confidence when discussing financial documents and data.


- Increased verbal fluency for face-to-face negotiations.
- In depth knowledge about the familiar ingredients of Banking and
Finance.
- Economy and finance, trade and cooperation, money, banking
transactions and services, personal finance.
Who should attend

A Financial English course is suitable for anyone who requires a solid


command of financial English and is particularly ideal for:

- In-company accountants
- Bankers
- Internal auditors
- Finance managers
- Directors and divisional managers
- In-house counsel
- Fund managers, financial lawyers, accountants, auditors and any
other bank/financial staff who are increasingly required to use fluent
English in their job.

- Treasury, dealing room, corporate lending and marketing staff who


need to be completely up-to-date with financial terminology and 100%
accurate in stating/understanding facts and figures.

Quiz:

Choose the correct answer to go in the gap.

Example:

If you go abroad you don't have to take a lot of cash with you. Instead, you can take
...... cheques with you, which are accepted in most hotels, restaurants and shops all
over the world.

tourist
traveller's
travel

1. Here is a small ...... . You'll get the rest of the money after the job is finished.

benefit
advance
preview

2. "Here's a ten-pound ...... ". "Your change, Sir".


invoice
bill
note

3. "What is the ......... in Poland". "It's the Polish Zloty".

money
currency
greenback

4. He doesn't have any money problems. He is fully ...... .

wealthy
solvent
thrifty

5. If you work longer than your usual working day you should be paid ......

outgoing
overdue
overtime

6. I don't get paid in cash. My salary is paid into my bank ....... .

deposit
debt
account

7. The long-term loan you take from a bank to buy a house or flat is called a ......... .

mortgage
overdraft
arrears

8. I don't have any money. I'm .................. .

stony broke
hand and fist
comfortably off

9. I need to ......... my belt, and cut down on the money I spend on luxuries.

loosen
tighten
do
10. I don't have any cash on me. Can I pay with my .......... card?

deposit
credit
expenditure

Topic Details:

The content of your Financial English course will be determined by


your level and requirements. However, core subject areas for each
Financial English course will include:

Unit 1: General Introduction to Bank and Banking Sector. (Class 2-3)


Unit 2: Financial Matters:-
a. Transaction. (Class 4- 5)
b. Risk Management. (Class 6- 7)
Unit 3:

Glossary 1 (Class 8- 10)

Glossary 2 (Class 11- 13)

Conversation and Exercise. (Class 14- 15)

Terminologies Important to remember. (Related to Banking


and Stocks) (Class 16)

Unit 1:
Class: 2

General Introduction to Bank and Banking sectors:-

A banker or bank is a financial institution that acts as a payment agent for customers,
and borrows and lends money.

Banks acts as payment agents by conducting current accounts for customers, paying
cheques drawn by customers on the bank, and collecting cheques deposited to the
customer's current accounts. Banks also enable customer payments via other payment
methods such as telegraphic transfer, EFTPOS, and ATM.

Banks borrow money by accepting funds deposited on current account, accepting term
deposits and by issuing debt securities such as banknotes and bonds. Banks lend money
by making advances to customers on current account, by making installment loans, and
by investing in marketable debt securities and other forms of lending.

Banks provide almost all payment services, and a bank account is considered
indispensable by most businesses, individuals and governments. Non-banks that provide
payment services such as remittance companies are not normally considered an adequate
substitute for having a bank account.

Banks borrow most funds borrowed from households and non-financial businesses, and
lend most funds lent to households and non-financial businesses, but non-bank lenders
provide a significant and in many cases adequate substitute for bank loans, and money
market funds, cash management trusts and other non-bank financial institutions in many
cases provide an adequate substitute to banks for lending savings to.

Economic functions in a Bank:

The economic functions of banks include:

1. issue of money, in the form of banknotes and current accounts subject to cheque
or payment at the customer's order. These claims on banks can act as money
because they are negotiable and/or repayable on demand, and hence valued at par
and effectively transferrable by mere delivery in the case of banknotes, or by
drawing a cheque, delivering it to the payee to bank or cash.
2. netting and settlement of payments -- banks act both as collection agent and
paying agents for customers, and participate in inter-bank clearing and settlement
systems to collect, present, be presented with, and pay payment instruments. This
enables banks to economise on reserves held for settlement of payments, since
inward and outward payments offset each other. It also enables payment flows
between geographical areas to offset, reducing the cost of settling payments
between geographical areas.
3. credit intermediation -- banks borrow and lend back-to-back on their own account
as middle men
4. credit quality improvement -- banks lend money to ordinary commercial and
personal borrowers (ordinary credit quality), but are high quality borrowers. The
improvement comes from diversification of the bank's assets and the bank's own
capital which provides a buffer to absorb losses without defaulting on its own
obligations.
5. maturity transformation -- banks borrow more on demand debt and short term
debt, but provide more long term loans. Bank can do this because they can
aggregate issues (e.g. accepting deposits and issuing banknotes) and redemptions
(e.g. withdrawals and redemptions of banknotes), maintain reserves of cash,
invest in marketable securities that can be readily sold if needed, and raise
replacement funding as needed from various sources (e.g. wholesale cash markets
and securities markets) because they have a high and more well known credit
quality than most other borrowers.

Law of Banking:

Banking law is based on a contractual analysis of the relationship between the bank and
the customer. The definition of bank is given above, and the definition of customer is
any person for whom the bank agrees to conduct an account.

The law implies rights and obligations into this relationship as follows:

1. The bank account balance is the financial position between the bank and the
customer, when the account is in credit, the bank owes the balance to the
customer, when the account is overdrawn, the customer owes the balance to the
bank.
2. The bank engages to pay the customer's cheques up to the amount standing to the
credit of the customer's account, plus any agreed overdraft limit.
3. The bank may not pay from the customer's account without a mandate from the
customer, e.g. a cheque drawn by the customer.
4. The bank engages to promptly collect the cheques deposited to the customer's
account as the customer's agent, and to credit the proceeds to the customer's
account.
5. The bank has a right to combine the customer's accounts
6. The bank has a lien on cheques deposited to the customer's account, to the extent
that the customer is indebted to the bank.
7. The bank must not disclose the details of the transactions going through the
customer's account unless the customer consents, there is a public duty to
disclose, the bank's interests require it, or under compulsion of law.
8. The bank must not close a customer's account without reasonable notice to the
customer, because cheques are outstanding in the ordinary course of business for
several days.
These implied contractual terms may be modified by express agreement between the
customer and the bank. The statutes and regulations in force in the jurisdiction may also
modify the above terms and/or create new rights, obligations or limitations relevant to the
bank-customer relationship.

Banking channels:

Banks offer many different channels to access their banking and other services:

• A branch, banking centre or financial centre is a retail location where a bank or


financial institution offers a wide array of face to face service to its customers
• ATM is a computerised telecommunications device that provides a financial
institution's customers a method of financial transactions in a public space without
the need for a human clerk or bank teller. Most banks now have more ATMs than
branches, and ATMs are providing a wider range of services to a wider range of
users. For example in Hong Kong, most ATMs enable anyone to deposit cash to
any customer of the bank's account by feeding in the notes and entering the
account number to be credited. Also, most ATMs enable card holders from other
banks to get their account balance and withdraw cash, even if the card is issued by
a foreign bank.
• Mail is part of the postal system which itself is a system wherein written
documents typically enclosed in envelopes, and also small packages containing
other matter, are delivered to destinations around the world. This can be used to
deposit cheques and to send orders to the bank to pay money to third parties.
Banks also normally use mail to deliver periodic account statements to customers.
• Telephone banking is a service provided by a financial institution which allows its
customers to perform transactions over the telephone. This normally includes bill
payments for bills from major billers (e.g. for electricity).
• Online banking is a term used for performing transactions, payments etc. over the
Internet through a bank, credit union or building society's secure website

Types of banks

Banks' activities can be divided into retail banking, dealing directly with individuals and
small businesses; business banking, providing services to mid-market business; corporate
banking, directed at large business entities; private banking, providing wealth
management services to High Net Worth Individuals and families; and investment
banking, relating to activities on the financial markets. Most banks are profit-making,
private enterprises. However, some are owned by government, or are non-profits.

Central banks are normally government owned banks, often charged with quasi-
regulatory responsibilities, e.g. supervising commercial banks, or controlling the cash
interest rate. They generally provide liquidity to the banking system and act as Lender of
last resort in event of a crisis.

Class: 3
Banking in India:

Structure of the organised banking sector in India. Number of banks are in brackets.

Banking in India originated in the first decade of 18th century with The General Bank of
India coming into existence in 1786. This was followed by Bank of Hindustan. Both
these banks are now defunct. The oldest bank in existence in India is the State Bank of
India being established as "The Bank of Bengal" in Calcutta in June 1806. A couple of
decades later, foreign banks like Credit Lyonnais started their Calcutta operations in the
1850s. At that point of time, Calcutta was the most active trading port, mainly due to the
trade of the British Empire, and due to which banking activity took roots there and
prospered. The first fully Indian owned bank was the Allahabad Bank, which was
established in 1865.

By the 1900s, the market expanded with the establishment of banks such as Punjab
National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which
were founded under private ownership. The Reserve Bank of India formally took on the
responsibility of regulating the Indian banking sector from 1935. After India's
independence in 1947, the Reserve Bank was nationalized and given broader powers.

Early history

At the end of late-18th century, there were hardly any banks in India in the modern sense
of the term. At the time of the American Civil War, a void was created as the supply of
cotton to Lancashire stopped from the Americas. Some banks were opened at that time
which functioned as entities to finance industry, including speculative trades in cotton.
With large exposure to speculative ventures, most of the banks opened in India during
that period could not survive and failed. The depositors lost money and lost interest in
keeping deposits with banks. Subsequently, banking in India remained the exclusive
domain of Europeans for next several decades until the beginning of the 20th century.

The Bank of Bengal, which later became the State Bank of India.

At the beginning of the 20th century, Indian economy was passing through a relative
period of stability. Around five decades have elapsed since the India's First war of
Independence, and the social, industrial and other infrastructure have developed. At that
time there were very small banks operated by Indians, and most of them were owned and
operated by particular communities. The banking in India was controlled and dominated
by the presidency banks, namely, the Bank of Bombay, the Bank of Bengal, and the Bank
of Madras - which later on merged to form the Imperial Bank of India, and Imperial Bank
of India, upon India's independence, was renamed the State Bank of India. There were
also some exchange banks, as also a number of Indian joint stock banks. All these banks
operated in different segments of the economy. The presidency banks were like the
central banks and discharged most of the functions of central banks. They were
established under charters from the British East India Company. The exchange banks,
mostly owned by the Europeans, concentrated on financing of foreign trade. Indian joint
stock banks were generally under capitalized and lacked the experience and maturity to
compete with the presidency banks, and the exchange banks. There was potential for
many new banks as the economy was growing. Lord Curzon had observed then in the
context of Indian banking: "In respect of banking it seems we are behind the times. We
are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate
and cumbersome compartments."

Under these circumstances, many Indians came forward to set up banks, and many banks
were set up at that time, a number of which have survived to the present such as Bank of
India and Corporation Bank, Indian Bank, Bank of Baroda, and Canara Bank.

Post-independence

The partition of India in 1947 had adversely impacted the economies of Punjab and West
Bengal, and banking activities had remained paralyzed for months. India's independence
marked the end of a regime of the Laissez-faire for the Indian banking. The Government
of India initiated measures to play an active role in the economic life of the nation, and
the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed
economy. This resulted into greater involvement of the state in different segments of the
economy including banking and finance. The major steps to regulate banking included:

• In 1948, the Reserve Bank of India, India's central banking authority, was
nationalized, and it became an institution owned by the Government of India.
• In 1949, the Banking Regulation Act was enacted which empowered the Reserve
Bank of India (RBI) "to regulate, control, and inspect the banks in India."
• The Banking Regulation Act also provided that no new bank or branch of an
existing bank may be opened without a licence from the RBI, and no two banks
could have common directors.

However, despite these provisions, control and regulations, banks in India except the
State Bank of India, continued to be owned and operated by private persons. This
changed with the nationalization of major banks in India on 19th July, 1969.

Nationalisation
By the 1960s, the Indian banking industry has become an important tool to facilitate the
development of the Indian economy. At the same time, it has emerged as a large
employer, and a debate has ensued about the possibility to nationalize the banking
industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the
GOI in the annual conference of the All India Congress Meeting in a paper entitled
"Stray thoughts on Bank Nationalisation." The paper was received with positive
enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance
and nationalised the 14 largest commercial banks with effect from the midnight of July
19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a
"masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the
Parliament passed the Banking Companies (Acquition and Transfer of Undertaking) Bill,
and it received the presidential approval on 9th August, 1969.

A second dose of nationalisation of 6 more commercial banks followed in 1980. The


stated reason for the nationalisation was to give the government more control of credit
delivery. With the second dose of nationalisation, the GOI controlled around 91% of the
banking business of India.

After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to
the average growth rate of the Indian economy.

Liberalisation
In the early 1990s the then Narasimha Rao government embarked on a policy of
liberalisation and gave licences to a small number of private banks, which came to be
known as New Generation tech-savvy banks, which included banks such as UTI Bank
(now re-named as Axis Bank) (the first of such new generation banks to be set up), ICICI
Bank and HDFC Bank. This move, along with the rapid growth in the economy of India,
kickstarted the banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government banks, private banks
and foreign banks.

The next stage for the Indian banking has been setup with the proposed relaxation in the
norms for Foreign Direct Investment, where all Foreign Investors in banks may be given
voting rights which could exceed the present cap of 10%,at present it has gone up to 49%
with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time,
were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning.
The new wave ushered in a modern outlook and tech-savvy methods of working for
traditional banks. All this led to the retail boom in India. People not just demanded more
from their banks but also received more.

Current situation
Currently (2007), banking in India is generally fairly mature in terms of supply, product
range and reach-even though reach in rural India still remains a challenge for the private
sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks
are considered to have clean, strong and transparent balance sheets relative to other banks
in comparable economies in its region. The Reserve Bank of India is an autonomous
body, with minimal pressure from the government. The stated policy of the Bank on the
Indian Rupee is to manage volatility but without any fixed exchange rate-and this has
mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail
banking, mortgages and investment services are expected to be strong. One may also
expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in
Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor
has been allowed to hold more than 5% in a private sector bank since the RBI announced
norms in 2005 that any stake exceeding 5% in the private sector banks would need to be
vetted by them.

Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks
(that is with the Government of India holding a stake), 29 private banks (these do not
have government stake; they may be publicly listed and traded on stock exchanges) and
31 foreign banks. They have a combined network of over 53,000 branches and 17,000
ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and foreign
banks holding 18.2% and 6.5% respectively.

Public sector banks


SBI group:

State Bank of India, with its seven associate banks commands the largest banking
resources in India. SBI and its associate banks are:

• State Bank of India


• State Bank of Bikaner & Jaipur
• State Bank of Hyderabad
• State Bank of Indore
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Saurashtra
• State Bank of Travancore

After the amalgamation of New Bank of India with Punjab National Bank, currently there
are 19 nationalised banks in India:
• Allahabad Bank
• Andhra Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Corporation Bank
• Dena Bank
• Indian Bank
• Indian Overseas Bank
• Oriental Bank of Commerce
• Punjab & Sind Bank
• Punjab National Bank
• Syndicate Bank
• Union Bank of India
• United Bank of India
• UCO Bank
• Vijaya Bank

Private sector banks


• Axis Bank (formerly UTI Bank)
• Bank of Rajasthan
• Bharat Overseas Bank
• Catholic Syrian Bank
• Centurion Bank of Punjab
• City Union Bank
• Development Credit Bank
• Dhanalakshmi Bank
• Federal Bank
• Ganesh Bank of Kurundwad
• HDFC Bank
• ICICI Bank
• IDBI Bank
• IndusInd Bank
• ING Vysya Bank
• Jammu & Kashmir Bank
• Karnataka Bank Limited.
• Karur Vysya Bank
• Kotak Mahindra Bank
• Lakshmi Vilas Bank
• Lord Krishna Bank ( now Centurian Bank of Punjab)
• Nainital Bank
• Ratnakar Bank
• Rupee Bank
• Saraswat Bank
• SBI Commercial and International Bank
• South Indian Bank
• Tamilnad Mercantile Bank Ltd.
• Thane Janata Sahakari Bank
• Bassein Catholic Bank
• United Western Bank
• YES Bank

Foreign banks
• ABN AMRO Bank N.V.
• Abu Dhabi Commercial Bank Ltd
• American Express Bank
• Antwerp Diamond Bank
• Arab Bangladesh Bank
• Bank International Indonesia
• Bank of America
• Bank of Bahrain & Kuwait
• Bank of Ceylon
• Bank of Nova Scotia
• Bank of Tokyo Mitsubishi UFJ
• Barclays Bank
• BNP Paribas
• Calyon Bank
• ChinaTrust Commercial Bank
• Cho Hung Bank
• Citibank
• DBS Bank
• Deutsche Bank
• HSBC (Hongkong & Shanghai Banking Corporation)
• JPMorgan Chase Bank
• Krung Thai Bank
• Mashreq Bank
• Mizuho Corporate Bank
• Oman International Bank
• Société Générale
• Standard Chartered Bank
• State Bank of Mauritius
• Taib Bank

Unit 2:

Class: 4
Financial Matters:-

Financial transaction
A financial transaction involves a change in the status of the finances of two or more
businesses or individuals.

Purchase
The most common type of financial transaction. An item or good is exchanged for money.
This transaction results in a decrease in the finances of the purchaser and an increase in
the finances of the seller.

Loan
A slightly more complicated transaction in which the lender gives a single large amount
of money to the borrower now in return for many smaller repayments of the borrower to
the lender over time, usually on a fixed schedule. The smaller delayed repayments usually
add up to more than the first large amount. The difference in payments is called interest.

Mortgage
A combination loan and purchase. A lender gives a large amount of money to a borrower
for the specific purpose of purchasing a very expensive item (most often a house). As part
of the transaction, the borrower usually agrees to give the item (or some other high value
item) to the lender if the loan is not paid back on time. This guarantee of repayment is
known as collateral. .

Account
A bank is a business that is based almost entirely on financial transactions. In addition to
acting as a lender for loans and mortgages, banks act as a borrower in a special type of
loan called an account. The lender is known as a customer and gives unspecified amounts
of money to the bank for unspecified amounts of time. The bank agrees to repay any
amount in the account at any time and will pay small amounts of interest on the amount
of money that the customer leaves in the account for a certain period of time. In addition,
the bank guarantees that the money will not be stolen while it is in the account, and will
reimburse the customer if it is. In return, the bank gets to use the money for other
financial transactions as long as they hold it.

Credit-card purchase
A special combination of purchase and loan. The seller gives the buyer the good or item
as normal, but the buyer pays the seller using a credit card. In this way, the buyer is
paying with a loan from the credit card company, usually a bank. The bank or other
financial institution issues credit cards to buyers that allow any number of loans up to a
certain cumulative amount. Repayment terms for credit card loans, or debts vary, but the
interest is often extremely high. An example of common repayment terms would be a
minimum payment of the greater of $10 or 3% every month, and a 15-20% interest
charge for any unpaid loan amount. In addition to interest, buyers are sometimes charged
a yearly fee to use the credit card.

In order to collect the money for their item, the seller must apply to the credit card
company with a signed receipt. Sellers usually apply for many payments at regular
intervals. The seller is also charged a fee by the credit card company for the privilege of
accepting that brand of credit card for purchases. The fee is normally 1-3% of the
purchase price.

Thus, in a credit card purchase, the transfer of the item is immediate, but all payments are
delayed.

Debit-card purchase
This is a special type of purchase. The item or good is transferred as normal, but the
purchaser uses a debit card instead of money to pay. A debit card contains an electronic
record of the purchaser's account with a bank. Using this card, the seller is able to send an
electronic signal to the buyer's bank for the amount of the purchase,and that amount of
money is simultaneously debited from the customer's account and credited to the account
of the seller. This is possible even if the buyer or seller use different financial institutions.
Currently, fees to both the buyer and seller for the use of debit cards are fairly low
because the banks want to encourage the use of debit cards. The seller must have a card
reader set up in order for such purchases to be made. Debit cards allow a buyer to have
access to all the funds in his account without having to carry the money around. It is more
difficult to steal such funds than cash, but is still done. See skimming and shoulder
surfing.

Maturity (finance)
Maturity refers to the final payment date of a loan or other financial instrument, at which
point all remaining interest and principal is due to be paid.

1, 3, 6 months maturity band can be calculated by using 30-day per month periods. For
maturity bands over a year it is acceptable to use 365 day per year.

For example with a Treasury Bond, its maturity is the date on which the principal is paid.
Inflation
Inflation is defined as a sustained increase in general price levels for some set of goods
and services in a given economy over a period of time. It is measured as the percentage
rate of change of a price index. A variety of inflation measures are in use, because there
are many different price indices, designed to measure different sets of prices that affect
different people. Two widely known indices for which inflation rates are commonly
reported are the Consumer Price Index (CPI), which measures nominal consumer prices,
and the GDP deflator, which measures the nominal prices of goods and services produced
by a given country or region.

Mainstream economists overwhelmingly agree that high rates of inflation are caused by
high rates of growth of the money supply. Views on the factors that determine moderate
rates of inflation, especially in the short run, are more varied: changes in inflation are
sometimes attributed mostly to changes in the real demand or supply of goods and
services, and sometimes to changes in the supply or demand for money. In the mid-
twentieth century, two camps disagreed strongly on the main causes of inflation (at
moderate rates): the "monetarists" argued that money supply dominated all other factors
in determining inflation, while "Keynesians" argued that real demand was often more
important than changes in the money supply.

Related concepts
Related economic and inflation concepts include: deflation, a general falling level of
prices; disinflation, the reduction of the rate of inflation; hyperinflation, an out-of-
control inflationary spiral; stagflation, a combination of inflation and rising
unemployment; and reflation, which is an attempt to raise prices to counteract
deflationary pressures.

In classical political economy, inflation meant increasing the money supply, while
deflation meant decreasing it (see Monetary inflation). Economists from some schools of
economic thought (including some Austrian economists) still retain this usage. In
contemporary economic terminology, these would usually be referred to as expansionary
and contractionary monetary policies.

TAX:
A tax is a financial charge or other levy imposed on an individual or a legal entity by a
state or a functional equivalent of a state (for example, secessionist movements or
revolutionary movements). Taxes could also be imposed by a sub national entity. Taxes
consist of direct tax or indirect tax, and may be paid in money or as unpaid labour. A tax
may be defined as a "pecuniary burden laid upon individuals or property to support the
government […] a payment exacted by legislative authority." A tax "is not a voluntary
payment or donation, but an enforced contribution, exacted pursuant to legislative
authority" and is "any contribution imposed by government […] whether under the name
of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other
name."

In modern taxation systems, taxes are levied in money, but in-kind and corvée taxation
are characteristic of traditional or pre-capitalist states and their functional equivalents.
The method of taxation and the government expenditure of taxes raised is often highly
debated in politics and economics. Tax collection is performed by a government agency
such as Canada Revenue Agency, the Internal Revenue Service (IRS) in the United
States, or Her Majesty's Revenue and Customs (HMRC) in the UK. When taxes are not
fully paid, civil penalties (such as fines or forfeiture) or criminal penalties (such as
incarceration) may be imposed on the non-paying entity or individual.

Cheque:
A cheque (or check - USA) is a negotiable instrument instructing a financial institution
to pay a specific amount of a specific currency from a specific demand account held in
the maker/depositor's name with that institution. Both the maker and payee may be
natural persons or legal entities.

Parts of a cheque
Cheques generally contain:

1. place of issue
2. cheque number
3. date of issue
4. payee
5. amount of currency
6. signature of the drawer
7. routing / account number in MICR format - in the U.S., the routing number is a
nine-digit number in which the first 4 digits identifies the U.S. Federal Reserve
Bank's cheque-processing center. This is followed by digits 5 through 8,
identifying the specific bank served by that cheque-processing center. Digit 9 is a
verification digit, computed using a complex algorithm of the previous 8 digits.
The account number is assigned independently by the various banks.
8. fractional routing number (U.S. only) - also known as the transit number, consists
of a denominator mirroring the first 4 digits of the routing number. And a
hyphenated numerator, also known as the ABA number, in which the first part is a
city code (1-49), if the account is in one of 49 specific cities, or a state code (50-
99) if it is not in one of those specific cities; the second part of the hyphenated
numerator mirrors the 5th through 8th digits of the routing number with leading
zeros removed.
A cheque is generally valid indefinitely or for six months after the date of issue unless
otherwise indicated; this varies depending on where the cheque is drawn. In Australia, for
example, it is fifteen months. Legal amount (amount in words) is also highly
recommended but not strictly required.

In the USA and some other countries, cheques contain a memo line where the purpose of
the cheque can be indicated as a convenience without affecting the official parts of the
cheque. This is not used in Britain where such notes are often written on the reverse side.

LOAN:

A loan is a type of debt. All material things can be lent but this article focuses exclusively
on monetary loans. Like all debt instruments, a loan entails the redistribution of financial
assets over time, between the lender and the borrower.

The borrower initially receives an amount of money from the lender, which they pay
back, usually but not always in regular installments, to the lender. This service is
generally provided at a cost, referred to as interest on the debt. A borrower may be subject
to certain restrictions known as loan covenants under the terms of the loan.

Acting as a provider of loans is one of the principal tasks for financial institutions. For
other institutions, issuing of debt contracts such as bonds is a typical source of funding.
Bank loans and credit are one way to increase the money supply.

Legally, a loan is a contractual promise of a debtor to repay a sum of money in exchange


for the promise of a creditor to give another sum of money

Types
Secured

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property)
as collateral for the loan.

A mortgage loan is a very common type of debt instrument, used by many individuals to
purchase housing. In this arrangement, the money is used to purchase the property. The
financial institution, however, is given security - a lien on the title to the house - until the
mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the
legal right to repossess the house and sell it, to recover sums owing to it.

In some instances, a loan taken out to purchase a new or used car may be secured by the
car, in much the same way as a mortgage is secured by housing. The duration of the loan
period is considerably shorter - often corresponding to the useful life of the car. There are
two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the
loan directly to a consumer. An indirect auto loan is where a car dealership acts as an
intermediary between the bank or financial institution and the consumer.
A type of loan especially used in limited partnership agreements is the recourse note.

Unsecured

Unsecured loans are monetary loans that are not secured against the borrowers assets.
These may be available from financial institutions under many different guises or
marketing packages:

• credit card debt,


• personal loans,
• bank overdrafts
• credit facilities or lines of credit
• corporate bonds

The interest rates applicable to these different forms may vary depending on the lender,
the borrower. These may or may not be regulated by law. In the United Kingdom, when
applied to individuals, these may come under the Consumer Credit Act 1974.

Class: 5

Share Market:

In financial markets, a share is a unit of account for various financial instruments


including stocks, mutual funds, limited partnerships, and REIT's. In British English, use
of the word shares in the plural to refer to stock is so common that it almost replaces the
word stock itself. And especially in American English, the plural stocks is widely used
instead of shares, in other words to refer to the stock (or perhaps originally stock
certificates) of even a single company. Traditionalist demands that the plural stocks be
used to refer only to stock of more than one company are rarely heard nowadays.

The income received from shares is called a dividend, and a person who owns shares is
called a shareholder.

A share is one of a finite number of equal portions in the capital of a company, entitling
the owner to a proportion of distributed, non-reinvested profits known as dividends and to
a portion of the value of the company in case of liquidation. Shares can be voting or non-
voting, meaning they either do or do not carry the right to vote on the board of directors
and corporate policy. Whether this right exists often affects the value of the share. Voting
and Non-Voting shares are also known as Class A and B shares.

Stock:
Common, Preferred and Convertible

A share (aka equity shares) of stock represents a share of ownership in a corporation and
typically take the form of shares of common stock. As a unit of ownership, common
stock typically carries voting rights that can be exercised in corporate decisions. Preferred
stock differs from common stock in that it typically does not carry voting rights but is
legally entitled to receive a certain level of dividend payments before any dividends can
be issued to other shareholders. Convertible preferred stock is preferred stock that
includes an option for the holder to convert the preferred shares into a fixed number of
common shares, usually anytime after a predetermined date. Shares of such stock are
called "convertible preferred shares" (or "convertible preference shares" in the UK).

Although there is a great deal of commonality between the stocks of different companies,
each new equity issue can have legal clauses attached to it that make it dynamically
different from the more general cases. Some shares of common stock may be issued
without the typical voting rights be included, for instance. Or some shares may have
special rights unique to them and issued only to certain parties. These case by case
variations in the specific form of stock issuance is beyond the scope of this article, except
to note that not all equity shares are the same.

Shareholder
A shareholder (or stockholder) is an individual or company (including a corporation)
that legally owns one or more shares of stock in a joint stock company. Companies listed
at the stock market are expected to strive to enhance shareholder value.

Shareholders are granted special privileges depending on the class of stock, including the
right to vote (usually one vote per share owned) on matters such as elections to the board
of directors, the right to share in distributions of the company's income, the right to
purchase new shares issued by the company, and the right to a company's assets during a
liquidation of the company. However, shareholder's rights to a company's assets are
subordinate to the rights of the company's creditors. This means that shareholders
typically receive nothing if a company is liquidated after bankruptcy (if the company had
had enough to pay its creditors, it would not have entered bankruptcy), although a stock
may have value after a bankruptcy if there is the possibility that the debts of the company
will be restructured.

Shareholders are considered by some to be a partial subset of stakeholders, which may


include anyone who has a direct or indirect equity interest in the business entity or
someone with even a non-pecuniary interest in a non-profit organization. Thus it might be
common to call volunteer contributors to an association stakeholders, even though they
are not shareholders.

Although directors and officers of a company are bound by fiduciary duties to act in the
best interest of the shareholders, the shareholders themselves normally do not have such
duties towards each other.
However, in a few unusual cases, some courts have been willing to imply such a duty
between shareholders. For example, in California, majority shareholders of closely held
corporations have a duty to not destroy the value of the shares held by minority
shareholders.

The largest shareholders (in terms of percentages of companies owned) are often mutual
funds, and especially passively managed exchange-traded funds.

Application
The owners of a company may want additional capital to invest in new projects within
the company. They may also simply wish to reduce their holding, freeing up capital for
their own private use.

By selling shares they can sell part or all of the company to many part-owners. The
purchase of one share entitles the owner of that share to literally share in the ownership of
the company, a fraction of the decision-making power, and potentially a fraction of the
profits, which the company may issue as dividends.

In the common case of a publicly traded corporation, where there may be thousands of
shareholders, it is impractical to have all of them making the daily decisions required to
run a company. Thus, the shareholders will use their shares as votes in the election of
members of the board of directors of the company.

In a typical case, each share constitutes one vote. Corporations may, however, issue
different classes of shares, which may have different voting rights. Owning the majority
of the shares allows other shareholders to be out-voted - effective control rests with the
majority shareholder (or shareholders acting in concert). In this way the original owners
of the company often still have control of the company.

Shareholder rights

Although ownership of 51% of shares does result in 51% ownership of a company, it


does not give the shareholder the right to use a company's building, equipment, materials,
or other property. This is because the company is considered a legal person, thus it owns
all its assets itself. This is important in areas such as insurance, which must be in the
name of the company and not the main shareholder.

In most countries, including the United States, boards of directors and company managers
have a fiduciary responsibility to run the company in the interests of its stockholders.
Nonetheless, as Martin Whitman writes:

"...it can safely be stated that there does not exist any publicly traded company
where management works exclusively in the best interests of OPMI [Outside
Passive Minority Investor] stockholders. Instead, there are both "communities of
interest" and "conflicts of interest" between stockholders (principal) and
management (agent). This conflict is referred to as the principal/agent problem. It
would be naive to think that any management would forgo management
compensation, and management entrenchment, just because some of these
management privileges might be perceived as giving rise to a conflict of interest
with OPMIs."

Even though the board of directors runs the company, the shareholder has some impact
on the company's policy, as the shareholders elect the board of directors. Each
shareholder typically has a percentage of votes equal to the percentage of shares he or she
owns. So as long as the shareholders agree that the management (agent) are performing
poorly they can elect a new board of directors which can then hire a new management
team. In practice, however, genuinely contested board elections are rare. Board
candidates are usually nominated by insiders or by the board of the directors themselves,
and a considerable amount of stock is held and voted by insiders.

Owning shares does not mean responsibility for liabilities. If a company goes broke and
has to default on loans, the shareholders are not liable in any way. However, all money
obtained by converting assets into cash will be used to repay loans and other debts first,
so that shareholders cannot receive any money unless and until creditors have been paid
(most often the shareholders end up with nothing).

Risk Management:

Class: 6

Risk management is the human activity which integrates recognition of risk, risk
assessment, developing strategies to manage it, and mitigation of risk using managerial
resources.

The strategies include transferring the risk to another party, avoiding the risk, reducing
the negative effect of the risk, and accepting some or all of the consequences of a
particular risk.

Some traditional risk managements are focused on risks stemming from physical or legal
causes (e.g. natural disasters or fires, accidents, death and lawsuits). Financial risk
management, on the other hand, focuses on risks that can be managed using traded
financial instruments.

Objective of risk management is to reduce different risks related to a preselected domain


to the level accepted by society. It may refer to numerous types of threats caused by
environment, technology, humans, organizations and politics. On the other hand it
involves all means available for humans, or in particular, for a risk management entity
(person, staff, organization).

Some Explanations
In ideal risk management, a prioritization process is followed whereby the risks with the
greatest loss and the greatest probability of occurring are handled first, and risks with
lower probability of occurrence and lower loss are handled in descending order. In
practice the process can be very difficult, and balancing between risks with a high
probability of occurrence but lower loss versus a risk with high loss but lower probability
of occurrence can often be mishandled.

Intangible risk management identifies a new type of risk - a risk that has a 100%
probability of occurring but is ignored by the organization due to a lack of identification
ability. For example, when deficient knowledge is applied to a situation, a knowledge risk
materialises. Relationship risk appears when ineffective collaboration occurs. Process-
engagement risk may be an issue when ineffective operational procedures are applied.
These risks directly reduce the productivity of knowledge workers, decrease cost
effectiveness, profitability, service, quality, reputation, brand value, and earnings quality.
Intangible risk management allows risk management to create immediate value from the
identification and reduction of risks that reduce productivity.

Risk management also faces difficulties allocating resources. This is the idea of
opportunity cost. Resources spent on risk management could have been spent on more
profitable activities. Again, ideal risk management minimizes spending while maximizing
the reduction of the negative effects of risks.

Steps in the risk management process


Establish the context

Establishing the context involves

0. Identification of risk in a selected domain of interest

1. Planning the remainder of the process.

2. Mapping out the following: the social scope of risk management, the identity and
objectives of stakeholders, and the basis upon which risks will be evaluated, constraints.

3. Defining a framework for the activity and an agenda for identification.

4. Developing an analysis of risks involved in the process.

5. Mitigation of risks using available technological, human and organizational resources.

Assessment

Once risks have been identified, they must then be assessed as to their potential severity
of loss and to the probability of occurrence. These quantities can be either simple to
measure, in the case of the value of a lost building, or impossible to know for sure in the
case of the probability of an unlikely event occurring. Therefore, in the assessment
process it is critical to make the best educated guesses possible in order to properly
prioritize the implementation of the risk management plan.

The fundamental difficulty in risk assessment is determining the rate of occurrence since
statistical information is not available on all kinds of past incidents. Furthermore,
evaluating the severity of the consequences (impact) is often quite difficult for immaterial
assets. Asset valuation is another question that needs to be addressed. Thus, best educated
opinions and available statistics are the primary sources of information. Nevertheless,
risk assessment should produce such information for the management of the organization
that the primary risks are easy to understand and that the risk management decisions may
be prioritized.

Class: 7

Potential risk treatments

Once risks have been identified and assessed, all techniques to manage the risk fall into
one or more of these four major categories:

• Avoidance (aka elimination)


• Reduction (aka mitigation)
• Retention
• Transfer (aka buying insurance)

Ideal use of these strategies may not be possible. Some of them may involve trade-offs
that are not acceptable to the organization or person making the risk management
decisions. Another source, from the US Department of Defense, Defense Acquisition
University, calls these ACAT, for Avoid, Control, Accept, or Transfer. The ACAT
acronym is reminiscent of the term ACAT (for Acquisition Category) used in US Defense
industry procurements.

Risk avoidance

Includes not performing an activity that could carry risk. An example would be not
buying a property or business in order to not take on the liability that comes with it.
Another would be not flying in order to not take the risk that the airplane were to be
hijacked. Avoidance may seem the answer to all risks, but avoiding risks also means
losing out on the potential gain that accepting (retaining) the risk may have allowed. Not
entering a business to avoid the risk of loss also avoids the possibility of earning profits.

Risk reduction

Involves methods that reduce the severity of the loss. Examples include sprinklers
designed to put out a fire to reduce the risk of loss by fire. This method may cause a
greater loss by water damage and therefore may not be suitable. Halon fire suppression
systems may mitigate that risk, but the cost may be prohibitive as a strategy.

Modern software development methodologies reduce risk by developing and delivering


software incrementally. Early methodologies suffered from the fact that they only
delivered software in the final phase of development; any problems encountered in earlier
phases meant costly rework and often jeopardized the whole project. By developing in
iterations, software projects can limit effort wasted to a single iteration.

Risk retention

Involves accepting the loss when it occurs. True self insurance falls in this category. Risk
retention is a viable strategy for small risks where the cost of insuring against the risk
would be greater over time than the total losses sustained. All risks that are not avoided or
transferred are retained by default. This includes risks that are so large or catastrophic
that they either cannot be insured against or the premiums would be infeasible. War is an
example since most property and risks are not insured against war, so the loss attributed
by war is retained by the insured. Also any amounts of potential loss (risk) over the
amount insured is retained risk. This may also be acceptable if the chance of a very large
loss is small or if the cost to insure for greater coverage amounts is so great it would
hinder the goals of the organization too much.

Risk transfer

Means causing another party to accept the risk, typically by contract or by hedging.
Insurance is one type of risk transfer that uses contracts. Other times it may involve
contract language that transfers a risk to another party without the payment of an
insurance premium. Liability among construction or other contractors is very often
transferred this way. On the other hand, taking offsetting positions in derivatives is
typically how firms use hedging to financially manage risk.

Some ways of managing risk fall into multiple categories. Risk retention pools are
technically retaining the risk for the group, but spreading it over the whole group
involves transfer among individual members of the group. This is different from
traditional insurance, in that no premium is exchanged between members of the group up
front, but instead losses are assessed to all members of the group.

Outsourcing is another example of risk transfer.In this case companies outsource only
some of their departmental needs. For example, a company may outsource only its
software development, the manufacturing of hard goods, or customer support needs to
another company, while handling the business management itself. This way, the company
can concentrate more on business development without having to worry as much about
the manufacturing process, managing the development team, or finding a physical
location for a call center.
Unit 3:

Glossary (i): Financial & Banking Terms:

Class: 8

-A-

Allowance – an amount of money parents give kids to help


them learn to manage money. The amount is usually given
weekly. Sometimes an allowance is tied to completing
responsibilities – household chores or jobs for the family.

Annual Percentage Rate (APR) – the rate of interest (in terms


of a percent, such as 8.75%) being charged for a loan over a
year's time. The APR rate includes interest, transaction fees,
and service fees.

Appreciate – to grow in value. Usually a term used in relation


to investments: stocks, collectibles, etc., which are now worth
more than you paid for them.

Asset – any item of value that you own: house, land, gems,
stocks, bonds, money in savings, etc.

ATM – these letters stand for Automated Teller Machine. This is


an electronic banking station that enables people to take care
of banking business 24 hours a day, 7 days a week. You can
deposit and withdraw money, pay loans, etc., at most ATMs.

Auto Insurance – this insurance helps you pay for damage you
cause as a result of an accident to people or property, medical
expenses you may have and the cost of fixing your car. It will
also pay all these expenses if someone hurts you or your car
and they do not carry insurance themselves.

-B-

Balance – 1) In talking about loans, the balance is the


difference between the amount owed and the amount paid. If
you pay $45 on a $100 debt, your balance is $55.
2) In talking about checkbooks, balancing means to account
for all money that came into and went out of your account, so
that at the end of the month you and your bank statement
agree.

3) In talking about savings, your balance is what is left in your


savings account after you deposit or withdraw money.

Bank Card – this plastic card looks like a credit card, but it is
used to withdraw money from a savings or checking account.
When you use a debit card at Automatic Teller Machines or in
stores to make purchases, money is immediately withdrawn
from your account. You cannot withdraw more money than you
have in the account.

Bankruptcy – a state of being in so much debt that you are


legally declared unable to pay in full the people and companies
you owe. When you legally declare yourself bankrupt in some
states, you must sell off all your possessions and pay off your
debts as best you can.

Blue Chip Stock – a name given to the stocks of major


corporations, like IBM and General Motors. The name is derived
from the most highly valued poker chip, the blue chip.

Bond – an IOU issued by a corporation or government that


confirms you are lending the corporation or government
money. Bonds pay interest regularly to lenders. At the end of
the term of the bond, the borrower returns to the lender the
face value of the bond (the amount the lender invested in the
bond).

Broker – a licensed professional who advises people about


investments; also helps people buy and sell stocks, bonds,
mutual funds, etc. The broker earns a fee for this help, called a
commission, usually a percentage of the transaction.

Brokerage Company – a company that charges a fee to buy or


sell investments for you.

Budget – a plan you create for controlling spending and


encouraging saving.

-C-
Certificate of Deposit – a type of investment that requires you
to invest money for a certain length of time and guarantees the
same rate of return (interest) for that entire time. CDs usually
require a minimum deposit.

Charge – to borrow money (from a store, service provider, or


credit card company) to make a purchase. If you do not pay the
debt off in full within the card issuer's grace period (usually
25-28 days), you will pay interest on the amount you owe.

Check Register – a small booklet comes with your checkbook


and gives you record sheets that so you can keep track of all
the deposits, ATM withdrawals, and checks you write. If you
keep your check register up-to-date, you always know how
much money you have in your checking account.

Collateral – property used to assure the payment of a loan. In


other words, if the borrower does not pay back the loan, the
borrower must give up this property or money.

Collectibles – objects such as art, jewelry, baseball cards, and


antiques that people buy in the hope that the objects' value will
increase.

Commodities – raw materials – such as oil, wheat, soybeans,


pork, or gold – you buy. In buying commodities you are hoping
that the price will rise, so that you can sell the commodity for a
profit.

Compound Interest – interest on an investment, like a savings


account, that is calculated not only on the money you originally
invested, but also on any interest the investment has already
earned.

Corporation – the most common form of organizing a business


— the organization's total worth is divided into shares of stock,
and each share represents a unit of ownership and is sold to
stock holders. A corporation is considered a separate entity
from the stockholders for legal and tax purposes. Examples of
corporations: Pepsi Cola, Intel, The Gap.

Coverage – this is a very detailed list of what an insurance


policy will pay for and how much.
Credit – a loan that enables people to buy something now and
to pay for it in the future.

Credit Limit – the highest amount you may charge on a credit


card. Your limit is set by your card company's opinion of your
ability to handle debt.

Credit History – a record of your borrowing and paying habits.


Credit reporting companies track your history and supply this
information to credit card companies, banks, and other lenders.

Credit Rating or Score – this is a score or grade that credit


companies assign to you based on how you handle your money
and pay your bills.

Class: 9

-D-

Debit Card – this plastic card looks like a credit card, but it is
used to withdraw money from a savings or checking account.
When you use a debit card at Automatic Teller Machines or in
stores to make purchases, money is immediately withdrawn
from your account. You cannot withdraw more money than you
have in the account.

Debt – money or goods you owe.

Deposit – to put money into a bank or investment account.

Direct Deposit – some employers electronically deposit


paychecks directly into an employee’s bank account. The
employee then gets a paper copy of the deposit, called an
Earnings Statement as proof of the deposit.

Disability Insurance – if you become too sick from an illness or


too injured in an accident to go to work and earn money,
disability insurance will help provide an income for you.

Diversify – to spread out the money you invest into different


types of investments: bonds, stocks, CDs, mutual funds, etc.
The idea is to avoid putting all your eggs in one basket.
Different kinds of investments do well in different kinds of
economic climates. Therefore, if one of your investments drops
in value, the other kinds of investments should hold or increase
their value.
Dividend – a payment made by a company to a stockholder to
share in the company's profits.

Discount – to reduce from an original price or an item's full


worth.

-E-

Earned Income – wages paid in exchange for work.

Earnings Statement – a paper copy, proof that a paycheck has


been electronically deposited in a bank account; an employer
sends employees earnings statements to confirm that a
paycheck has been electronically deposited in the employee’s
bank account.

Entrepreneur – a person who assumes the risk to start a


business with the idea of making a profit.

Expenses – things you pay money for - both needs and wants.

-F-

Face Value – the value printed on the bond.

FICA – a payroll tax. FICA stands for Federal Insurance


Contributions Act (FICA) tax. This tax is used to fund Medicare
and Social Security.

FDIC-Insured – established as part of the Banking Act of 1933,


the Federal Deposit Insurance Corporation (FDIC) protects
bank customers from possible losses by insuring various kinds
of savings accounts up to $100,000 per account.

Finance Charge – the fee you pay when you do not pay off the
entire credit card debt within a single payment period, usually
about 25-28 days.

Fixed – not changing. Fixed interest rates never change during


the time of the investment or loan.

Fixed Expenses – expenses which stay basically the same from


month to month, such as housing and transportation.

-G-
Grace Period – the time, usually about 25-28 days, which you
have to pay a bill or a loan in full. If you pay within the grace
period, you do not have to pay a finance charge.

Gross Pay – the entire amount of your income or paycheck


before any deductions – like taxes or insurance payments – are
subtracted.

-H-

Health Insurance – people buy health insurance to help them


pay for medical expenses like going to the doctor, prescription
drugs or surgery.

Homeowner’s Insurance – people have homeowner’s insurance


so they will have the money to fix or replace their home and its
contents. Damage can be done by fire or storms, or even by a
burglar.

-I-

Index Fund – an index fund is designed to track the


performance of a specific group of stocks or bonds. An example
is an index fund that tracks the performance of the S&P 500 by
holding all the stocks in this index.

Income Tax – money that wage earners pay the government to


run the country. The amount of the tax depends upon how
much you earn.

Insufficient Funds – a phrase that means you did not have


enough money to cover an expense. Usually checks that bounce
are returned stamped with the phrase, "insufficient funds." The
amount of the check was larger than the balance in the
checking account.

Insurance – insurance is a type of plan that can help protect


you from an event in life that costs a large amount of money. A
policy will pay you money to cover the cost of these events. See
auto insurance, disability income insurance, renter’s insurance,
homeowner’s insurance and health insurance.

Insure – to protect yourself from loss. You pay premiums


(payments) to an insurance company who, in turn, agrees to
pay for losses to your property (house, car, jewelry, etc.) or
your person (in case of injury). You can buy insurance that
protects you even when you cause a loss to other people. For
example, you cause a car accident.

Insured Savings – accounts that are insured up to $100,000 by


the Federal Deposit Insurance Corporation (FDIC). Banks are
insured by the FDIC, so your money in bank accounts is
insured.

Interest – the amount paid by a borrower to a lender for the


privilege of borrowing the money.

Investment – using your money to try to make more money –


for example, by depositing money in a bank or by buying a
bond or stock in a company.

Interest Rate – the price paid for the use of someone else's
money expressed as an annual percentage rate, such as 6.5%.

Invest – to put your money into CDs, money market accounts,


mutual funds, savings accounts, bonds, stocks or objects that
you hope will grow in value and earn you more money.

-L-

Late fee – A fee charged to you for missing a payment date. If


your payment arrives “late” or not at all, the charge is added to
your debt. Late fees are strong penalties. Credit companies
routinely charge $30 or more if you miss your payment date.
Get organized!

Lien – a right given to a lender over a borrower's property or


money when the borrower cannot pay a debt.

Life Insurance – people buy life insurance so if they die, their


family will receive money that can help them go on living the
way they are living today.

Liquid – an investment that can be easily turned into cash.

Liquidity – how quickly an asset (any item of value that you


own) can be turned into cash. In other words, you don't have
to wait until a certain date or pay a penalty to withdraw your
money.
Loan – money or an object that is lent, usually with the
understanding that the loan will be paid back, usually with
interest.

Long-Term – an example of Long- term savings might be saving


to buy a car or pay for college. You need months or years to
save this amount of money. People invest long-term for many,
many years, for retirement, for example.

-M-

Minimum Payment – the smallest amount you are required to


pay a lender each month on a debt.

Money Market Account – a savings account offered by a bank


(or a mutual fund). The account typically requires 1) a
minimum deposit and 2) that you maintain a minimum balance.
The account invests in certificates of deposit and treasury bills
and pays a rate of interest that rises and falls with the
economy.

Mortgage – usually refers to the money borrowed from a lender


to buy a house; the borrower makes payments on the loan each
month until the entire loan, along with interest, is paid in full.

Mutual Fund – a savings fund that uses cash from a pool of


savers to buy a wide range of securities, like stocks, bonds, and
real estate. This is a way to diversify your investments because
you own small units of each of the fund's investments. The
fund is managed by professionals and permits small amounts of
money to be invested.

Class: 10

-N-

Net pay – the amount of your income or paycheck after any


deductions – like taxes or insurance payments – are
subtracted. This is your take-home pay.

-O-

Opportunity Cost – the next best alternative that is given up


when a choice is made. For example, when you spend your
money, you lose your “opportunity” to use it in other ways.
Overdraw: to take more money out of an account than is
available in the account. You write a check for $25.00, but your
account contains only $20. You will have to pay the bank a
penalty charge for going over the limit.

-P-

Penny Stock – a nickname for extremely low priced stock,


usually only a few dollars a share. These stocks are considered
highly speculative, which is another way of saying highly risky.
They are priced low because they have not yet proven
themselves in the market.

Percentage – a way of measuring. The number 100 (which


stands for the whole amount) is usually divided into 100
smaller, but equal, parts, each called a percent. So a
percentage usually refers to a certain number of parts within
the whole. Therefore, 6% is 6 units out of 100% (the whole). If
you have invested $100, and you earn 8% interest on the
money, you will earn 8 parts of the whole, or $8. A percentage
explains a number in relation to the whole.

Published Index – is a listing of stocks that is used to track the


value of the stocks that make up the list. For example, the S&P
500 is an index containing the stocks of 500 corporations, most
of which are American. This is the most watched index,
because many investors think that the performance of this
index indicates how well the economy is doing overall.

Premiums – premium is another word for payments on an


insurance policy.

Principle – this is the amount of money you borrow in a loan.


You pay this back plus interest.

Profit – the money you've earned after you subtract a) any


money you had to spend to make the product or perform the
service. B) any taxes that had to be paid on your earnings.

-R-

Rate of Compounding – when an account compounds interest


(figuring interest on interest already earned) it does so
regularly. Compounding can take place annually, semi-
annually, quarterly, monthly, or daily. The more often interest
is compounded the faster your money will grow.

Renter’s Insurance – a type of home insurance that protects


against damage and losses that occur in an apartment or a
rented residence. This insurance also protects belongings and
helps you pay for an accidents that may occur to other people
while they are in your apartment or rented home.

Real Estate – property in the form of land or buildings.

Return – the amount of money a saver receives from a savings


account or fund. The return is usually talked about as a
percentage, such as "This account returns 7.37%."

Risk – the likelihood that you will lose money on an


investment.

Rule of 72 – math formula that determines the number of years


needed to double your money at a given interest rate. Here's
how it works: you divide 72 by the interest rate. Therefore,
money invested at 10% interest rate will double in 7.2 years.

-S-

Save – hanging onto your money for a future use instead of


spending it. Saving is the opposite of spending.

Savings Account – a bank account that pays you interest for


keeping your savings in it. Banks use your money to make
loans, so they pay you interest for the use of your money. Your
savings is insured up to $100,000 by the FDIC, so you don't
have to worry about borrowers taking your money and not
paying it back.

Secured Credit Card – this credit card is “secured” with a cash


balance, a savings account, for example. You cannot touch this
balance, or the card will be deactivated (turned off). If you
charge over your limit, the bank will take the balance from your
account.

Scarcity – a lack of something, like money, natural resources,


etc. Scarcity forces you to make choices about how you use or
treat whatever is scarce.

Share – a unit of ownership in an investment or a company.


Shareholder – someone who owns stock in a company.

Short-Term – short-term savings is for something you know


you will need to pay for soon, like a new MP3 player. Short
term investing usually means choosing an investment that is
liquid, meaning you can pull your money out easily.

Social Security Tax – a tax used to fund a program of the US


government that gives money to elderly people. The elderly
receive funds because the federal government has deducted
money from each of their paychecks during the course of their
working lives. The money taken out of their paychecks has
been deposited into the Social Security fund. Employers, too,
deposited money to this fund on behalf of each employee.
When people reach a certain age, they become eligible to
receive Social Security payments. The government mails checks
each month. These payments help the elderly live, now that
they are no longer working full-time. The money they receive is
drawn out of the Social Security fund, where it has been
earning interest for many years.

Sole Proprietor – a business owned by a single person.

Splitting – to divide stock in order to lower its price so that


more people will invest in it. In a two-to-one split, 100 shares
of $70 per-share stock become 200 shares of $35 per-share
stock. In a three-to-one split, 90 shares at $60 a share become
270 shares at $20 a share.

Standard & Poor’s 500 – the S&P 500 is an index containing the
stocks of 500 corporations, most of which are American. This is
the most watched index, because many investors think that the
performance of this index indicates how well the economy is
doing overall.

Standard of Living – the level of material well-being of an


individual or group.

Stock – a certificate representing a share of ownership in a


company.

Stock Market – an organized way for 1) people to buy and sell


stocks and 2) corporations to raise money. There are three
widely known stock exchanges: The New York Stock Exchange,
the American Stock Exchange, and the National Association of
Securities Dealers Automated Quotation System (you hear it
called NASDAQ on the news).

-U-

Unearned Income – money you make that is not the result of


your labor, such as interest from a savings account or other
kind of investment.

U.S. Bond – a kind of investment in which you lend money to


the government for a certain amount of time and at a certain
interest rate. You are paid interest according to the terms of
your bond. At the end of the agreed-on time, the borrower (the
government) returns to you the amount you originally lent.

-V-

Variable Expenses – kinds of spending that can be controlled


and typically change from month to month. For example,
groceries can be a variable expense. You can choose to buy
expensive food, (steak, lobster, lamb chops, or shrimp) or
inexpensive food (chicken legs, turkey, hamburger). With
variable expenses, you have choices.

-W-

Withdraw – take money out of an account.

Withdrawal – the act of taking money out of an account.

Glossary: (ii)

Class: 11

Ideal for any business traveller, this glossary covers topics relating to banking and finance
- from office practice to stock market and accounting terminology.

The new Glossary covers the expanding and influential field of foreign exchange,
treasury, money and capital markets, sovereign and corporate debt, financial
futures and options, public sector borrowing, mortgage-backed assets, equities,
commodities, business loans and debt collecting, money supply, macro-
economic terms, technical analysis and derivatives, government & local finance,
central banking, and European finance. It is intended for students and
professionals in the field of finance as well as private investors and the readers of
the financial pages of newspapers.
Account agreement

An agreement which you sign and which lists your rights and responsibilities and the
bank's rights and responsibilities for the bank account. .

Accounts payable

Money owed by a business for goods and services received.

Accounts receivable

Money owed to a business by purchasers of goods and/or services.

Affinity Card

A credit card (usually Visa or MasterCard) that has a promotion arrangement with an
affiliated organization (often a charity or non-profit group). The logo of the group appears
on the card and the group usually gets a percentage of the sales made on the card.

Angels

Private individuals with capital to invest in business enterprises.

Assets

Things that you own which have value in financial terms.

Automated Banking Machines (ABMs)

Terminals that allow customers to perform many everyday banking tasks, e.g., deposits,
withdrawals, bill payments and transfers between accounts.

Balance

The amount of money in your account.

Balance sheet

Shows the assets and liabilities (legal responsibility of your company) at any particular
time. The assets on a balance sheet will always equal the liabilities plus the owner’s
equity.
Bank Act

Federal legislation governing how banks operate in Canada. The Bank Act was first
passed in 1871 and is updated periodically -- usually every five years. The last major
revision was completed in 2001.

Bank Card

A card issued by a financial institution that identifies the holder as a customer of the
institution and allows access to accounts through an ABM; also, a credit or debit card
issued by a financial institution.

Bank for International Settlements (BIS)

The BIS is an international body that promotes the co-operation of central banks, fulfils
the function of a central banks' bank and acts as a clearing and settlement agent. It acts as
a forum for discussion of international monetary policy and conducts research into
international banking developments.

Bank of Canada

The country's central bank, which formulates and implements monetary policy. As the
federal government's fiscal agent, it also helps carry out the government's borrowing
program, provides banking services for the government and other clients and ensures that
the need for bank notes across the country is met.

Bank Rate

The interest rate paid by major financial institutions if they borrow from the Bank of
Canada. The Bank Rate influences the rates of interest major financial institutions charge
and pay their customers.

Blank cheque

A cheque that does not have a dollar amount written on it.

Bonds

Offered by governments and corporations, bonds are investments in which you lend a
sum of money to the issuer for a set amount of time at a fixed rate of interest.

Bull and Bear Markets

When stock prices are increasing and it’s a healthy market, this is known as a bull market.
When stock prices are decreasing, it’s a bear market.
Business Cycle

The ups and downs of the economy that follow a cyclical pattern over the course of time.

Capital Adequacy Ratio

A ratio of total capital divided by risk-weighted assets and risk-weighted off-balance


sheet items. A bank is expected to meet a minimum capital ratio of 8.0% unless a higher
ratio has been specifically prescribed by the Superintendent of Financial Institutions.

Capital Gain or Loss

The difference between the price you paid for an investment and the price at which you
sell (in other words, the profit or loss you make). Investments that earn capital gains or
losses include equity and growth funds.

Capital investments

Money used to purchase permanent fixed assets for a business, such as machinery, land or
buildings as opposed to day-to-day operating expenses.

Cash flow forecast

An estimate of when and how much money will be received and paid out of a business. It
usually records cash flow on a month-by-month basis for a period of two years.

Chartered Banks

Financial institutions regulated under the Bank Act. Chartered banks are designated as
Schedule I, Schedule II or III depending on their ownership.

Cheque

A written order from a financial institution for payment of a certain amount of money.

Cheque book

A book with blank cheques. The cheques may be personalized or non-personalized.

Cheque register

A book with space for you to note the details of every transaction in your chequing or
combination account.
Clearing and Settlement

The process whereby banks collect or pay out for items drawn on or paid into accounts in
their institution. This process enables banks to accept each other's cheques and bank
drafts for deposit. The Canadian Payments Association operates Canada's clearing
system.

Co-Branded Card

An alliance between a card issuer and a large non-deposit taking corporation which offers
discounts/rewards to cardholders for using the card which bears the corporation's name.

Collateral

Property (real, personal or otherwise) pledged as security for a loan. Also, any
supplementary promise of payment, such as a guarantee.

Combination account

An account that is part savings and part chequing. You may write cheques and you will be
paid interest if you have enough money in the account.

Commercial Banking

Commercial banking centres serve small- and medium-sized businesses such as


franchising, leasing and cash management services.

Compounding

Refers to earning income on your income. For example, on fixed income investments that
pay interest over time at periodic intervals, compounding means making interest on your
initial investment and also on the interest as it builds up (i.e., earning interest on your
interest).

Consumer Price Index

An index that measures movements in the average price of products and services
typically consumed by Canadian families.

Contribution

An amount of money you put into a savings/investment plan.


Corporate Banking

Banking services for large firms.

Correspondent Bank

In a country where a bank does not have offices, it will often make arrangements with
another bank to act as its agent in that country. The correspondent bank carries out
financial transactions, such as making payments on behalf of the first bank in the foreign
country.

Credit Cards

Credit cards such as Visa and MasterCard allow the holder to charge purchases rather
than pay cash. Generally, no interest is charged as long as the monthly statement is paid
in full by the due date.

Credit Risk

The risk of loss one assumes under a financial contract that a borrower or a counterparty
to a loan or other credit-related contract may default or fail to perform its obligations.

Debit

Another name for withdrawal of funds from your account.

Debit card

Another name for a bank card that allows you to access your deposit accounts
electronically. You can use it at banking machines or to pay for purchases at retailers
using the direct payment service.

Debt

Money owed.

Debt Issues

The issuance of bonds or other forms of debt on the public markets.

Debt/equity ratio

A comparison of debt and equity used to measure the health of a business.


Deflation

An actual decline in the general level of prices in the economy.

Demand Loan

A loan that must be repaid in full, on demand.

Demographics

Characteristics of the population that influence consumption of products and services.


They include age, sex, race, family size, level of education, occupation, income and
location of residence.

Deposit

Money put into an account. The deposit may be in the form of cash, cheque or electronic
transaction.

Deposit Insurance

The Canada Deposit Insurance Corporation insures depositors' funds to a maximum of


$60,000 per depositor, per institution, with some exceptions, in the event of the failure of
a federal financial institution. Deposits in some provincial financial institutions are also
covered.

Depreciation

You can deduct a specified amount of the purchase price of business equipment, for tax
purposes, to calculate your company’s taxable income. Your accountant can provide
details.

Depression

A prolonged downturn in the economy and level of business activity.

Derivatives

Financial contracts whose value is derived from the value of some underlying asset, rate
or index. Derivatives are used as risk-management tools by governments and
corporations to reduce exposure to risk, mainly related to fluctuations in foreign-
exchange and interest rates. Derivative instruments include swaps, options, futures and
forward contracts and are used by banks in two principal activities: sales/trading and
asset/liability management.
Direct Debit

A means of authorizing recurring payments (e.g., mortgage payments, insurance


premiums) to be drawn on an account.

Direct deposit

If you receive money on a regular basis (i.e. from a job, pension, allowance), your
employer, the government or person paying the allowance can deposit the money directly
into your account.

Direct Deposit/Direct Fund Transfers (DFT)

A means of authorizing payment made by governments or companies to be deposited


directly into a recipient's bank account. It is used mainly for deposits of a recurring nature
such as salary, pensions and interest payments.

Disinflation

A reduction in the rate of inflation either as a result of government policy or of declining


economic activity.

Dividends

Company earnings that may be paid out to shareholders according to the number of
shares or stocks they hold. Dividends can be earned on stocks and certain mutual funds.

Documentary Credit

Written undertaking by a bank on behalf of an importer authorizing an exporter to draw


funds from a bank up to a specified amount under specific terms and conditions. They are
used to facilitate international trade. In the United States these instruments are called
commercial letters of credit.

Domestic Banks

Banks owned by Canadians.

Class: 12

Economic Growth

The rate of change in output from one year to the next.


Economic Indicators

Statistics that help determine how the economy is faring. They include the Consumer
Price Index, housing starts, and unemployment rates, among others.

EFT/POS

Electronic funds transfer (EFT) at the point of sale (POS). A payment option which
allows consumers to pay for purchases by transferring funds directly from their accounts
to a merchant's accounts.

Electronic Data Interchange (EDI)

EDI is a system that companies use to exchange business information electronically,


virtually eliminating paperwork.

Electronic Funds Transfer (EFT)

A system that transfers funds through electronic messages instead of by traditional


means, such as cash or cheques.

Employment Equity Act

A federal statute that requires employers with 100 or more employees to eliminate any
practices in the workplace discriminating against four designated groups of people who
have historically been disadvantaged in the labour market: women; people who, by
reason of race or colour, are members of visible minority groups; aboriginal peoples; and
persons with disabilities.

Endorse

To sign the back of a cheque in order to cash it.

Entrepreneur

A person who starts and manages a business.

Equity

The value of a business after all debts and other claims are settled. Also the amount of
cash a business owner invests in a business and/or the difference between the price for
which a property could be sold and the total debts registered against it.
Exports

Products and services produced in Canada and sold in other countries.

Fiscal Deficit

When the government spends more money than it receives in revenue over the course of
one year.

Fiscal Policy

The use of government spending and taxation policies to influence the economy.

Fiscal Surplus

When the government receives more in revenue than it spends over the course of the year.

Fixed assets

Assets like machinery, land, buildings, or property used in operating a business that will
not be consumed or converted into cash during the current accounting period.

Fixed expenses

Fixed business costs that do not change with the volume of business, such as rent for
business premises, insurance payments, utilities, etc.

Fixed-Return Instruments or Vehicles

Instruments that pay a fixed rate of interest for an agreed-upon length of time such as
term deposits, Treasury bills and Guaranteed Investment Certificates.

Foreign Currency

Paper money and coins from other countries.

Foreign Exchange

Various instruments used to settle payments for transactions between individuals or


organizations using different currencies (e.g., notes, cheques, etc.).

Foreign Exchange Rate

The value of a nation’s currency in terms of another nation’s currency.


Four Pillars

A term used to describe the main types of financial institutions: banking, trust, insurance
and securities.

Franchise

The right to sell products or services under a corporate name or trade mark (established
by someone else). This right is usually purchased for cash in addition to a royalty fee on,
or a percentage of, all sales.

Futures

Contracts to buy something in the future at a price agreed upon in advance. They first
developed in the agriculture commodity markets but often involve foreign exchange,
Eurodollar deposits and government bonds.

Gross Domestic Product

The total value of all the goods and services produced by the Canadian economy in a
single year.

Gross National Product

The value of all goods and services accruing to Canadians in a given year. It equals Gross
Domestic Product, plus income of Canadians from foreign production, less income from
Canadian production earned by non-residents (such as interest and dividends paid to
foreign lenders).

Gross profit margin

The difference between the sales your business generates and the costs you pay out for
goods.

Guaranteed Investment Certificate

An investment in which you deposit money, over a fixed period of time, and are paid a
set rate of interest.

Home Banking

A way to access bank accounts by phone and/or Internet. Typically customers can transfer
funds, pay bills and make account inquiries.
Imports

Goods and services produced in other countries and sold in Canada.

Income Statement

Also known as the profit & loss statement or P&L, enables you to calculate your
company’s pretax profits by subtracting total expenses from total revenues.

Income-splitting

A financial strategy for tax purposes. Splitting income refers to the process of shifting
income from the hands of one family member to another, who is in a lower tax bracket
and will therefore pay tax at a lower rate. This helps reduce your family’s overall tax
burden.

Inflation

A rise in the average level of prices in the economy.

Institute of Canadian Bankers (ICB)

Educational institute that provides career-oriented education and training programs to


financial-services professionals.

Interac

Canada's largest shared network of ABMs. It allows cardholders to access their accounts
from any ABM on the network regardless of which financial institution owns the
machine.

Interac Direct Payment

A method of paying for goods and services electronically with the funds taken
immediately and directly from your bank account and transferred directly into the
merchant's account. You use your debit card to do this.

Interest

The amount paid or earned for the use of money.

Interest rate

The percentage used to calculate the interest to be paid.


International Banking

The area of banking business that includes the operation of bank branches and
subsidiaries located outside Canada, the supervision of correspondent banking
relationships, foreign exchange trading and trade finance.

International Chamber of Commerce (ICC)

A world business organization that brings business people and experts together to
formulate policies in such areas as banking, taxation and the environment.

International Organization for Standardization (ISO)

An international organization created to promote standardization around the world.

Inventory

Stock on hand in the form of goods ready for sale. Also includes raw material in the
process of being manufactured or completed for sale.

Investment

Something you put your money into in order to make money.

Investment Banking

Bank operations that manage a bank's funding position, as well as its holdings of
Treasury bills, bonds and preferred and common stock.

Investment Income

This is income earned on investments you make. Investment income includes interest,
dividends and capital gains.

Lease

An agreement to rent for a period of time at an agreed price.

Line of Credit

An agreement negotiated between a borrower and a lender establishing the maximum


amount of money a borrower may draw. The agreement also sets out other conditions,
e.g., how and when money is to be repaid.
Long-term liabilities

Money that you owe over a period longer than 12 months, such as mortgages, bank loans
and other obligations.

Macroeconomics

Looking at the economy as a whole, particularly the interaction of its various components
with one another.

Microeconomics

Looking at the individual parts of the economy, with emphasis given to the market
process and how it works.

Minimum monthly balance

The least amount of money that has been in a bank account during the whole month.

Monetary Policy

The ability of the Bank of Canada to influence the economy through changes in short-
term interest rates and the money supply.

Money Laundering

Popular term used to describe the process whereby criminals conceal illicitly acquired
funds by converting them into seemingly legitimate income. While the term refers to the
proceeds of organized crime generally, it is now most often associated with financial
activities of drug dealers who seek to launder the large amounts of cash generated from
the sale of narcotics.

Money Markets

The part of the capital market where government Treasury bills, commercial paper,
bankers' acceptances and other short-term obligations are bought and sold.

Mutual Fund

An investment product in which your money is pooled with the money of many other
investors. A professional manager(s) uses the pooled money to buy a portfolio of
investments or securities, and monitors each of the investments on an ongoing basis.
There are many varieties of mutual funds, each with specific objectives. By investing in a
mutual fund, you purchase units of that fund. The value of your units can go up or down
depending on the type and performance of the mutual fund.
N.S.F. Cheque

N.S.F. means Not Sufficient Funds. If a cheque is returned for this reason, it means that
there was not enough money in your bank account to cover the amount of the cheque.
There is a fee to you if this situation occurs.

Net Interest Margin

Net interest income (the difference between interest income and interest expense) as a
percentage of average total assets.

Netting

The offsetting with a counterparty or counterparties of financial obligations or payments


one is owed with those one is entitled to receive. Netting is also used as a risk
management tool to help counterparties, thus reducing the costs arising out of payment
settlements.

Operating Loan

A loan intended for short-term financing, supplying cash flow support or to cover day-to-
day operating expenses.

Option

A formal contract which grants the holder of the option the right to buy or sell a certian
quantity of an underlying interest or asset at a stipulated price within a specific period of
time.

Class: 13

Passbook

A book in which all the transactions in a bank account are noted. This book may list the
transaction codes and the customer's responsibilities.

Payee

The name of the person to whom the money in a cheque is to go.

Personal Consumption Spending

What households collectively spend on goods and services.


Personal Disposable Income

Personal income minus personal income tax payments. Also called “take-home pay.”

Personal Identification Number (PIN)

A unique number or pass code entered by a customer when using an Automated Banking
Machine (ABM) or Interac Direct Payment, that gives the customer access to his or her
account.

Personal Savings

The difference between personal disposable income and personal consumption spending.

Personalized cheque

A cheque which has your name and account number printed on it.

Portfolio

A collection of investments.

Prime Rate/Prime Lending Rate

The rate of interest charged on loans by chartered banks to their most creditworthy
customers.

Provision for Credit Losses

The amount deducted from income equal to the amount by which a bank adjusts its loan
balances to reflect anticipated losses on them.

Ratio

Comparison of two figures used to evaluate business performance, such as debt/equity


ratio and return on investment.

Real property

Real estate, including land and buildings.

Recession

When the Gross Domestic Product declines for at least two consecutive three-month
periods.
Reconciliation

Checking all bank account papers to make sure that the bank's records and your records
agree.

Registered Education Savings Plan

Education savings plans that grow tax free until a child is ready to pursue a post-
secondary education, at which time the money is withdrawn to help finance the costs.

Registered Retirement Savings Plan (RRSP)

A savings plan introduced by the federal government to encourage Canadians to save


money for retirement. The investment and the interest earned on it is sheltered: it will not
be taxed as long as it is left in the plan.

Retail Banking

Those activities and services that a bank provides for individual customers such as
savings accounts, personal loans, cheque cashing and RRSPs.

Retained earnings

All the profits or losses that you’ve accumulated from prior years and from this year’s
income statement, less dividends paid to you.

Return

Any increase in value or in income you earn on an investment.

Schedule I Banks

Schedule I banks are domestic banks and are authorized under the Bank Act to accept
deposits, which may be eligible for deposit insurance provided by the Canadian Deposit
Insurance Corporation.

Schedule II Banks

Schedule II banks are foreign bank subsidiaries authorized under the Bank Act to accept
deposits, which may be eligible for deposit insurance provided by the Canada Deposit
and Insurance Corporation. Foreign bank subsidiaries are controlled by eligible foreign
institutions.
Schedule III

Schedule III banks are foreign bank branches of foreign institutions that have been
authorized under the Bank Act to do banking business in Canada. These branches have
certain restrictions.

Seasonal Unemployment

The loss of jobs due to changes in the climate and other conditions. Forestry, fishing and
construction are affected by climate, while retailing is affected by seasons and holidays.
For instance, at Christmas, retail employment is higher than in January.

Securities

Investments such as stocks and bonds.

Securities/Investment Dealer

One who acts as the agent for another party to buy and sell securities and other
investments; also an underwriter.

Service charge

A fee paid for using a service.

Settlement Points

Regional collection points in the clearing and settlement system operated by the Canadian
Payments Association. Settlement points forward each bank's regional balance to the
Bank of Canada in Ottawa at the end of each day to allow the central bank to adjust the
banks' balances with the central bank.

Short-term liabilities

Money that you have to pay in less than 12 months, including wages, short-term loans,
taxes, credit card balances and long-term loans.

Small and Medium-sized enterprises (SMEs)

There are many definitions for this term. Banks define small businesses as those having
authorized credit limits of $500,000 or less, while medium-sized businesses have
authorization levels of up to $1 million.
Smart Card

A card with an imbedded computer chip which stores more information, performs more
functions and is more secure than a credit card or debit card.

Social Insurance Number (SIN)

Every person who has an income or pays taxes must apply for this number, which is
assigned by the Government of Canada. You must, by law, provide this number to
financial institutions with which you have an interest-bearing deposit account.

Society for Worldwide Interbank Financial Telecommunication


(SWIFT)

A co-operative owned by the international banking community that operates a global data
processing system for the transmission of financial messages.

Specialized Financing Entity

A term in the Bank Act referring to an investment vehicle via which banks are permitted
to make venture capital investments.

Spread

The difference between the interest rate charged to borrowers and the interest rate paid to
depositors.

Stagflation

A period of time in which both the unemployment rate and the rate of inflation are
relatively high.

Statement

A computer printout which lists all the transactions in a bank account for a period of time.
Statements are usually given once a month.

Stocks

Traded on a stock exchange, these are shares in a company. Essentially, you purchase
shares in exchange for owning a part of that company.
Swap

An agreement between two businesses to exchange commodities, payments or other


financial products to reduce the risk of volatile market conditions or to obtain a better
price or rate. For example, interest rate swaps, where floating rate interest is exchanged
for fixed rate interest, protects a corporation against rises in rates or allows it to take
advantage of a better rate. A cross-currency swap enables two parties to enter into an
agreement in which one exchanges its currency for the other's to meet their separate
requirements.

Syndicated Loans

Loans to a company backed by a group of banks in order to share the risk in a large
transaction among several financial institutions. There is usually a lead bank and several
participating banks.

Tax-sheltered

A tax shelter is a savings/investment plan which offers significant tax savings.

Term

The maximum time allotted for a loan to be repaid.

Term Deposit

An investment product in which you deposit a fixed sum of money for a set period of
time and are paid interest.

Term Loan

A loan intended for medium-term or long-term financing to supply cash to purchase fixed
assets such as machinery, land or buildings or to renovate business premises.

Transaction

Action in a bank account. It may be a deposit, withdrawal, debit card payment, service
charge or interest payment.

Travellers' cheques

These are a safe way to carry large amounts of money if you are going on a trip. They are
considered to be the same as cash, but can be replaced if they are lost or stolen. You can
buy them at your bank for a small fee. If you have a special service package, you may not
have to pay this fee.
Treasury Bills (T-Bills)

Short-term government obligations that are payable to the bearer and sold on a discount
basis; the difference between a T-bill's market or discounted price and its face or
redemption value is effectively interest if the T-bill is held to maturity.

Unemployment rate

The percentage of the labour force that is not employed but currently seeking work.

Variable expenses

Costs of doing business that vary with the volume of business, such as advertising costs,
manufacturing costs and bad debts.

Venture Capital

Commonly refers to funds that are invested by a third party in a start-up business either as
equity or as a form of secondary debt.

Withdrawal

Money taken out of an account. The withdrawal may be in cash, by cheque or debit card,
or by automatic withdrawal.

N.B: The Glossary may contain some of the terms discussed above. The complete list
consists of the probable terminologies most frequently used.

Conversations

Class: 14

Read the following conversations and you will get a practical touch of common
interaction in the Bank and Financial places. See the useful vocabulary listed below.

Talking About Your Job

Jack: Hi Peter. Can you tell me a little bit about your current job?

Peter: Certainly What would you like to know?


Jack: First of all, what do you work as?

Peter: I work as a computer technician at Schuller's and Co.


Jack: What do your responsibilities include?

Peter: I'm responsible for systems administration and in-house programming.


Jack: What sort of problems do you deal with on a day-to-do basis?
Peter: Oh, there are always lots of small system glitches. I also provide information on a need-to-know basis
for employees.
Jack: What else does your job involve?

Peter: Well, as I said, for part of my job I have to develop in-house programs for special company tasks.
Jack: Do you have to produce any reports?

Peter: No, I just have to make sure that everything is in good working order.
Jack: Do you ever attend meetings?

Peter: Yes, I attend organizational meetings at the end of the month.


Jack: Thanks for all the information, Peter. It sounds like you have an interesting job.

Peter: Yes, it's very interesting, but stressful, too!

Useful Vocabulary

computer technician
day-to-day basis
glitch
good working order
in-house
need-to-know basis
organizational meeting
stressful
to be responsible for
to develop
to involve
to pay bills
to produce reports
to work as

Telephone Banking

Representative: Hello. How can I help you today?

Customer: Hello. I'd like some information on the telephone banking services offered at by your bank.
Representative: Certainly. What is your account number?

Customer: at the High Street Branch.


Representative: What would you like to know?

Customer: How do I sign up?


Representative: Just let me know, I'll sign you up immediately.

Customer: Can you tell me how the telephone banking services work?
Representative: You can do all your day-to-day banking over the telephone, 24 hours a day.

Customer: That's great. How do I access my account?


Representative: Just call the bank, key in your PIN number and listen to the menu of options available.

Customer: How do I choose which option I want?


Representative: Just press the number for the service stated by the recording.

Customer: What kind of things can I do?


Representative: You can check your balance, pay bills, order a statement or even transfer money to
another bank.
Customer: That's fantastic! Can I trade stocks and bonds.
Representative: I'm afraid you will have to have a special account for that.

Customer: What about getting help if I have any problems?


Representative: There's an automated answering machine and staff are available 9 to 5 seven days a
week.

Customer: It all sounds very good to me. I'd like to sign up.
Representative: Alright, can you answer a few questions please?

Customer: Certainly...

Useful Vocabulary

24 hours a day
account number
automated answering machine
day-to-day banking
menu of options
telephone banking services
to access an account
to check your balance
to key in a PIN number
to order a statement
to pay bills
to sign up
to trade stocks and bonds
to transfer money

Banking Vocabulary Collocations Quiz

Match the verbs and nouns concerning banking. Click on the arrow to check your answer.

A. transfer A Cheque.
B. check A pin number.
C. order Money
D. pay An account.
E. follow Bills.
F. key in A statement.
G. sign Instructions
H. deposit A balance
I. make
J. pay into

Class: 15

Exercise on Role Play:

International transfers
How long does it take?
Bank clerk: — Hello. Can I help you, ma´am?
You: — ...
Bank clerk: — Well, you can pay by mail, telegraphic or SWIFT transfer. Or you can have a banker´s draft and mail
it yourself to the beneficiary.
You: — ...
Bank clerk: — It depends on the amount and how fast you want that person to receive the money. A SWIFT
transfer is the fastest method but a banker´s draft is usually the cheapest. How much do you wanna
send?
You: — ...
Bank clerk: — Why don´t you send it by mail payment order?
You: — ...
Bank clerk: — About a week.
You: — ...
Bank clerk: — Sure. You can have a Telegraphic or a SWIFT transfer.
You: — ...
Bank clerk: — Both a Telegraphic Transfer and a SWIFT transfer will normally be credited to the payee´s account
within three or four working days, depending on whether the beneficiary´s bank is among our
correspondent banks or we have to route the transfer through a third bank.

You: — ...
Bank clerk: — You have to fill out this form, ma´am.

Examples to be looked at:


Foreign exchange
I´d like to change some euro into US dollars.

Cashier: — Hi. May I help you?


Paul Ryefield: — Yes. What´s the buying rate for euro?
Cashier: — 1.15 U.S. dollars to the euro.
Paul Ryefield: — Okay. I´d like to change some euro into US dollars, please.
Cashier: — Sure. How much would you like to change?
Paul Ryefield: — Six hundred euro.
Cashier: — Very good. May I see your passport?
Paul Ryefield: — Here you are.
Cashier: — How would you like your bills?
Paul Ryefield: — In fifties please.

Bank drafts
I want to make a remittance to New Delhi.
Bank Clerk: — Good morning. May I help you, sir?
Bill Nichols: — Yes. I want to make a remittance to New Delhi.
Bank Clerk: — Do you want an international money order or a banker´s draft?
Bill Nichols: — I´d like a banker´s draft please. It´s not really urgent.

International transfers
How long does it take?
Bank clerk: — Hello. Can I help you, ma´am?
Mary Jones: — Yes. Could you tell me how to send some money to someone with an account with a
bank in Germany?
Bank clerk: — Well, you can pay by mail, telegraphic or SWIFT transfer. Or you can have a banker´s
draft and mail it yourself to the beneficiary.
Mary Jones: — Which is the best way?
Bank clerk: — It depends on the amount and how fast you want that person to receive the money. A
SWIFT transfer is the fastest method but a banker´s draft is usually the cheapest. How
much do you wanna send?
Mary Jones: — $800.
Bank clerk: — Why don´t you send it by mail payment order?
Mary Jones: — How long does it take?
Bank clerk: — About a week.
Mary Jones: — I don´t know. Can I send it more quickly?
Bank clerk: — Sure. You can have a Telegraphic or a SWIFT transfer.
Mary Jones: — And how long do those take?
Bank clerk: — Both a Telegraphic Transfer and a SWIFT transfer will normally be credited to the payee
´s account within three or four working days, depending on whether the beneficiary´s
bank is among our correspondent banks or we have to route the transfer through a third
bank.
Mary Jones: — I see. How can I pay by Telegraphic Transfer?
Bank clerk: — You have to fill out this form, ma´am.

More Conversations:

1. Jackie has a 20-dollar bill and wants to break it so that she may have some
smaller bills and change for the laundry.

Cashier: How can I help you, Miss?

Jackie: Could you break a 20 for me?

Cashier: Sure. How do you want it?

Jackie: Could I have two 5's and the rest in ones?

Cashier: Well, I have some 5's, but I don't have enough 1's. Are quarters fine with you?

Jackie: Oh, that's even better! In that case, I won't have to worry about the small change
for the laundry.

Cashier: Here you go!

Jackie: Thanks a million!

Terminologies Important to remember


Class 16
Banking and Stocks Glossary - 1
English is increasingly the language of communication in today's financial world and the specific
vocabulary needed to operate in this world is covered comprehensively in BANKING ENGLISH -
in an interesting and active way. Through a variety of stimulating activities and exercises students
will learn over 750 financial terms and expressions which are used in the world of finance and
international banking.

The use of this lexical approach is essential for successful language acquisition for Banking and Financial
Sectors. However, we are often not equipped with the exact English terminology required in very specific
trade sectors.

These core vocabulary reference sheets provide between 150 and 240 key words and phrases for industry.

to accept a bill exchange controls


account exchange rate
account overdraft exchange-rate fluctuations
actual yield to exercise an option
after-hours trading to expire
at 30 days after sight expiry date - due date
at 60 days after date financial market
at a discount fixed exchange rate
at a premium - above par fixed term sale
at best float due to collection
at closing floating-rate loan
at par foreign bank
at sight - on demand foreign currency
to backdate - to antedate foreign exchange market
bank forward market - futures market
to bank - to deposit future transaction - forward transaction
bank account futures - forward contracts
bank balance to grant a loan
bank branch gross yield
bank clearance to honour a bill
bank counter hostile takeover
bank credit in the red
bank deposit interest
bank guarantee interest accrual
bank lending rates interest rate
bank loan investor
bank merger irrevocable
bank rate rise irrevocable letter of credit
bank sector issue price
bank suretyship - bank guarantee issuing bank
bank transfer issuing house
bank transfer order junk bond
banker's draft - bank draft legal interest
banking letter of credit
banking secrecy loan

Banking and Stocks Glossary - 2


banking system merchant bank
banknote (GB) - bill (US) money laundering
bear money market
bear market negotiable
bearer bill negotiable bill
bearer bond net yield
bearer cheque official discount rate
bearer share official Stock Exchange list
bill for collection on deposit - on consignment
blank cheque to open an account
blank endorsement ordinary share (GB) - common stock (US)
bond - debenture out-of-town cheque
bond certificate to overdraw
bond holder - debenture holder parity - at par
bond issue payable at sight
bonus share - free share payable to bearer
borrowing rate payment order
bounced cheque - uncovered
to postdate
cheque
preference share (GB) - preferred stock
bull market
(US)
to buy back premium deal
call option - call private bank
to cash a cheque promissory note - note of hand
cash against documents to protest a bill
cash market - spot market protest charges
cash overdraft rate
cashier - teller recipient - beneficiary
to charge an account registered share
cheque (GB) - check (US) to renew the bill
cheque book repayment date - refund date
collection revocable
collection charges revocable credit
commodity exchange revocable letter of credit
confirmed irrevocable credit right of veto
confirmed letter of credit safety deposit box
contract note savings bank

Banking and Stocks Glossary - 3


convertibility savings deposit
convertible to sell forward
convertible bond to settle a debt - to pay off a debt
correspondent bank settlement of a bill
crash on the Stock Exchange share - stock
credit share certificate
credit card share index
credit opening share issue
crossed cheque short-term bill
currency exposure short-term debt
current account (GB) - checking account (US) sight bill - bill on demand
current account deposit speculative bubble
date of issue spot exchange
debit balance stock dividend
default interests - interests on arrears Stock Exchange
to deposit Stock Exchange capitalisation
deposit book Stock Exchange index
deposit certificate - deposit warrant stock market
depositor stock option
discount rate stockbroker - stockjobber
dividend to stop a cheque
dividend warrant to stop an account
domiciled bill subject to collection
Dow Jones index surcharge
to draw a cheque suretyship - guarantee
drawer to take out a loan
drawer's signature take-over bid (TOB)
end of month (EOM) town cheque
to endorse - to back transferable
to endorse a cheque unacceptance
endorsement unpaid - unsettled
endorsement for collection to value at market price
endorser voting share
exchange to write out a cheque
exchange broker - stockbroker yield